The Paz energy company and the Palestinian Authority made a deal yesterday, under which Paz will refine crude oil imported directly by the PA to its Ashdod refinery. Paz purchased the refinery last week for NIS 3.251 billion.

Paz will deliver the distillates to the PA, in effect taking over from Dor Alon which supplied most of the PA's petroleum needs before.

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Whether coincidentally or not, Dor Alon yesterday suspended its fuel deliveries to the PA. On Sunday morning Dor Alon informed the Tel Aviv Stock Exchange that the PA would cease buying gasoline and gas from it at the end of 2006, after the company refused to meet the PA's demand for improved terms and conditions. Sources in the energy industry believe Dor Alon suspended sales PA when its negotiations with Paz kicked into high gear.

The PA used to represent about 40 percent of Dor Alon's revenues, with annual sales estimated at NIS 1.5 billion on average. According to company reports, it sold NIS 1.19 billion in distillates to the PA in the first half of 2006. If supplies are not renewed for the remainder of the year, Dor Alon stands to lose NIS 600 million.

The Iranian connection

Most of the crude oil for the PA will be imported from the Gulf states and Iran, which are expected to offer good terms.

During the U.S. Secretary of State Condoleezza Rice's visit, Prime Minister Ehud Olmert was expected to ask her to increase the American pressure on Iran with diplomatic and economic sanctions. Diplomatic sources suggest an awkward situation could develop in the event that Israel asks for increased pressure on Iran at the same time that an Israeli refinery is processing crude oil from Iran. According to a source in the energy industry, "a refinery doesn't distinguish between crude sourced from Iran and from anywhere else, and crude from that type of source could be marketed in Israel."

The source called the developments of the past days "a predictable by-product of Paz's purchase of the Ashdod facility. The energy economy is expected to face a shock with the completion of the floating of the Haifa refinery. As a consequence, a duopoly will be created in the industry, and the ones who will be hurt by it will be the consumers."

Both Paz and Dor Alon refused to comment for this report.

PA sources confirmed the deal with Paz and the fact that Dor Alon had halted its gasoline supplies to the PA. They also said the plans for purchasing crude had not been completed and that they were unaware of its source.

Senior Finance Ministry officials said yesterday that the treasury did not care about the source of the crude oil processed by the refinery.