Opinion |

Israeli-Arab Energy Deals Are Dramatic, but They Aren’t the Future

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The Tamar rig
The Tamar rigCredit: Tomer Appelbaum

From Theodor Herzl forward, few Zionist visionaries didn’t dream of economic cooperation between Zionists/Israelis and the Arabs. “The Jews have made us rich. Why should we scorn them?” says the one Arab character in Altneuland, Herzl’s fictional portrayal of a future Jewish state.

The vision changed according to the economic circumstances of the two sides, but for most of the time it’s been about Arab oil and the wealth it generates teaming up with Jewish/Israeli brains. Even after Israel discovered its first significant natural gas reserves 20 years ago, nobody really talked seriously about an Israeli-Arab energy partnership.

But that is exactly what is happening, even it’s happening as the era of fossil fuels creeps into its twilight years and alternative energy takes over.

The latest manifestation of the new energy partnership occurred on Monday when Abu Dhabi’s Mubadala Petroleum, a wholly-owned subsidiary of the country’s sovereign wealth fund, signed a memorandum of understanding to buy the 22% stake in Israel’s Tamar gas field for $1.1 billion.

It’s not the first Israeli-Arab energy deal, but it’s the first one where an Arab party actually plans to take an equity stake in Israeli energy asset. Shimon Peres, the father of the New Middle East concept, must have turned over in his grave when the deal was announced.

What Mubadala plans to do going forward we don’t know, but the company has invested as a minority partner in Egypt’s Zohar and Nour gas fields, too. The implication is that it is seeking to be a player in the emerging natural gas hub comprising Egypt, Israel and Cyprus.

The idea of the hub is to pool all the East Mediterranean region’s gas reserves and infrastructure (at least that of the countries that are willing to cooperate, which doesn’t as yet include Lebanon, Turkey or Syria) in order to save costs and better access export markets. It’s as much about political cooperation as it is about business cooperation.

The Abu Dhabi deal is the second major component of the Israeli-Arab partnership. The natural gas hub is the first, and it began to take real shape when Israel began exporting gas to Egypt more than a year ago; it expects deliveries to reach 10 billion cubic meters this year. If plans to build a more secure undersea pipeline between the two countries go through, the amounts will grow quickly.

But the energy partnership with Egypt is interesting mainly because Egypt hasn’t tried to develop significant business ties with Israel beyond that. The United Arab Emirates has been keen from day one of normalization to do business with Israel in anything and everything, in particular high-tech. But Egypt seems to regard natural gas as the only Israeli asset valuable enough to make a break with its effective ban on doing business with Israel.

So 20th century

Anyone taking a broader view of the situation has to be wondering what everyone thinks they’re doing. It’s as if the New Middle East of Israelis and Arabs aren’t walking forward hand in hand to a brilliant and lucrative future, but backward to a time when fossil fuels ruled the world.

There’s an element of truth in that. The future of fossil fuels is not good (although it is brighter for gas than even dirtier oil or coal), and it’s looking worse now that the United States is back in the battle against climate change.

Even Mubadala has seen the light and is moving away from its roots in hydrocarbons. As its CEO Khaldoon al-Mubarak told The Financial Times just a few days before its Mubadala Petroleum unit signed the MoU with Delek, the company is targeting growth industries in high-tech, health care and “disruptive” industries.

Not just Mubadala: The Gulf’s rulers understand perfectly well that oil is so 20th century and want to diversify their economies. It’s that they can’t just get off their petroleum addiction so quickly and easily.

One problem is that they have discovered that turning yourself into a Middle East Silicon Valley or Italian Riviera isn’t quite as smooth as they had hoped. Saudi Arabia’s Prince Mohammed bin Salman is as committed as anyone is to such a vision but, to date, he has had little show for it

Thus Saudi Arabia and the other Gulf oil countries are continuing to invest heavily in hydrocarbons. They still need oil profits, even if they are diminished, Anyhow, even as global fossil-fuel consumption begins to decline, as low-cost producers, the Gulf countries are better positioned than others to keep the last producers standing.

Israel’s deal with Abu Dhabi is dramatic because it turns the tables in a symbolic way. But the real future of the Arab-Israeli partnership is in high-tech, and there Israel has much more to offer than it does in energy. The steady flow of high-tech and other deals that have come in just a few months of normalization now seem kind of humdrum. But they are what the economic future of Israel and the Arab world is really about.

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