12.28.15, Shira Rubin
TEL AVIV — Almost six years after Israel discovered deep-water gas reserves, the potential riches, like an undersea El Dorado, have brought forth deep suspicions and furious debate, exposing bitter economic and social divides. The promise of so much gas with such strategic importance in the Middle East has attracted the malign interest not only of Israel’s troubled neighbors, but of Iran, and of Russian President Vladimir Putin. And as a result of internal political squabbling, much of the country’s estimated 30 trillion cubic feet of gas reserves remain inaccessible.
“We have a country that is much richer than you think,” says Guy Rolnik, founder of the economic newspaper The Marker, and host of a viral television series, Silver Platter, which confronts Israel’s institutionalized corruption. “We have gas, tons of gas, within Israel’s territories, worth $250 billion. So, all of our problems are solved, right? So … no.”
Rolnik and other critics suggest that the domination of the multibillion-dollar natural gas venture by the Delek company, owned by Israeli billionaire Yitzhak Tshuva, and Noble Energy, based in Texas, mean most Israelis could lose any potential claim of the profits from the extraction of undersea natural gas.
Delek and Noble first discovered natural gas in the Tamar field in 2009 and in the twice-as-large Leviathan field in 2010, to the surprise of many government observers who, because of low expectations, allowed them to explore with minimal legal regulations.
Last week, Prime Minister Benjamin Netanyahu invoked an unprecedented legal clause in order to finalize the gas deal and override objections by Israel’s Antitrust Authority that the arrangement allowed for a monopoly to control the country’s offshore natural gas reserves.
Netanyahu, who last month took over the role of Economy Minister precisely in order to push the deal forward, can give authorization because of a clause that allows such a move if done for security or foreign policy reasons.
Protestors had filled the streets in recent weeks, denouncing what they called an organized form of “robbery,” exploiting a publicly owned asset to benefit Israeli monopolies rather than the middle class. But Netanyahu kept playing, as he is wont to do, that national security card. The gas, he said, is “crucial to the country’s existence.”
“This gas is a gift from God, who gave us enormous fields, that will give us international powers,” Netanyahu told a press conference, to a round of applause from industry and community leaders in the audience. Earlier he had told the Knesset Economic Affairs Committee that Israel’s “ability to export gas makes it more immune to international pressures” of European countries which have condemned its policies in regards to the Palestinians.
Netanyahu has consistently glossed over domestic concerns, such as how the deal will lower energy prices for the Israeli consumers, or not. Instead, the prime minister has stressed the potentials for gas exports. He warned that delays and any move “towards over-regulation” would threaten profits and worry outside investors. Of course, that would be in addition to investor concern about increasing volatility in the region and the sharp fall in gas and other energy prices around the world.
NDN (News Distribution Network, Inc.) Video (00:42, 'Israel Opening Offshore Gas Door')
But a large segment of the Israeli public refused to be placated, and worried that the government could gamble away the country’s economic future if it continues to only lightly regulate the exploratory companies. Opponents of the deal have said that they will take the case to the Israeli Supreme Court, with the first hearings set only for the beginning of February.
The development of the Tamar gas field, the first to be discovered, has given Israelis a taste of what could come from the appropriately named Leviathan field, which is much larger. In 2013, just a year after Egypt canceled its gas agreement with Israel, Tamar became the country’s largest natural gas supplier, saving it billions in electricity costs. It is expected to satisfy consumer needs for the next 15 years. Delek and Noble have made compromises and agreed to put aside 60 percent of profits into a sovereign fund that would ensure that the money be extended over the next 30 years.
But Netanyahu’s critics mistrust him deeply, especially where there’s a lot of money involved.
Ronen Golan, a researcher at Tel Aviv University and a start-up owner who opposes the deal, is typical. “Something is fishy,” he told The Daily Beast. “The process in which this agreement is being made is not kosher.” Netanyahu, he said, has a long record demonstrating he “doesn’t care about the middle class, and actually has no agenda except for getting together with the ‘tycoons’ so that he stays in power.”
In fact, Israel has one of the highest rates of wealth inequality among industrialized countries, and has witnessed the rise of a small group of some 20 Israeli families (including Yitzhak Tshuva of Delek) who control the foundations of Israel’s economy, including supermarkets, banks, real estate, and cellphone companies.
What once were egalitarian and socialist ideals epitomized by life and work on the kibbutz would seem to be long forgotten by Netanyahu’s constituency. And middle-class Israelis struggling to make the rent often say they are disillusioned with a government that justifies its neglect of public needs by referring to the all-encompassing “national security” issue.
