Taking Stock / Oil for Thought

1. If somebody were to say to you two years ago that oil would reach $62 a barrel, you'd have panicked and prepared for global recession, inflation, sinking share prices and rising interest rates.

And for good reason: The 1970s are considered a lost decade in global economics because of the oil crisis, which sent inflation soaring, and led to protracted, painful disinflationary policies characterized by high interest rates.

But the global economy has changed beyond recognition in the last three years, and the most astonishing economic event of 2005 was what didn't happen. There was no crisis due to the unprecedented spike in oil prices. Economists are worried that in 2006, the world economy will start having real trouble coping with the high cost of oil, which will hamper economic growth and lift interest rates. But nobody's talking in terms of a meltdown.

2. While the world economy managed to cope with the high cost of oil, the tremendous oil industry and all related markets thrived in 2005.

Behind many of the oligarchs, the buyers of soccer clubs, and the new billionaires stand oil businesses, rigs, refineries, shipping firms and commodities companies, which doubled, tripled, even quintupled in value over the last two years.

The energy business barely existed here until five years ago. The best-known figure in energy was J.R. Ewing of the "Dallas" television series.

That's going to change. The discovery of natural gas fields, gas exports from Egypt, the oil price surge, private power station tenders and Oil Refineries' privatization have created an local energy industry.

3. For two years, treasury Accountant General Yaron Zelekha spat with Idan and Sammy Ofer about the deal in which the state is to buy the Ofers' 26 percent stake in Oil Refineries. Zelekha lost. The state is going to pay them the $130 million, which is still 60 to 80 percent below the market value of the shares. For comparison, Oil Refineries netted NIS 1.5 billion in 2005, while the Ofers are selling their shares according to a company valuation of NIS 2 billion.

Zelekha's adversaries at the Finance Ministry and in the business sector are chortling over his defeat, but his loss will be the state's victory, because during these two years of battle, the energy sector changed from top to toe and so did Oil Refineries' profits.

4. The unbelievable is supposed to happen within three months: the state of Israel will be privatizing one of its biggest businesses at top dollar, at just the right time.

For years, the state has sold its assets for bowls of lentils to wily businessmen, at the worst possible timing. There's a good chance it will be among the winners this time.

After seven years of economic, legal and public battles between the state and Sammy Ofer's company, The Israel Corporation, the dispute is over. Oil Refineries will be split into two companies, one based on the big refinery in Haifa and one on the small one in Ashdod.

The Israel Corp. personnel claimed the company couldn't be split. Soon they will be eating crow as they bid for the Haifa refinery, standing all alone.

The state profits doubly: once, when it gets $1 billion or $1.5 billion for its shares in the two refineries, and second, when the two facilities start to compete.

5. Why are Sammy and Idan Ofer prepared to sell their Oil Refineries shares for a third or quarter of their real value? The first reason is they had to: that is their agreement with the state, and if they tried to renege, they would face years in court.

But the Finance Ministry claims there's another reason. After two years in which the Ofers were presented as milking the state, they grasped that this time they would have to give in. All that remains to be seen is whether the Finance Ministry and Government Companies Authority take advantage of the tremendous backwind to increase competition in the energy sector and privatize at top dollar, or if they find some original way to shoot themselves in the foot.