How the Russia-Ukraine War Opened a New Market for Israel
Only a few years ago, Israel was a net importer of natural gas. However, with the discoveries of the Tamar and Leviathan gas fields in 2009 and 2010 respectively, Israel found itself sitting on a windfall of natural gas reserves. But gas reserves are only profitable if they can be drilled, processed, and exported. For Israel the road to becoming a net exporter of natural gas has been bumpy for both political and economic reasons. However, the Russia-Ukraine war has supplied a much-needed impetus to open new markets for this growing energy supplier.
How Israel Transitioned from a Net Importer to Net Exporter of Natural Gas
Israel initially discovered its first commercially significant gas reservoir, the Mari-B, in 2000. While the Mari-B put a dent on Israel’s dependence on foreign sources to meet its natural gas demand, it was not until the discovery and on-streaming of the Tamar field that Israel could boast energy independence, at least in the natural gas sector. When the Leviathan field came on-line in December 2019, Israel, for the first time had the capacity to become a net exporter of natural gas. However, the path to exportation would be riddled with economic and political hurdles.
Israel’s Hurdles to Natural Gas Exportation
The viability of exportation was first brought into question by the discovery of large natural gas reserves in Egypt’s and Cyprus’ economic exclusive zones. Concerns arose on whether Israel would lose potential markets as these nations would be able to meet their own demand. With time, Egypt, Cyprus and Israel have found avenues of cooperation, but the competition added a level of complication for Israel.
The most lucrative market for gas exports is Europe. To reach the European markets, Israel considered a complex project called the EastMed pipeline that would connect Cyprus, Crete and Greece. The United States rescinded its support of the pipeline in January 2022 for seemingly political reasons. That marked the end of the project.
Adding to its troubles, Israel and Lebanon are amid a maritime dispute over the Karish gas field. Hezbollah’s threats to interfere if Israel resumes drilling complicates an already tense situation. Although smaller than the Leviathan and Tamar fields, it creates an economic and military headache for Israel.
The darkest shadow over Israel’s energy ambitions is the Israeli-Palestinian conflict. Although Israel has been able to reach several landmark deals for its energy sector despite it, it has not been without its problems. The historical animosity from Arab populations towards Israel made it politically inconvenient for governments such as Egypt and Jordan to pursue natural gas contracts with its neighbor. Growing energy demand and economic imperatives forced these governments to ignore the political opposition and find a way forward, but that animosity still plagues Israel.
The controversy over the Israeli-Palestinian conflict is one reason the European Union has dragged its feet in pursuing a natural gas agreement with Israel. The pressure from pro-Palestinian activists has always been aimed at boycotting Israel, not contributing to highly lucrative deal for the small, but powerful nation. Even though it is an energy hungry market that is not sufficiently diversified it would still take strong motivation to push the European Union forward. That motivation was the Russia-Ukraine war.
The Russian-Ukraine War Pressures Europe to Find Alternatives
Before Russia invaded Ukraine, Europe was already facing higher natural gas prices due to policies that encouraged renewable energy. The invasion only put upward pressure on prices and brought Europe’s precarious relationship with Russia to the surface.
Europe is the largest importer of natural gas in the world with 41 percent supplied by Russia alone. More troubling is that a few European countries such as Finland and Latvia rely on Russia for more than 80 percent of their supply. That kind of dependence gives Russia leverage and a tool to coerce European nations to bend to its will.
The invasion forced Europe to speed up its efforts to diversify its energy imports. It is no surprise then, that in the wake of the Russian threat, the European Union put aside its political misgivings to sign a Memorandum of Understanding (MOU) with Israel and Egypt and increase Israeli natural gas exports to Europe. Under the agreement, Egypt would provide the liquefied natural gas facilities, becoming a hub for Israeli natural gas exportation to Europe.
It is a win-win scenario for all three entities, but questions loom on the long-term viability. The Israeli-Palestinian question will certainly continue to put pressure on any nation or international organization who has direct dealings with Israel. And the announcement of resumed talks with Iran could add another level of complication to an already precarious geopolitical situation.
