'Cold Peace' Between Israel and Egypt Could Grow Colder

The only significant project between Israel and Egypt is the gas export agreement, and Israel's national utility, the Israel Electric Corporation, is dependent on that gas.

While Israel's economic ties with Egypt are minimal, a new regime next door could herald a new age in the Middle East, possibly detrimental to Israel, politically and economically, government officials said over the weekend.

Trade with Egypt accounts for only a small part of Israel's GDP. The only significant project between the two countries is the gas export agreement, and Israel's national utility, the Israel Electric Corporation, is dependent on that gas.

"Egypt is unlikely to damage gas exports to Israel, even if President Hosni Mubarak loses his office," said a government source. "After all, it's in the Egyptians' interest to receive the revenues from selling gas, particularly when their economy is in bad shape. Israel needs to get through two more years without any shocks to its gas supply, until the Tamar field starts producing in 2013," said the source.

However, the protests in Egypt could hurt Israel's credit rating indirectly, if moderating forces play less of a role in mediating the peace process, and if other Arab countries scale down their relationship with Israel for fear of similar popular protest.

Israel's 30-year-long "cold peace" with Egypt, it is believed, will not be damaged as long as Mubarak remains in power, the secular opposition comes to the fore or the army takes control. More worrisome is that Islamists ride the waves of popular protest and take power with external help.

Labor MK Benjamin Ben-Eliezer, who has just stepped down as industry and trade minister, and who has a good relationship with the Egyptian regime, said: "Based on my conversations with Egyptian officials over the past two days, I can say they still believe they can get past the protests. They told me that Egypt isn't Beirut or Tunis, and that the president hasn't used all the means of force at his disposal. Mubarak may have sent the army into the streets, but he ordered soldiers not to open fire unless they were personally threatened."

However, if the protests gain force, the regime could be shaken. The opposition is not organized and has no single prominent leader, said Ben-Eliezer.

For Israel, the overthrow of the Egyptian regime would be a disaster, said Ben-Eliezer. Beyond the fact that peace with Egypt is a major strategic interest, the change would have an unknown effect on the future of the Middle East, he said.

Peace with Egypt will likely be preserved so long as extremists don't take power, said Ben-Eliezer. However, it will likely become even colder than it is now, and Israel won't have the chemistry it currently has with Mubarak's regime, he said.

The peace process will likely receive a blow from Mubarak's being weakened, and this is likely to harm Israel's economy, he said.

While Israel had sought to expand its economic ties with Egypt since the peace treaty was signed 30 years ago, Cairo resisted. Egypt is currently Israel's 38th largest export market.

Israeli companies with operations in Egypt include Delta Galil and Polgat, which have factories there; and Netafim and Haifa Chemicals, for whom Egypt is a major export market.

Dov Lautman, one of Delta's founders, said he was concerned about the events in Egypt, but it was comforting that the protesters weren't mentioning Israel. Delta Egypt is planning to operate as usual today, and can do so even if its Israeli employees aren't there, he said.

Trade with Egypt did well in 2010, said Dan Catarivas, head of foreign trade at the Manufacturers Association of Israel. He predicted the Suez Canal would stay open due to its great importance to the Egyptian economy, beyond its importance for Israel.