Cutting off gas exports to Israel might have felt like a bombshell but it didn’t come out of the blue, write Niveen Wahish and Sherine Abdel-Razek

The export deal under which Egypt pumps natural gas to Israel has been the focus of popular discontent since it was signed in 2005. Following the toppling of Hosni Mubarak that discontent bubbled increasingly to the fore. The pipeline carrying gas to Arish in North Sinai, from where it continues underwater to Ashkelon in Israel, has been attacked 14 times since January 2011.

The pipeline is owned and operated by East Mediterranean Gas (EMG), a consortium of Egyptian, Israeli and other investors formed in 2005. Egypt’s General Petroleum Corporation (EGPC) has a 10 per cent stake in EMG.

The cancellation of the export contract is a purely commercial dispute, Mohamed Shoeib, the CEO of Egyptian Natural Gas Holding Company (EGAS), has been quoted as saying. Minister of Petroleum Abdallah Ghorab has also stressed that the decision is apolitical, the result of a dispute between companies that are party to a contract. Under the terms of the contract, should the buyer fail to make payments for four consecutive months, the seller has the right to terminate the deal.

During a press briefing earlier this week Minister of International Cooperation Faiza Abul-Naga said five notifications of non-payment had been issued.

Cancellation of the export contract has met with public applause. Parliament commended the move, and judging by comments posted on the Internet, the public is elated. Ending gas exports to Israel had been a popular demand long before the revolution. It was partly fuelled by economics — the gas was being sold at below international prices — but mainly by anti-Israeli sentiment.

MP Emad Gad says the decision relieves Egypt of a burden it could ill afford. Gas was being exported at a quarter of its real price and the Israelis, unlike the Jordanians, to whom Egypt also exports natural gas, had refused to renegotiate the contract.

Egypt was exporting gas to Israel at $0.75-1.25 per million metric British thermal units (MMBTU) at a time when it is selling for $13 per MMBTU on the international market. Cancelling the deal means Egypt keeps 1.7 billion cubic metres of gas that can now be used to replace petroleum products imported to meet domestic energy demands.

“Egypt should save $2 billion annually,” says Ramadan Abul-Ela, professor of petroleum engineering at Alexandria University.

The government might be spinning the cancellation of the contract as the result of a commercial dispute, says Gamal Abdel-Gawad, of Al-Ahram Centre for Political and Strategic Studies, but in essence it is a political decision that “reflects a political system no longer able to resist popular opposition to the exports of gas to Israel”.

The decision, believes Abdel-Gawad, is timely, since the ramifications could have been serious if the authorities were seen to have cancelled the contract in the face of popular pressure.

The move also pulls the rug from beneath presidential candidates, all of whom had made cancelling the exports part of their programme. Abdel-Gawad expects Israel to leave no stone unturned in its attempts to reinstate the contract, either through legal channels or by pressing Washington to pressure Cairo.

Ramadan Abul-Ela is less sanguine about the timing.

“It looks like a stunt by existing policy-makers who want accrue some credit with the public,” he says. Egypt should have taken the step a year ago “when the world’s sympathy was with us”.

Now, he points out, the contract is being cancelled when both sides have committed infringements. “Israel might not have paid,” says Abul-Ela, “but Egypt failed to deliver”.

Though Abul-Naga insists Egypt remains ready to sign a new contract as long as the terms are acceptable, Abdel-Gawad finds the suggestion implausible.

“It was one thing when there was an unpopular contract in place with which they were complying, another thing altogether for the government to enter into a new contract. The political price is simply too high.”

Abul-Naga’s statement, says Gad, was for diplomatic consumption, the suggestion that the Egyptian government is not against another deal intended to head off any pressure from Washington.

The halt in gas supplies is a headache for Israel. Before the interruption caused by attacks against the pipeline Egypt supplied 40 per cent of Israel’s natural gas, representing a third of Israel’s total fuel. Gas reserves have been found off Israel’s Mediterranean shore but they will not be online for at least five years.

The immediate reaction of Israeli officials was that ending the contract cast a shadow over the Camp David peace accord.

The New York Times quoted Israeli Finance Minister Yuval Steinitz: cancelling the contract, he said, sets “a dangerous precedent that overshadows the peace agreements between Israel and Egypt”. The Jerusalem Post quoted Israeli opposition leader Shaul Mofaz railing against “a blatant infringement of the peace treaty” and demanding Washington, as guarantor of the Camp David Accords, intervene.

Israeli officials later toned down their statements, repeating Cairo’s line that the cancellation was a commercial dispute.

In the wake of the cancellation of the gas export contract calls have already been voiced for the Qualified Industrial Zones (QIZ) protocol to be terminated. Such demands, says Gad, are unjustified. QIZ, signed in 2004, allows Egyptian manufacturers to export goods to the US without incurring customs provided they have an 11.7 per cent Israeli input.

“Before annulling the agreement the opinion of factory owners must be taken into account,” says Gad. It would be necessary to ensure products remain competitive when exported outside the framework of QIZ and that markets exist that can absorb the production. (When business talks politics — full coverage p.7)