The Russian Gas Giant That Haunts Europe – and Israel

Visiting Russian leader Valdimir Putin last month reportedly proposed bilateral energy cooperation, but a Haifa University expert warns that partnerships with the state-owned company are not of equals.

About a month ago, Russian President Vladimir Putin made his historic visit to Israel. According to some reports, the main topic in his talk with Prime Minister Benjamin Netanyahu was a proposal by government-owned Gazprom to "collaborate" in developing Israel's new offshore gas fields.

The Russian delegation talked about setting up a special subsidiary, Gazprom Israel, which would drill for gas and lay the pipelines connecting the fields to onshore installations. Unknown at the time was that Gazprom was also competing for a $1 billion tender put out by the Israel Electric Corporation for the purchase of liquefied natural gas. The few who knew about this were concerned.

Colloration with Gazprom poses risks

"As far as collaboration with Gazprom goes, you're not really a partner," says Dr. Avinoam Idan from the energy studies program at the University of Haifa's management school. "Intervention by Gazprom in the Israeli energy sector carries risks that people may not be aware of."

Why the concern?

"In contrast to oil, trading in gas has a much more significant political component, since it involves long-term contracts. Trading in oil is mostly done in spot transactions, with changing suppliers. Oil pipelines carry oil to the closest terminals, without a direct link between buyer and seller, as is the case with gas. So political interdependence is an intrinsic component of gas dealings.

"Gazprom has always served as an instrument for furthering Russia's political interests. This meshes with Putin's worldview, which he expressed in his thesis work in 1997. He stressed the importance of using energy resources as a tool for improving Russia's position in the world and for restoring its global power, which it had lost. This concept makes Gazprom's involvement a more complicated matter. What lies behind this company's avid interest in the Israeli energy sector?"

Idan answers this question by pointing out that there is no economic rationale behind this giant company's interest in Israel. Gazprom had a net profit of $44 billion in 2011 on revenues of $158 billion.

"These facts suggest that the interest in Israel is more political than in gas itself. This is clearly a move to obtain leverage for exerting influence over Israel's economic-political arena. If we don't stay alert we'll find ourselves with a senior partner who may control Israel's gas supply. This obviously has an impact on national security and the dependability of energy supplies."

One could similarly argue that the Americans control the energy sector through Noble Energy's holdings of gas reserves.

"That's true. But if you examine the actions of American companies over the years, I would definitely choose them over Gazprom, given the choice. Noble Energy specializes in exploration and drilling, not in laying pipelines .... If we're not careful, we could find ourselves in a situation similar to that of European countries that allowed Gazprom to control production, transportation and distribution to end consumers."

Israeli companies may be interested in assistance from Gazprom to begin production sooner.

"While I can understand the desire to start making profits, we should remember that Gazprom is a very powerful entity. Trying to attract it here while others are trying to distance themselves from it is very problematic in terms of Israel's national interests."

What if improving political ties is precisely the reason to welcome this cooperation?

"This needs to be seriously considered. If we assume that they'll deliver Iran in exchange for control of gas supplies to the Israeli market, I believe this is mistaken. This isn't in Russia's interest. For the same reasons they won't abandon Syrian President Bashar Assad, except on their own terms, when they know what will replace him.

"Over the years Israel has not been able to unravel the enigma of Russian policies on Iran. We keep trying to convince them that it's in their best interest to keep Iran from going nuclear, and we keep trying to convince them of our national interests.

The Russians have no problem with a nuclear Iran, and they use this issue as a bargaining chip whenever they want something from the West.


Making deals over Iranian missiles

"Several times in the past, the issue of supplying Iran with S300 surface-to-air missiles came up. Each time, according to several publications, they asked for something else in exchange for holding back on supplying these missiles. In 2008, for example, after their war in the Caucasus, they obtained their first unmanned aircraft from Israel in such a deal.

"A deal offering control of the gas fields in exchange for curbing Iran's efforts will only end up compromising our national security, with no progress on Iran."

A striking example of Russia's brute force occurred in the winter of 2008, when Russia blocked gas supplies to Ukraine, even though that pipeline carries massive amounts of gas to other European customers.

These countries' dependence on a single Russian pipeline set off warning bells in Europe, as well as in the Kremlin. This accelerated the development of the Nord Stream project, involving a 1,220-km pipeline to Germany that bypasses Ukraine and Belarus.

"This project was initiated during the tenure of German Chancellor [Gerhard] Schroder, who developed a close personal relationship with Putin," says Idan. "The Russians needed bank guarantees for assistance in financing their part of the deal, and Schroder signed off on those guarantees. Within weeks of leaving office, Schroder became the head of Nord Stream's shareholders' committee. That's how the system works in Europe."

Do things work the same way in Israel?

"I don't have an answer to that".