Israel is fast becoming a serious regional energy player. If it wasn’t clear before, it became clear earlier this month with the announcement of a $15 billion gas deal with Jordan. According to the Times of Israel, the deal is the largest energy collaboration with Jordan to date, and it makes Israel Jordan’s chief supplier.Over the past five years, Israel’s energy fortunes have transformed dramatically, a development that has the potential to shift the region’s geopolitical and geo-economic landscape. Israel’s Prime Minister Golda Meir once only half-joked that Moses led the Children of Israel to the one spot in the Middle East that had no oil. This turns out not to have been true: over the last decade, Israel has found major oil and gas reserves just off its coast.The entire global landscape for energy is changing, and the Middle East is a key part of this change. Traditional producers in the Gulf are becoming consumers as their populations demand a lifestyle that is more energy intensive, and traditional consumers like Israel are emerging as new producers through scientific and technological innovation. Discovered offshore in deep water near Haifa in 2009, Israel’s Tamar field holds an estimated 8-9 trillion cubic feet (Tcf) of gas. Israel began commercial production in 2013. The Leviathan deep-water gas field could hold as much 19 Tcf and is expected to begin producing in early 2017. Oil & Gas Journal estimated that, as of January 2014, Israel’s proven oil reserves are 11.5 million barrels, a fivefold increase from what was thought just a few years ago. The country’s potential reserves are likely substantially higher. In the last couple of years, Israel’s natural gas production more than doubled, according to the U.S. Energy Information Administration. Although these numbers don’t put Israel into the top quartile of the world’s energy producing states, Prime Minister Netanyahu has estimated that $60 billion will accrue to Israeli coffers as a result and the new finds will dramatically improve Israel’s energy security for the next forty years, at least.The deal is especially important for what it tells us about Israel’s emerging energy strategy and its political ramifications in the years ahead. It shows a growing pattern of Israeli investment in long-term energy relationships with its Arab neighbors, and thus a firmer embedding of the country into the region. Over the past decade, particularly around the time of the dot com boom, Israeli policy makers had hoped to wall off the country’s economy from the political chaos and troubled economies in its neighborhood. This proved somewhat successful. The IMF noted that despite heightened geopolitical tensions in the Middle East, Israel’s GDP grew an average 4% over the past 5 years, certainly better than most developed economies. Still Israel’s growth rate was not so different from many in its neighborhood including Jordan, Turkey, Saudi Arabia and even the West Bank.In allocating its newfound energy assets regionally, Israel’s energy strategy appears to be evolving quite differently from its previous extra-regional approach. It is signing long-term deals with its neighbors as long-term consumers and conduits to the rest of the world. In February 2014, Israeli and Jordanian officials signed a $500 million, 15 year gas deal that, if nurtured, could grow into the billions over time. In July 2014, amid growing violence, the Palestinian Power Generation Company signed a $1.2 billion 20 year gas deal with Israel. Israel is in active conversations with Egypt, its longtime gas supplier, about reversing energy trade flows and exporting gas for liquefaction and re-export. Wednesday’s deal is thus the latest in a long series.The deal with Jordan stands in stark contrast to the lack of progress on any deal between Israel and Turkey. Many hoped that Israel’s gas finds would create an economic magnet with a force strong enough to overcome frosty political relations. Turkey needs a lot of new sources of energy to achieve its ambitious economic goals. In 2013, energy imports accounted for nearly twenty percent of Turkey’s overall imports compelling Ankara to explore all options to ease the burden, including developing a major new nuclear program and becoming a pipeline transportation hub. At present, almost all of Turkey’s natural gas and liquid fuels as well as nearly a third of the coal it uses for power generation are imported. Even if Turkey activated all its energy potential—wind, solar, geothermal, biomass—in addition to its hydroelectric plants, it would produce only half of the 500 billion kilowatt- hours per year it will need in the coming decade.Experts hoped that Israel’s energy resources would encourage Turkey to diversify away from its key supplier Russia and reconnect it to the greater Middle East. At the same time, the $2.2 billion dollar proposed sub-sea pipeline would give Israel access to a major emerging market and one of Europe’s largest energy consumers. But politics is trumping economics in this case. President Erdogan’s anti-Israel rants continue to irritate the Israeli government. Turkish Energy Minister Taner Yildiz agrees that a Turkey-Israel gas deal is currently “out of the question.” For now, Israel is moving forward with its immediate neighbors, making a long term bet on Egypt and Jordan rather than Turkey.The deal also puts Washington right back into the center of an evolving Middle East. The State Department’s top energy guy Amos Hochstein was present to witness the deal’s signing. He has been active in facilitating other regional deals as well. His European counterparts, by contrast, are all but absent. Gas from the Mediterranean will never completely replace the energy Europe imports from Russia. But European leaders could be doing more to incentivize and pressure both Israel and Turkey to overcome their differences for the sake of European energy security. Occurring at the eve of the 2014 NATO Summit, in which energy security notably fell off the agenda, the Middle East gas deal and lack of European engagement should raise concern about how serious Europe is about its energy security.Israel’s emerging energy role, and its longer term regional re-integration depends on getting a lot of things right—something that doesn’t often happen in the Middle East. While governments in Jordan, Egypt and the West Bank may understand the economic and even geopolitical benefits of cheap and secure energy, it is not clear that their domestic populations will view things similarly. Leaders on all sides seem confident that they can push these deals through, but politics have a funny way of getting in the way of otherwise mutually beneficial arrangements. The Abdullah and Sisi governments may have a tough slog ahead in getting these deals signed and delivered.Israel’s domestic climate around energy exports is no picnic either. As in many democracies, energy policy in Israel is becoming a contentious domestic issue. Many Israelis are skeptical about recent energy deals fearing that they will benefit oil entrepreneurs at the expense of the broader population. And Israel has yet to get its domestic policies in place to secure the foreign investment that will be required to finance a robust energy future. As Gal Luft recently argued, the collapse in Israel’s $2.5b deal with Australia’s Woodside Petroleum over tax breaks and other incentives jolted Israel’s energy sector and should temper some of the excitement around recent energy deals.Still, this month’s deal is an important reminder that changes in the energy realm are taking place in a region better known for violence and instability. And while media attention is understandably focused on the Arab Spring’s rapid transformation into Arab Winter, there are changes occurring underfoot—literally—that will further change the regional political environment. Israel, Jordan, Egypt and leaders in the West Bank are slowly integrating their trade patterns and infrastructure. As The American Interest itself argued just a few weeks ago,
The deal is another sign of the tacit Sunni Arab-Israeli alignment, as a chaotic geopolitical moment makes for strange bedfellows. Both the Sunni states and Israel now find themselves facing the same regional threats—the growth of jihadism, the destabilization of Syria and Iraq, and an ambitious Iran. The promise of Israel’s gas reserves only makes that alignment more profitable.
Profitable, and stabilizing. The changing global energy landscape provides a rare opportunity for collaboration and economic growth in a part of the world in which both are in very short supply.