As a percentage of GDP, Israel’s military budget is second in the world only to Saudi Arabia’s. Meanwhile, Israel continues to pour billions into subsidized housing in the growing Jewish communities on the West Bank, a land Palestinians envision as part of their future state.
A rare breakthrough for Israel’s middle class came in 2012 when Moshe Kahlon, minister of welfare and sociali services at the time, dismantled the cellphone monopoly and brought competitive rates to customers. But Kahlon, now minister of finance, has failed to translate that success to other more established “cartels,” as they’re called in Hebrew, like banking or housing, and has steered clear of any involvement in the national gas deal, mysteriously citing a conflict of interest.
Where previously the business elite were mocked for their outlandish lifestyles and eccentricities, the outbreak of the Arab Spring and the rise of the Occupy movement in 2011 made them a target of increasingly bitter criticism.
In June 2011, the so-called “cottage cheese boycott” moved thousands of Israelis to ride out the summer in tents along one of Tel Aviv’s most expensive boulevards, where they protested the soaring price of basic necessities, from cottage cheese to apartment rentals.
Since then, “for the most part people feel like nothing happened,” said Hillel Raz, a representative of the movement against the gas deal. But now, once again, the debate over the ways in which the uber rich exploit the average Israelis as “friars,” or “suckers” in Hebrew, is once again booming.
And while Raz is disappointed in the ways that the government attempted to keep the natural gas debate away from the public, including Netanyahu’s repeated invocation of the “Iran excuse”— that any delays in securing a deal could lead to Iran stealing Israel’s gas export opportunities—he is also optimistic.
“Currently, this nation’s psyche is that we don’t know what’s going to happen tomorrow, the whole country is like a start-up, so I think people look for the immediate, exporting and getting money immediately, rather than the long term,” said Raz. “The eternal [Jewish] nation doesn’t fear its long road ahead, we built the country in a short period of time, and we still have a way to go.”
He would ideally like to see Israel follow in the steps of Norway, where in the 1960s the government went into business with private companies and invested its oil profits in a sovereign wealth fund to provide for hefty pensions and other social services.
Professor Eytan Sheshinsky, who headed a special panel on taxing Israel’s natural resources, deems the comparison inappropriate, however, given the difference in magnitude between Norway’s significant oil reserves compared to Israel’s relatively more modest gas reserves.
Moreover, “in Norway, there is a culture of cooperation between government and business which is productive, but I have to say, frankly, the political climate in Israel makes me worried to have the government as a partner to private business,” said Sheshinsky.
For the new agreement to be fair to the public, said Sheshinsky, it will need to price Israeli gas on par with the sliding international scale, closer to $3 per thermal unit than the current $5-$6 for which Delek and Noble were aiming.
All of these developments are converging during incredibly volatile times for the region, where markets are, to say the least, unpredictable. Energy-hungry Egypt, for instance, was expected to be one of Israel’s largest markets, but earlier this year it discovered its own “supergiant” natural gas field, potentially the largest in the Mediterranean.
The discovery is “a painful reminder that while Israel has been asleep at the wheel and delaying final approval of the gas deal and additional exploration, the world is changing before our very eyes with implications for export possibilities,” Israel’s Energy Minister Yuval Steinitz said in September.
As security continues to deteriorate in the region, many are debating if the reserves will indeed serve as a lifeline for peace, or instead exacerbate an already incendiary and chaotic environment. Israeli commentator Ehud Yaari said that Russia, which is building up its military presence in the midst of the Syrian war raging just over Israel’s northern borders, is interested in participating in the development of the Leviathan fields. In October, the newsletter Natural Gas Europe reported that Putin had said Israel Gazprom’s participation in the Leviathan project would stave off any potential terrorist attacks on the fields.
Amid all these intrigues, Netanyahu presents himself as a statesman thinking only of the good of the country. Because “modern nations cannot go out to chop down trees, all of our systems depend on gas supplies, which I see as fundamental to the security of our nation,” he told the Knesset committee. “The world is not perfect, the deal is optimal, but not ideal…But leaders must make realistic decisions for the public good.”
Netanyahu said that he was expecting to meet with a number of potential clients, including, in fact, representatives from the Palestinian Authority, as well as from Egypt and Turkey.
“This is a day of celebration for the country of Israel,” said Energy Minister Yuval Steinitz at a press conference. “After years of unnecessary and damaging delays, the era of regulation and foolishness has ended, and today starts an era that will benefit the country and its citizens.”
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