Analysis: How the Breakthrough in Israel-Turkey Relations Will Affect Natural Gas in the East-Med
Thursday was a great day to be Israeli Prime Minister Benjamin Netanyahu. In the morning he signed article 52 to the antitrust law and by doing so pulled off the natural gas regulatory framework he fought for eagerly during last year. In the evening, a leak to Israel's Channel 10 revealed his latest diplomatic feat, a breakthrough in relations with Turkey and with it the possibility for natural gas negotiations. The two events appeared to be choreographed seamlessly to Netanyahu's satisfaction.
If the agreement with Turkey is to be signed, including the articles mentioned in the draft agreement, then it should be regarded as a diplomatic victory for Mr. Netanyahu. Israel-Turkey relations were sour in the last few years only because Recep Tyyip Erdogan, the Turkish President, was adamant that a reconciliation with Israel should include the end of Israel's siege on Gaza Strip. That demand is no longer mentioned in the draft agreement. The $20 million Israel would pay Turkish victims' families of an attack on vessel Mavi Marmara was already agreed upon almost 3 years ago and the limitation that will be imposed on Hamas activity in Turkey including the deportations of one of its senior military operatives is a further success for Mr. Netanyahu.
How the breakthrough came about
Secret talks between Israel and Turkey have been ongoing for quite a while. However, the breakthrough became possible due to Mr. Erdogan's deteriorating diplomatic and political situation following the downing of the Russian bomber on 24 November 2015 by a Turkish F-16 fighter jet.
Russia has imposed a set of sanctions on Turkey and just stopped short of cutting off its energy supply, Turkey's main weakness in its relation with Moscow. Russia supplies Turkey with 65% of its natural gas imports and also with a significant percentage of its oil demand. However, a Russian ban on tourism and on imports of agricultural produce from Turkey have the potential to cause the Turkish economy a loss of revenue amounting to billions of dollars.
“We don’t know that for sure, but if someone in the Turkish leadership wanted to suck up to the Americans, I'm not sure whether they did the right thing or not,” Russian President Vladimir Putin said yesterday (Thursday) during his annual press conference in Moscow, referring to the downing of the Russian bomber. While speaking, he probably wasn't aware of the impending evening news, the breakthrough in Israel-Turkey relationship that certainly, from Mr. Putin's point of view, could be defined as a "suck up to the Americans".
It was Barack Obama, the American President, who for the last few years tried to heal the relationship between the U.S.'s two most powerful and important allies in the Middle East. During Mr. Obama's visit to Israel in April 2013, he managed to bring the two leaders together to talk on the telephone, a conversation which was conducted from a tent at Ben Gurion airport before Mr. Obama left the country. In the conversation, Mr. Netanyahu apologized for the Mavi Marmara killings [during which nine activists were killed on the vessel Mavi Marmara] and offered the payment of $20 million in compensation. In return, Turkey said it will drop legal actions against Israeli soldiers who took part in the Mavi Marmara raid. Those articles are now found in the new draft agreement.
The politics and economic considerations surrounding the agreement
Despite the halt in the 2013 reconciliation process--ambassadors have not returned to their posts in Ankara and in Tel Aviv, Turkish-Israeli relations have remained frozen diplomatically, and political leaders have continued to exchange hostile statements--the economic ties between the two countries remained strong. Although Mr. Erdogan represents an Islamic party, Turkey isn't an Arabic state and its relationship with Israel is less influenced by the Israeli-Palestinian conflict and more influenced by geopolitical manoeuvring.
However, during the 5-year diplomatic crisis, Israel-Turkey military relations suffered, as cooperation was reduced and Israel's Air Force stopped training in Turkish air space and began cooperation with the Greek Air Force. And although both Greece and Turkey are NATO members, their historic natural hostility is still characterising the two countries' relationship, coming to a head in the partition of Cyprus, an issue which analysts expect to be resolved within the next few months. If that is to happen, despite the strong Russian influence in both Greece, and particularly in Cyprus, it will be an important achievement for American diplomacy.
Yesterday the White House praised the draft agreement. “We would welcome this step in improving relations between two of our key allies in the region, particularly given our common interests and the challenges we face,” the New York Times quoted a senior Obama administration, official who spoke on the condition of anonymity, as saying.
What the reconciliation could mean for Eastern Mediterranean gas
If the reconciliation is successful, what are the chances of Turkish-Israeli natural gas deals? Commercially the obstacles are not high and the biggest one is financing the 500-kilometre pipeline from Israel's offshore gas fields to Turkey. In the past, representatives of Israel's Delek Group said that Turkish companies offered to finance the pipeline project, which is estimated at over $2 billion.
However currently the problem still resides in the geopolitical sphere. In order to deliver Israeli gas to Turkey the pipeline has to cross the Cypriot Exclusive Economic Zone (EEZ). In the past it was reported that Turkish officials told their Israeli counterparts the Israel-Cyprus cooperation in natural gas would be an obstacle to exporting Israeli natural gas to Turkey by pipeline. The reconciliation between Israel and Turkey will make it easier for Turkey to allow a pipeline to be constructed. However, that might hurt Russia which has great influence over Cypriot politics.
One should not forget that Egypt, whose President Abdel Fattah el-Sisi took part last week in a trilateral summit with the leaders of Greece and Cyprus, after freezing Egypt-Israel natural gas negotiations, is watching carefully the developments.
The ban came about after an arbitration that ordered Egyptian gas companies to compensate Israel Electric Company by $1.8 billion following the cancellation of a gas supply agreement. If Egypt is in need of Israeli natural gas, then it will have to show more flexibility in its negotiations with Israel.
Israel and Greece will have their own trilateral summit meeting next month in Nicosia and the atmosphere might be a little cooler than in the past unless the newly re-established Israel-Turkey relationship brings a warmer atmosphere to the Greece-Turkey relationship to solving the Cypriot problem.
Israel's big decision to make
Israel will have now to decide who the preferred natural gas customer will be, Egypt or Turkey.
In the last few months, Delek Group Officials said that Turkey will be the customer for phase 2 of Leviathan development. Egypt was the first priority market. Following the Zohr gas field discovery last August, it is still not clear how strong Egyptian demand of Israeli gas will be; Turkish demand, on the other hand, is almost guaranteed.
However if Mr. Netanyahu wants to adhere to the logic of article 52, which enabled him to approve the natural gas regulatory framework, and which is still awaiting the examination of the Supreme Court, Egypt should be the anchor customer, because the rationale behind using this article is assisting in stabilizing the Egyptian and the Jordanian regimes.
"The question is not with whom good relations are maintained but which country is more stable for the next decade or two," Alon Liel, a former Israel Ambassador to Turkey and a former Director General of Israel Foreign Ministry said at the "2015 Energy and Business Convention", held in Tel Aviv last month. "We would like a functional country [as our partner]. When a decision concerning long-term gas agreements is taken, stability is critical.
When comparing Turkey to Egypt as potential anchor customers to Israeli gas producers, Mr. Liel came down on one side."For the foreseeable future, the next decade, I would certainly say it is Turkey, after arranging its affairs with Erdogan winning the election [held in early November]. So Turkey now is behind the revolution."