(September 10, 2012) A deal unfolding between Israel and Russia represents a diplomatic and business masterstroke for both parties and shows how, when the energy business is at play, geopolitics is often the driver.
For over 30 years, Israel tried swapping land for peace with its Arab neighbours. Those wishful political plays didn’t work out so well, but Israel’s latest foray — a hard-headed deal with Russia for cash and future considerations — holds more promise. In this unfolding new deal, Israel parts with a share of its lucrative offshore gas field in the Mediterranean, while Russia parts company with Israel’s enemies in Syria and Iran. Russia secures quite separate gains. Win-win for Israel and Russia. Lose-lose for Israel’s and Russia’s various rivals.
This unfolding deal promises to be a diplomatic and business masterstroke for both parties and shows how, when the energy business is at play, geopolitics is often the driver. First, why Russia, the world’s largest energy producer, needs this deal.
After the collapse of the Soviet Union, the Russia’s economy descended into a decade of privation and chaos that Russians still recall with national shame. Now Russia is back, thanks to its emergence as an energy superpower. Russia boasts Europe’s fastest-growing economy and its most potent military, both due to its stranglehold over Europe’s energy needs. Loathe to lose either influence or sales in Europe, Russia keeps competitors at bay, as it did last year when it stymied a Turkish bid to build a competing natural gas pipeline to Europe.
Today Russia faces two new threats to its hegemony over the European market: Exports of gas to Europe from Israel’s vast offshore finds in the Mediterranean Sea and continental Europe’s own finds, in the form of enormous shale gas reserves.
For now, environmental concerns have taken most of the shale gas potential off the table, keeping Europe dependent on imports. But Israel’s Mediterranean gas, combined with gas from Israel’s Mediterranean partner, Cyprus, have the potential to cost Russia its top-dog role as Europe’s chief source of natural gas.
Enter Gazprom Israel, a proposed subsidiary of Russian government-owned Gazprom, the world’s largest natural gas company. According to reports in the Israeli and Eurasian media, the Israeli government has agreed to give the Russians a stake in the Mediterranean find, and also to increase the amount of gas allowed to be exported. With this deal, Russia would be cutting itself into any sales of Mediterranean gas to Europe or, possibly better from Russia’s point of view, it could persuade Israel to instead sell Mediterranean gas to Asian markets — a live option even without the advent of Gazprom Israel. Either way, Russia would retain the dominant role in Europe that underpins its national pride.
As for Israel, the benefit of aligning itself with Russia’s economic interests would be immense. Over the last half-century, Russia and Russian arms have been a mainstay of Arab nations and Muslim terrorists that sought Israel’s destruction.
In recent years, Russia’s attitude toward Israel has become more nuanced, partly because Russia wants Israeli intelligence on Islamic terrorists targeting Russia, partly because Russia wants Israel’s state-of the-art arms, such as its UAVs.
Two years ago, the two countries signed a military co-operation agreement, followed by a sale of Israeli UAVs to Russia. It was also followed by Russian willingness to withhold arms sales to Syria and Iran that would undermine Israel’s military supremacy, such as a US$1-billion sale to Iran of Russia’s vaunted S-300 anti-missile system.
With Israel becoming a major energy exporter, able to upset Russia’s dominant role as a gas supplier in Europe, Russia is tilting further in Israel’s direction — and further from Israel’s enemies. And with Russia and Israel jointly developing resources off Israel’s shores, Israel’s gas fields will benefit in part from a Russian shield — belligerents who have been menacing Israel’s drilling rigs and other energy infrastructure — they include the government of Turkey as well as Islamist terrorists in Israel’s neighbouring countries — will now think twice before an attack that could draw Russia’s ire.
In jointly exploiting Mediterranean gas, Russia stands to gain diplomatically, Israel stands to gain militarily, and both stand to gain financially. They say politics makes for strange bedfellows. Geopolitics can make for sound businesses.
Lawrence Solomon is executive director of Energy Probe.
This article was first published by the National Post.