Smoke and Mirrors: The Cloaked Reality of Halting Gas Exports to Israel

Egypt’s sudden decision to cease exportation of natural gas to Israel owing to an alleged financial dispute is almost certainly politically motivated. While it may seem to be a simple populist push on the surface, the move and the intricacy with which it was executed betray more intricate political considerations. Evidence points to an expertly calculated political maneuver carried out under the cover of a controversial and ripple-inducing shock headline.

The events of 2011 in Egypt have yet to earn the label ‘revolution’ beyond doubt or argument, but there can be little argument that substantial changes have taken place in several aspects of Egyptian politics. One such change was the decision to revise extant natural gas export agreements, often deemed corrupt and shameful, in order to ensure that the export price is more in line with fair global pricing and thus more advantageous to the Egyptian state.

Due to it being the most highly sensitive, it was logical to expect that the agreement governing gas exports to Israel would be the most harshly scrutinized. However, few can claim to have expected the deal to be scrapped entirely, especially at such a volatile point in time, and under the auspices of an entity whose official authority is meant to be temporary.

The fact that such a monumental step came during the ruling tenure of the Supreme Council of the Armed Forces (SCAF) was all the more surprising given the fact that the SCAF’s main responsibility is to steer the country through the so-called transitional period. It is impossible to contend that a decision with such significant ramifications was taken without at the very least the knowledge and approval of the country’s executive authority.

Exporting natural gas to Israel is often counted by the Egyptian public among the Mubarak regime’s most heinous crimes. General perception regarding the much maligned agreement was that the state was supplying an enemy country with natural resources at a price so favorable it seemed absurd. The regime’s insistence on maintaining such an agreement in place despite such popular discontent is revelatory of the nature of the deal itself. Far more than being a simple economic transaction, the political and security dimensions of the deal and their implications on for the Egyptian state as it existed under Mubarak meant that the status quo was essential to the stability of the state. 

Cancellation of the deal at such a key time in Egypt’s political history can thus only have been green-lit following an evaluation and full understanding of the political consequences such a move would entail. It would thus seem that it is the intention of the SCAF to undertake a significant shift in foreign policy, but a closer analysis of the agreement, the consequences of the decision, and the SCAF’s role and history as a political actor suggest otherwise.

The decision has made headlines and stirred controversy, all the more due to its sudden revelation, which was most probably the intended result. The careful wording of all official statements and the fact that the SCAF has yet to openly claim a populist victory reveal intricate calculations implying a move that is far more limited than would initially seem.

The specifics of the actual deal support the notion that the decision is more political in nature than economic, as the agreement itself contradicts much of what has been announced and raises significant questions regarding the decision and the extent to which it is legal, sustainable, and sincere.

The Agreement
The agreement, which was concluded in 2005, is generally known to have secured the export of 1.7 billion cubic meters (BCM) of natural gas per year from Egypt to Israel at a fixed price. The Memorandum of Understanding signed by the government of Egypt in 2005 reveals the actual number to be 7 BCMs of natural gas, a staggering figure which accounts for almost %50 of Egypt’s total natural gas exports as of 2009. The price, which was never disclosed, is alleged to have been far below global market prices and not adherent to any fair pricing scheme.

In light of these facts, it would be unreasonable to assume that the agreement was purely economic or financially-motivated from the Egyptian side, if only because it does not make economic sense. A history of conflict between the two countries, coupled with Israel’s volatile political situation as a result of constant tensions with its neighbors, entail a significant geopolitical dimension to the agreement. Economic integration and cooperation are a hallmark of the security policies of both the Israelis and their American allies.

To this effect, the deal created a rigid economic bond between the ruling regime in Egypt and the Israeli state by placing a gargantuan economic obligation on the former towards the latter. This would serve as both an instrument of strengthening Egyptian-Israeli relations on the state level (if not on the popular level), and as leverage in the process of ensuring Egypt’s foreign policy alignment does not stray from the American-Israeli camp in a region where alliances can be fickle.

