Friday, December 2, 2016

Israel's Navy Sub Scandal Widens; Iranian Ties And Deal-Making Questioned - FORBES

The German-made INS Rahav, the fifth Israeli Navy submarine, arrives at the military
port of Haifa on January 12, 2016. In September 2015, Israel received delivery of the
fourth Dolphin 2 class submarines from Germany. A third of the cost was funded by
Germany as part of its military aid to Israel. The submarines, the most sophisticated in
Israel's fleet, can be equipped with missiles armed with nuclear warheads.
(Photo JACK GUEZ/AFP/Getty Images)
DEC 2, 2016 @ 11:05 PM
Tim Daiss

In a convoluted development intersecting the energy sector and Middle Eastern geopolitics, media in Israel is reporting that Israeli Attorney General Avichai Mandelblit has ordered a police probe into allegations that Israeli Prime Minister Benjamin Netanyahu’s personal lawyer, David Shimron, used his close relationship with the Israeli leader to influence him to award a $1 billion contract to build three navy submarines to ThyssenKrupp, a German multinational conglomerate with a 4.5% ownership stake held by the Iranian government.

The subs will be used to protect Israel’s massive offshore natural gas field in the Mediterranean. According to a report on Friday in The Times of Israel, Shimron was a representative of the company in Israel. The inquiry will also focus on a separate 2014 Defense Ministry tender for navy ships, also involving ThyssenKrupp.
Israel’s Yedioth Acharonoth newspaper reported on Friday that the intersect between ThyssenKrupp and the Iranian government began in the 1970s during the reign of the Shah of Iran. The Shah’s government was later toppled during the Iranian revolution in 1979.

During 1974, the Iranian government invested $400 million in the German conglomerate, a 24.9% stake, which was inherited by Iran’s current Islamic government. At the time ThyssenKrupp was mostly building steel, and not yet in the shipbuilding business.

In May 2003, as a result of President George W. Bush’s pressure on Europe to restrict their business with Iran, ThyssenKrupp "made a bitter decision and repurchased 16.9 million shares from its Iranian partner, IFIC, for $437 million," Reza Yeganehshakib, a professor of Middle Eastern studies at Fullerton College and a geopolitical and energy analyst told me on Saturday. IFIC is the Iranian government's main avenue for investing abroad.

Yeganehshakib said that ThyssenKrupp paid Iran $24 per share while the market price at time was only $8.92 per share. He added that the German company tried to have the U.S. Department of Commerce reimburse it for its loss, but to no avail.

However, Iran is still making handsome profits from its long-time investment in the German company, earning approximately €2 billion ($2.13 billion) from ThyssenKrupp dividends.

Netanyahu said last month he didn't know of Shimron’s ties to ThyssenKrupp. However, there is growing pressure over allegations that he pushed for buying the submarines from ThyssenKrupp despite opposition from the country’s defense establishment, though the Israel military has made a statement contradicting these claims.

Twice in six months

This development is the second time in the past six months that former Israeli-Iranian ties have intersected the present. In August, the Swiss Federal Tribunal, Switzerland's highest court,ordered Israel to pay $1.1 billion plus interest to Iran in a decade’s old dispute over a secretive oil pipeline predating Iran’s 1979 Islamic revolution. The verdict was dated June 27. Israeli media broke that particular story in August.

The pipeline was a project of the Eilat-Ashkelon Pipeline Company (EAPC), an Israeli-Iranian joint venture set up in 1968, 11 years before the fall of the Shah of Iran and the establishing of Iran’s current Islamic government. The joint venture pipeline was operational for a decade though it never reached maximum capacity of handling 60 million tons of crude per year.

Israel’s gas lights up its energy future

The navy subs in question will protect Israel's growing offshore natural gas developments. In recent years, the discovery of massive quantities of gas off Israel’s coast has brought a potential shift in energy geopolitics in the region. As a result, Israel (once dependent on imports to supply its energy needs) now has a growing natural gas industry. The U.S. Energy Information Administration (EIA) said that recent discoveries of offshore natural gas fields have the potential to provide Israel with adequate amounts of energy to meet domestic demand, while allowing the country to export excess volumes.

Israel’s Tamar field was discovered offshore near Haifa in 2009. The country began commercial production from the field in 2013. Over half of Israel's electricity generation requirements and virtually all of its industrial fuel needs are met by the Tamar field's production, the EIA states.

In 2013, the Tamar Southwest field was discovered eight miles southwest of the Tamar field. This is a smaller, separate field that is estimated to contain 700 billion cubic feet (Bcf) of natural gas. Negotiations regarding the development of Tamar Southwest are taking place between the Israeli government and the gas companies that discovered the field.

However, the most significant find offshore Israel is the Leviathan field, about 80 miles off the coast and situated in water that is more than 5,000 feet deep. Assessments of the Leviathan field indicate that there is around 22 trillion cubic feet (Tcf) of recoverable natural gas in place. In May, the Israeli government approved a deal allowing the Leviathan partners to begin development on the field. Exports from the Leviathan field are expected to begin by 2019.

In June 2013, the Israeli Cabinet approved exports of 40% of the country's natural gas reserves. With the 40% cap in place, Israel's reserves are estimated to supply the country for 25 years.

The Israeli government approved plans in early 2014 to supply the Palestinian Authority with natural gas from the Leviathan field once production commences. Contracts to supply natural gas from Tamar has also been signed with Jordan. Other countries that have entered in proposed agreements for Israeli gas include Egypt, Turkey, Greece and Cyprus.