By Arthur Herman*
At the same time, Israel’s relations with Turkey, formerly one of its closest allies, could not have become worse. Ever since Recep Tayyip Erdogan took office as Turkey’s prime minister in 2005, a diplomatic chasm opened between the two countries, exacerbated in 2010 when the Israeli navy boarded the Mavi Marmara, a blockade-running ship bound for Gaza, and by Erdogan’s galloping regional ambitions. The latter have been accompanied by Erdogan’s growing penchant, now as Turkey’s president, to vilify the Jewish state in extremist language mirroring that of Tehran, Hamas, and the Muslim Brotherhood.
But then, this past December, things suddenly reversed on both fronts. Cutting through the Gordian knot of a half-decade’s negotiations, Prime Minister Benjamin Netanyahu announced that, despite Knesset opposition, his office had reached a final deal with Noble Energy. Only a day later, the Wall Street Journal reported that top-secret talks in Switzerland had resulted in a diplomatic breakthrough: normal relations were being restored between Turkey and Israel. On his way back from a visit to Riyadh, Erdogan remarked to a reporter, “Israel and Turkey need each other.”
Provided Ankara doesn’t back out at the last minute, and provided Israel’s supreme court doesn’t overturn Netanyahu’s deal with Noble and Delek, these two breakthroughs—a double-play for Israel’s prime minister—could begin to change the energy landscape of the eastern Mediterranean and the entire Middle East.
Two things must happen before Israel turns the natural gas in Leviathan into a powerful lever in the region’s energy markets. First, the field must be developed and brought into commercial production, a process that’s estimated to take another four years and cost up to $6 billion. Second, an outlet must be created to those energy markets. That outlet is precisely what Turkey can offer in the shape of a jointly built pipeline, plans for which were made years ago but have lain dormant. If completed (the estimated cost is $3 billion), that pipeline would seal Turkey’s re-engagement with Israel and become a main conduit for offshore natural-gas finds not only from Israel but, under the right conditions, from all across the eastern Mediterranean.
Will it happen?
At each stage of Noble and Delek’s discovery of multiple Israeli offshore gas fields—the Mari B field in 2000; the 10-trillion-cubic-foot Tamar field in 2009; and the 22-trillion-cubic-foot Leviathan field in 2010—the question of how to develop and use these enormous resources has sparked deep political contention within Israel. Some economists and political figures have worried that the yields will turn out to be smaller than promised. Others have speculated about potential damage to the environment from such deep-water platforms. (There have been no disasters or even accidents on the platforms Noble and Delek currently operate in the Tamar field.) Still others have foreseen harm to the Israeli economy along the lines of the so-called “Dutch disease.” (In the 1960s, Holland’s offshore finds triggered a booming energy sector that sucked productive resources from other sectors of the economy.) And many have fretted that the initial deal signed with Noble in 2005 would give too much to the American company and its Israeli partners, and not enough to Israel.
In order to correct the last situation, a special commission was set up in 2010 to decide whether taxes on Noble’s prospective revenues should be increased. After due deliberation the commission ruled, unsurprisingly, that government royalties should be raised from the agreed-upon 20 percent to somewhere between 52 and 62 percent. Speaking for the government, Finance Minister Yuval Steinitz conceded that Israel’s 60-year-old petroleum-tax regime had indeed been unfairly tilted in favor of private firms, adding that a “situation where the citizens of the state of Israel are almost the only ones in the whole world—certainly in the Western world—who can’t enjoy their natural resources is insupportable.”
Gritting their teeth, Noble and Delek accepted and soldiered on. Not only, however, did some Israelis continue to insist that the increase was still insufficient, but the sudden change of the deal’s terms prompted at least one interested foreign contractor, Woodside of Australia, to bow out of any participation in the development of Leviathan. And now, even with the issue of royalties settled, a new source of contention arose: whether or not Israel should be exporting its gas altogether.
Some politicians, from Avishay Braverman of Labor to Moshe Gafni of the ultra-Orthodox party Degel Hatorah, argued that the country should keep its natural-gas resources exclusively at home. In rebuttal, Noble and others pointed out that Leviathan contained far more gas than a country of over eight million people could ever consume, and that without a robust export market it would not be commercially feasible to develop Leviathan in the first place. Finally, in June 2013, the cabinet voted that any future gas production would be allocated 60/40 between domestic use and export. This spawned yet another wave of protest that subsided only when Israel’s supreme court approved the cabinet vote in October 2013.
By this point, three years had elapsed since the initial discovery of Leviathan, and nothing had been done to tap its vast resources. And now, adding insult to injury, Israel’s antitrust authority entered the fray, ruling that to allow Noble and Delek to bid on or sign contracts for developing Leviathan would violate the country’s laws banning monopolies—and that both companies had to be excluded from any future bids. Since no others were currently bidding, and since—in the light of Noble and Woodside’s experience with the Israeli government—few were looking to bid, things ground to a complete halt.
As 2015 began, Israel’s hopes of developing the crown jewel of its offshore gas wealth seemed in permanent stalemate. But the cloud lifted in March when national elections returned a strong majority for Netanyahu. The prime minister had made no secret of his strong support for moving ahead on the energy front, which he saw as key to Israel’s strategic as well as its economic future. By May, the head of the antitrust authority, realizing that his ruling was in imminent danger of being overturned by the government, resigned. A tentative deal was soon struck with Noble and Delek, allowing them to bid on a sizable portion of the Leviathan field. In August, the cabinet voted its approval.
But the fighting wasn’t over, and time was running out. Two weeks later, announcing its discovery of the Zohr field in Egyptian waters, ENI predicted that it could begin producing natural gas at least two years ahead of Leviathan. Still facing determined opposition in the Knesset to any deal with Noble and Delek, Netanyahu turned to his one remaining option: invoking a section of Israel’s Restrictive Trade Practices Law that permits circumventing a decision of the antitrust authority in a matter of pressing national interest.