The agreement was also instrumental to Israeli energy security, providing the Jewish state with 40% of its needs of natural gas, the country’s number one source of energy. Recent discoveries of natural gas in Israeli waters have been so substantial as to cast doubt on the importance of Egyptian exports in the long-term, but at the time of the agreement, no such wealth was available to Israel.

From the Egyptian perspective, the deal ensured that a historically hostile state with superior military capabilities and greater political clout was kept partly dependent on Egypt, thus dissuading it from taking confrontational action. Moreover, the agreement was a symbol of the co-operational (if unbalanced) relationship between the two states, further reinforcing stability and decreasing the likelihood of conflict or tensions on the border. This relationship was a pillar of security and stability for Egypt during Mubarak’s rule, key tenets of his regime’s foreign policy.

As such, the export agreement was more of a geopolitical asset for the Israelis and a security mechanism for Egypt than it was a simple natural gas export deal. It was both a symbol and an integral component of the complex but highly functional relationship (for the ruling regimes) that had developed between the two countries since the end of the war and the 1979 peace treaty. In fact, the Memorandum of Understanding recalls Annex III of the peace treaty, which determines economic cooperation essential whenever possible in order to maintain the peace.

The Memorandum of Understanding goes further in illustrating the true political nature of the export deal. Sameh Fahmy, at the time Minister of Petroleum under Mubarak, had signed the Memorandum on behalf of the Government of the Arab Republic of Egypt. The Memorandum states in Article II that Egypt is to guarantee “continuous and uninterrupted” supply of natural gas to Israel for the following 15 years through EMG. It goes on to add that “the same guarantee shall be applied to any other entity importing Gas from Egypt to Israel.” Article 7 of the Memorandum confirms that the responsibility of guaranteeing supply in fact lies with the Egyptian government regardless of the company through which the transaction takes place.

This means that the decision to end the EGPC and EGAS’s contract with EMG does not relieve the government of Egypt of the duty of guaranteeing natural gas to Israel in the quantities dictated by the memorandum, meaning that the true deal is essentially between Egypt and Israel as states and not between private companies or even states and private companies as has been constantly suggested. The companies act as mere intermediaries, deemed disposable and subject to change by the agreement.

The official explanation regarding the termination of the contract, which simply involves a financial dispute with EMG due to unpaid dues, is thus inadequate in fully explaining the decision, seeing as how its legality would be in question. While a Memorandum of Understanding is not necessarily legally binding in international law, it may be considered to be so depending on its exact wording. This means that a unilateral abrogation of the memorandum will leave the Egyptian state in a legal mire. This is in addition to the immense political weight of the decision, if it is to be in fact permanent, which is left entirely unaddressed by the official line.

Bold Step?
Considering the political nature of the deal and the sensitive geopolitical balance it maintains, not to mention the legal obligations it arguably entails, it would seem that the decision to cut gas supplies is not a particularly safe or necessary one for the Armed Forces as a political actor. After all, the agreement was hated but tolerated, and there was no particularly strong wave of public discontent aimed towards it at this specific point in time.

The possibility of a radical switch in foreign policy orientation is also highly unlikely given the fact that such a switch would not appear to be in the interest of the Egyptian armed forces. The Egyptian army’s leadership is also widely known in foreign policy circles to be conservative and resistant to change, and triggering conflict with Egypt’s Western allies would hardly be consistent with this mindset. In terms of foreign relations, this move can only be perceived as tactical sleight of hand.

The Generals may be eager to remind the world just who holds the reigns of power in Egypt as politicians and media worldwide look to the Muslim Brotherhood for a hint of Egypt’s future. Tensions with the U.S. and Israel in particular have fluctuated since the uprising, at times reaching levels unseen for decades. The cut may simply be a wake up call to remind the U.S. and Israel just who has word over their interests in Egypt, and may be followed by a resumption of gas exports at a more reasonable price as suggested by Minister of International Cooperation Fayza Abou El Naga.

