Israel-Gulf Railway and Pipeline Have Cairo Worried

Egypt fears that Israel's new oil pipeline could hit their revenues from the Suez Canal, especially if Saudi Arabia starts using it too. And it’s not just the pipeline that has Egypt nervous

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Prime Minister Naftali Bennett meets the Crown Prince of the Emirate of Abu Dhabi Mohammed bin Zayed Al Nahyan, in Abu Dhabi last month.
Prime Minister Naftali Bennett meets the Crown Prince of the Emirate of Abu Dhabi Mohammed bin Zayed Al Nahyan, in Abu Dhabi last month. Credit: GPO / Chaim Tzach
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Two weeks ago, the Suez Canal went on high alert. Crane operators, pilots, security forces and all the other workers braced for the Ever Given container ship to enter the waterway’s southern end. This is the vessel that got stuck and blocked the canal for a week in March, triggering losses of up to $15 million a day as hundreds of ships had to wait in a long line.

Before it approached two weeks ago, the Ever Given had passed through the canal in August, but it was empty at the time. Now it was fully loaded and heavy, putting the entire canal operation on its toes. The passage went smoothly and the canal administration, the Egyptian government and the entire shipping industry breathed a sigh of relief.

But tension still hovers over the canal, as Cairo anxiously awaits Israel’s final decision on a pipeline deal sending oil from Eilat to Ashkelon. Revenues from the Suez Canal have topped $6 billion this year, a record, and the outlook for the coming year, despite the pandemic, is even more optimistic, with revenues seen up 11 percent in the first half.

The concern is that diversion of some of the oil cargo coming from Asia and the Gulf states to the Israeli pipeline will dent traffic at the canal and the revenue that accounts for 2 percent of Egypt’s gross domestic product.

A view of earth moving equipment excavating near the Ever Given container ship in the Suez Canal last spring.Credit: Maxar Technologies / Reuters

It’s unclear why Defense Minister Benny Gantz chose to delay Israel’s decision and hold further talks on Israel’s agreement with the United Arab Emirates. It could be because of security officials’ reports on the risks of operating the pipeline. Or it could be because of the environment minister’s and energy minister’s opposition to the project, or because Egyptian President Abdel-Fattah al-Sissi told Prime Minister Naftali Bennett about his concerns that the pipeline would sting Egypt’s economy.

China, of course

George Safwat, the spokesman for the Suez Canal Authority, told Egyptian website Almal News that 9 percent of the world’s cargo passes through the canal, as well as 24.5 percent of tanker traffic, including all tanker traffic on the Asia-Europe route. He said the authority is striving to further develop the canal and improve services, and is closely watching possible competing routes.

But Egyptian and UAE economists and shipping experts say that even if the pipeline initially only takes a minimal bite out of canal traffic, the bigger problem could be Saudi Arabia using the pipeline too if the kingdom normalizes relations with Israel. And it’s not just the pipeline that has Egypt worried.

Prime Minister Naftali Bennett with the UAE minister of industry and advanced technology, Sultan bin Ahmed Al Jaber, in Abu Dhabi last month.Credit: Chaim Tzach / GPO

The grandiose reports in Israel about building a railway line between Israel and the UAE via Jordan is completely out of the question as long as Saudi Arabia isn’t in the game. The tracks would have to cross the kingdom. And the reports on the UAE’s intention to buy Haifa Port is getting Egyptian economists and commentators talking about an Israeli-Emirati plot to batter Egypt’s economy.

Wail Qaddour, an expert on shipping, said in a newspaper interview that a land passage between Israel and the Gulf states could hit Egypt’s revenues from the Suez Canal, so Egypt must consider how to lift obstacles blocking foreign investment in the canal area. He said it’s especially important to give China a key role in investments along the canal and in providing services to the ships passing through.

In 2019, China and Egypt signed a memorandum of understanding for $5 billion of Chinese investment to develop a 6-square-kilometer (2.3-square-mile) industrial zone, and China has already invested billions of dollars in the construction of Egypt’s soon-to-be-completed administrative capital 45 kilometers (28 miles) east of Cairo.

The new administrative capital going up 45 kilometers east of Cairo, in August. Credit: Khaled Desouki / AFP

Land bridge

Another cloud hanging over the canal is the UAE’s recent agreement with Iran and Turkey stipulating that goods from the Dubai and Abu Dhabi ports will be shipped to southern Iran and from there by land to Turkey and Europe. This route could shorten the transport time from 20 days to one week.

The paradox is that the UAE is also one of the largest investors in the Suez Canal industrial zone. In November, it signed an $800 million agreement to build infrastructure for the new port that Egypt is building next to Alexandria and $1 billion for the construction of two solar farms, one on the Red Sea coast and the other next to Aswan in southern Egypt.

Also, the Emirati energy company AJ Holding signed a preliminary agreement with Iran to build power stations that operate on gas and solar power in Iran’s Khuzestan Province. This deal seemingly defies the U.S. sanctions regime, but the UAE doesn’t appear overly concerned, just as it wasn’t deterred from signing the overland shipping agreement with Iran.

It’s no coincidence that Emirati officials say that if Israel cancels the pipeline agreement, this won’t affect the UAE’s relations with Israel. Relations with Egypt are just as important to the UAE as the Israeli pipeline, which might save time and money but could exact an unacceptable diplomatic cost.

The map of gas and oil pipelines, shipping lanes and overland cargo routes is in a state of flux, as are the diplomatic relationships. Two years ago, it would have been hard to imagine the UAE signing trade agreements with Iran, let alone oil shipment deals with Israel.

But now economic interests are dictating the diplomatic map on which Israel is steadily finding its footing, even if it also has to accommodate these competing forces. Israel finds itself in a paradox: While it threatens Iran with war, it’s not in a position to berate the UAE for forging closer ties with Tehran.

Moreover, any military or diplomatic move against Iran requires Israel to consider the interests of the UAE and the other Gulf states; otherwise an Israeli attack on Iran could curb shipping and these countries’ revenues. This paradox also pertains to relations with Egypt and Jordan, which will be supplying gas and electricity to Lebanon via Syria.

This supply, which has been approved by the U.S. administration (despite its sanctions on Syria), won’t only help the Lebanese government and people, it will help Hezbollah, which so far has chosen to ignore that the electricity from Jordan will be produced in part by gas produced in Israel.

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