The Egyptian Paradox: Gas at subsidised prices for Israel; a steel wall for Gaza

Reports from Egypt claim that shortages of gas canisters led to riots in the country in January and February. The complaints of the people were exacerbated by the controversial sale of natural gas by Egypt to Israel, increasing dissatisfaction with the Egyptian government.

Oil expert Ibrahim Zahran told the Egyptian daily Al-Shurooq that the crisis erupted after the failure of Algeria and Saudi Arabia to sell gas to Egypt unless it was paid for in advance. According to Zahran, the volume of gas imported by Egypt is the same as that of natural gas which is exported to Israel by Hosni Mubarak’s government.

A study supervised by a Field Research Unit of “Citizens against High Prices” attributed the crisis to government policies with respect to gas exports and imports. A company linked to the Egyptian government signed an agreement in 2005 with Eastern Mediterranean Gas (EMG), a company founded by Egyptian businessman and foreign partners including Israelis. This agreement was to export 1.7 billion cubic meters of Egyptian natural gas annually for a period of 20 years. With prices ranging between 70 cents and $1.50 for a million thermal units, the production cost reaches $ 2.65. According to contract provisions, the Egyptian government is committed to provide what has been agreed upon even if it has to buy at market prices the volume of gas exported to their foreign partners.

The study was headed by economic expert Omer Hmuda and confirmed that the contracts oblige Egypt to provide 40% of Israel’s domestic gas consumption. Through buying the foreign partner’s share of the gas, the price rises to $9. Eventually, Israel will save up to $4.9 billion, representing the cost of producing electricity using alternative sources.

Former ambassador and director of the international law and international treaties section in the Egyptian Foreign Ministry, Ibrahim Usri, has brought a lawsuit against the government to stop the export of Egyptian gas to Israel and to prevent the construction of the steel wall being built on Egypt’s border with the Gaza Strip. The connection between the two cases has significant implications for the Egyptian elite, and will have an impact in the Egyptian regime at this critical time when local resentment against the government’s policies is rising. The opposition message is clear: the Egyptian government is besieging the Palestinians who are fighting to regain their rights while, paradoxically, providing the usurpers of those rights with the energy they need at the expense of poor Egyptian citizens.

A report published in November by Al- Shurooq spoke of new agreements to export more gas to Israel. According to oil expert Amr Hammouda, Israeli partners in EMG signed three new contracts in October to export additional quantities of Egyptian gas to Israel for a period of 18 years at $3 per million British thermal units, compared with $12 at world market prices. The total value of the new deals is $1.3 billion, and will generate electricity in the industrial city of Ashdod, and in Ramat Hoviv in the northern Negev desert. Hammouda claims that Israel has challenged the Egyptian government and asked the US government to put pressure on Egypt to reduce the price. He said that US Secretary of State Hillary Clinton raised the issue with Egyptian officials during her last visit to Egypt in November.

What angered the opposition and cast doubts on the official government position is the fact that these deals have been hidden from the public and the government has not sought parliamentary approval. Moreover, according to legal experts the “Memorandum of Understanding” signed in June 2005 by the Egyptian Minister of Petroleum, Sameh Fahmy, and Israeli Infrastructure Minister, Benjamin Ben-Eliezer, does not match similar international treaties. For those who opposed the deal, the memorandum is invalid as it was not compatible with the people’s right to know what the government is doing with their sources of income. It also violates the provisions of Article 151, paragraph 2, of the Egyptian constitution.

A lot of confusion is associated with the government’s position regarding gas reserves and local market demand. Building on the statements of the petroleum minister, gas reserves are estimated at 103 trillion cubic metres and are sufficient for domestic consumption for a hundred years. The editor of the Republic newspaper owned by the government wrote last month that the government was importing gas from several countries and that 17% of the country’s gas imports comes from Algeria.

The issue is really confusing. A state which is supposed to be a leader of the Arab struggle against Israel’s occupation of Palestine, while facing difficult economic conditions sells natural gas to Israel at prices much lower than the market value. Whose interests is the deal serving?

Opponents of the agreement believe that the deal was struck by the ruling regime in Egypt to satisfy third parties supporting Israel, as part of an agreement to give international blessing to power in Egypt being passed from father to son. Opinion polls show that Jamal Mubarak is not popular enough to succeed his father legitimately through an election, and proceeding with this plan to transfer power to him could trigger great upheavals in the country and destabilise the regime.

The agreement shows how greedy the Israeli government is, even when dealing with those considered as allies in the region. Tel Aviv was not satisfied by Egyptian “patience” towards Israeli attacks on its sovereignty and the killing of hundreds of Egyptians, including dozens of scholars and scientists. Israel is not satisfied with dragging Egypt away from the Arab front in the conflict or supporting the Palestinian faction closest to Israel. Instead, Israel asks its nearest ally in the region to exploit even more of its scarce resources.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.