Egypt-Israel

Since they signed a peace deal in 1979, Egypt and Israel have maintained stable, if not warm, diplomatic relations, but the presence of militant Islamists on the Sinai peninsula, which fired rockets into Israel in April 2013, have strained the relationship between the two states. And although the 1979 treaty was ratified by the governments, Near East Quarterly suggests that the deal failed to win the hearts of the Egyptian people because of Israel's close ties with former dictator Hosni Mubarak and his inner circle.

In April 2012, Egypt’s government unilaterally cancelled the 7-year-old natural gas deal, citing the failure of the Egyptian-Israeli consortium East Mediterranean Gas Co (EMG) to make regular payments. However, EMG told Reuters that the gas supply was interrupted because Egypt failed to protect the feeder pipeline in the Sinai Peninsula from militant attacks.

=Gas supply deal=

Under the 20-year contract signed in 2005 between the Israeli-Egyptian EMG and the state of Israel, up to 1.7 billion cubic metres a year of Egyptian gas was to be delivered by pipeline to southern Israel at a maximum price for the first 15 years of US$1.25 per million British thermal units (btu). However, by the time the gas started flowing in 2008, international prices were at least three times higher. The direct cost of exporting the gas had risen to an estimated US$2.56 per million btu. In early 2009, an Egyptian court ordered the exports halted, but it was overruled by a higher court. In 2010, EMG signed a new contract valued at US$19 billion, boosting the exports to 6 million cubic meters a year.

The gas supply deal was one of the most visible and lucrative signs of Israeli-Egyptian co-operation, and accounted for 40 percent of Israel’s natural gas needs, according to the Financial Times. But the arrangement was unpopular among Egyptians angry over Israel’s treatment of Palestinians, and the deal was terminated by Egyptian authorities in April 2012 because of what Egyptian and Israeli officials called a commercial dispute between private companies. Leaders from both countries insisted the decision to end the deal was not political. But Zvi Mazel, a former Israeli ambassador to Cairo, said the Egyptian decision to terminate the deal had dealt a strategic blow to the relationship between the two countries. Later in 2012, Egypt struck a deal with Gaza to connect the Gaza Strip to Egypt’s electricity grid and a natural gas pipeline in the near future.

One factor in the termination of the deal may have been its possible connection to corruption, and the perception that gas sales to Israel were bad for Egypt: former Petroleum Minister Sameh Fahmy, five former Petroleum Ministry officials and fugitive businessman Hussein Salem were charged in 2012 with dishonesty and poor job performance after they allegedly sold gas to Israel at below-market prices for great personal profit. Salem, a founding shareholder of EMG, was accused of collaborating with the company to profiteer from gas deals with Israel.

=References=