“This gas was awarded to us as a gift from God,” Netanyahu declared, a gift that could make Israel “an important power in the international theater.” But in order to act on this gift and realize its benefits, he continued, “we must not be dependent on a single gas platform, a single pipeline.” He was referring to the smaller Tamar field, already under development. Evidently, the Almighty had bigger plans in mind.
This brings us back to Turkey.
As we’ve seen, Erdogan’s “neo-Ottoman” ambitions to become a major political player in the region, in pursuit of which he had aligned himself with the Islamist camp against Israel, seemed to put paid to any resumption of Turkey’s formerly close relations with the Jewish state. But then came the expansion to Turkey’s borders of the Syrian civil war, Iran’s crucial role in propping up the Assad regime, and Vladimir Putin’s sudden intervention on Assad’s side last fall. Relations between Ankara and Moscow soured; after last November’s shoot-down of a Russian fighter by Turkish forces, they entered deep freeze.
Inevitably, this chain of events also brought a major reversal in Turkey’s economic outlook—and especially in its energy plans. After Germany, Turkey is Russia’s biggest natural-gas market. In late 2014, an agreement had been struck between the two countries to build a new pipeline, supplementing the one that supplies Turkey’s domestic needs. This new carrier, dubbed Turkish Stream, was itself only one element in Erdogan’s long-term dream of making Turkey the hub of natural-gas distribution from Russia and central Asia to southern Europe and beyond. Included in the plans were a massive pipeline to be built under the Caspian Sea and another connecting Turkey to the gas fields of Azerbaijan and thence to the Southern Gas Corridor: a complex series of carriers, already under construction by British Petroleum and ten other companies, designed to move gas along both an undersea artery running from Albania directly into Italy and an overland route, the Trans-Anatolian Pipeline, intended to serve as the Southern Gas Corridor’s central link.
Russia and Turkey broke ground on the overland route in March 2015, in the expectation that Russia would be the major supplier of gas through that portion of the Corridor. Thanks to the repercussions of the Syrian civil war, however, that hope has been dashed. If Turkey wants to realize its mammoth energy ambitions, and feed its own constantly growing demand for natural gas, it has to look elsewhere. And that means Israel—a country, as Erdogan confessed in December, that Turkey now needs.
The mutual benefits of Erdogan’s turnabout are already becoming manifest: only days ago, the Israeli energy group Edeltech announced it had teamed up with a Turkish partner to build power plants in Israel fueled by Leviathan gas. On the export front, a completed pipeline to Turkey would afford Israel the opportunity to hook up with the eventually completed Trans-Anatolian Pipeline to Europe, where the appetite for natural gas continues to grow even as Europe’s ability to continue relying on Russian gas becomes ever more uncertain.
Nor would Israel and Turkey be the only beneficiaries of the new regime. An Israeli-Turkish pipeline could potentially also become the conduit for Egyptian gas out of ENI’s Zohr field, allowing its developers to become not just Israel’s competitors but also its de-facto partners. Conceivably, the same network would also give Turkey and Europe access to what may yet be the biggest natural-gas find of all off the coast of Lebanon. Together with the gas produced by Israel, Egypt, and Cyprus (whose Aphrodite field was discovered by Noble in December 2011), the result could be an eastern Mediterranean consortium with the potential to change the world’s energy map.
All of this, needless to say, faces massive domestic obstacles in each of the countries named, not to mention in Russia and Iran, the latter newly energized by its lucrative nuclear deal with Washington. Both would vigorously resist any moves that might upset their dominant role in the global natural-gas market.
In Israel, indeed, some knowledgeable experts believe that Turkey’s offer to finalize an agreement on the pipeline is just a tactic aimed at pressuring the Russians to revive the Turkish Stream project—after which Ankara’s negotiations with Israel will dry up and vanish. Others see unacceptable risks in striking any deal with the mercurial Erdogan; there are indications that Netanyahu himself is less than enthusiastic on this score.
Certainly the Israeli prime minister is keeping his export options open. On January 28, Israel, Cyprus, and Greece announced discussions on a pipeline running from Israel to Cyprus and thence to Greece and Europe. This, too, could conceivably move Egyptian gas from the Zohr field while also picking up Cyprus’s own offshore natural-gas reserves, which are not big enough by themselves to warrant investment for export but which, if combined with Leviathan’s, could make Cyprus an important player in the EU market. (Like Greece, Cyprus is an EU member.) The prospect of such an arrangement might even induce Turkey, if it’s serious about a deal with Israel, to settle its longstanding dispute with Cyprus, since any Israel-Turkish pipeline would have to cross that nation’s exclusive economic zone.
Clearly, any deal on getting Israel’s natural-gas to foreign markets requires cutting through multiple complications and securing the cooperation of many players. More positively, though, it also invites, on all sides, some serious rethinking of the relationship between energy and diplomacy, and in particular of the ways in which energy cooperation might hold out the prospect of not only defusing political tensions but of enhancing the prospects of actual strategic cooperation.
And then there are the strategic interests of the United States, which would be similarly advanced by an eastern Mediterranean gas consortium of the kind described here. By promoting Israeli-Turkish energy cooperation, or Israel-Cyprus-Greece cooperation, either of which could lead to joint Israeli-Egyptian gas exports, the next U.S. president might help open a new chapter of stability in the region, all the while weaning Europe from its dependence on Russian gas. Thus might Netanyahu’s double-play become a win for the United States as well—and for an administration willing to re-engage in the Middle East on its new regional terms.
About the author:
*Arthur Herman, Senior Fellow
This article was published by the Hudson Institute and Mosaic Magazine