In the same vein, the decision may have been an attempt to re-write the rules of the game. The ouster of Mubarak and his regime has inevitably and irreversibly resulted in a more active political role for the Armed Forces in post-revolutionary Egypt. While power is to be handed to civilians in the very near future, the Army is not expected to relinquish all authority anytime soon, official or not. As overseers and potential future kingmakers in Egypt’s future political theater, the Armed Forces would be the entity to deal with when it comes to the most sensitive and serious of geopolitical matters. Such a bold step as cutting gas exports to Israel could be a shrewd exploitation of the regional events, a message to the Israelis that Egypt and its Armed Forces are now to be dealt with as equals rather than subordinates. A new, tougher-priced agreement would convey a balanced stance regarding post-Mubarak Egypt’s standing towards Israel, at least from the Army’s perspective.

As with all news pertaining to Egypt in recent times, however, one should perhaps give priority to internal struggles. During its ruling period, the SCAF has shown a tendency to spark tension and use inflammatory rhetoric in the international arena in order to produce a desired effect on the domestic scene, only to re-stabilize matters again once the intended result has been achieved. This was perfectly demonstrated during both the NGO/foreign funding debacle and the border terrorist attack dispute with Israel. As such, the SCAF’s foreign policy decisions, particularly those that seem loaded with controversy, must be analyzed primarily through the lens of domestic politics. 

The primary determinant of the Egyptian political scene as of late has been the relationship between the ruling Supreme Council of the Armed Forces and the Muslim Brotherhood, as the struggle between the two parties moves increasingly away from the framework of competitive cooperation established after the exit of Mubarak. The Army and the Brotherhood have found several stumbling blocks in the preliminary deal struck (directly or implicitly) between them, and tensions have caused the relationship to edge ever closer towards direct political confrontation.

The Brotherhood is attempting to re-position itself to attain maximum gain in as short a period as possible, pouncing on every opportunity to enlarge its bid for power. The Army seems unnerved by the Brotherhood’s increasingly reckless power-grab and is moving to curtail the group’s influence and block their political maneuvers. The presidential race, the constitution-writing process and the dispute over the government have all amply demonstrated the souring of the relationship and the unwillingness of either side to compromise.

The unpopular natural gas deal is thus the perfect chance for the Armed Forces to gain political credit and embarrass the Brotherhood. It is impossible for the Islamist group to criticize the decision to end the deal on any basis, legal or not, lest they be perceived as unpatriotic in comparison to the current rulers of Egypt. It is simultaneously impossible for them to lay claim to any of the credit, to the contrary of the Army, which does not need to claim that which has automatically been attributed to it.

The status of the Army in Egypt’s future political framework, and the speed with which they hand over power completely, will both be affected by the move, a move which the Brotherhood simply does not have the authority to match. Consequences both legal and political will take time to come to the fore, and the Armed Forces are preparing to hand all official power to civilian institutions and retreat behind the curtain, meaning that they may reap all of the returns and let their successors pay the bill.

As a matter of fact, the Muslim Brotherhood, which is primed to become the most prominent political force in Egypt in the wake of the Army’s withdrawal from power, may find itself facing a dilemma of significant proportions. Legal and international pressure will force them to reconsider the cut, but the public backlash that would result from a reinstatement of natural gas exports to Israel would make such a step equally dangerous.

This ensures that the Armed Forces exit the scene with a significant political advantage lest the Brotherhood attempt to marginalize the Generals entirely. It guarantees that those who will come to power will not find themselves in a position comfortable enough to embolden them to attempt a monopolization of authority, and even leaves the Army’s leaders with a possible window of opportunity to reverse the handover of power should it be deemed necessary.

The shocking news that Egypt has ended natural gas exports to Egypt has left the situation unclear on both the local and international levels. Far from being a shift in policy, however, the move suggests a shrewdly calculated political game, one which is likely to end, albeit on revised terms, when it bears its fruit.

By Ahmed Maaty


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