The pipeline was a joint project between Iran and Israel in 1968, but the Islamic Revolution of 1978-1979 crushed the alliance and cooperation.

Israel may owe Iran $100 million over the Eilat-Ashkelon pipeline, which made headlines last week when a breach spilled millions of liters of oil into the Arava.

The pipeline was a joint project of Iran and Israel in 1968, but the Islamic Revolution of 1978-1979 crushed the alliance and cooperation.

The arbitration process dates back to 1994 when the National Iranian Oil Company appointed an arbitrator per the 1968 contractual agreement between NIOC and Israel, asking Israel to do the same.

In mid-2013, the Swiss arbiter in the ruling handed down a decision in favor of Iran and against Israel to the tune of $100m.

Though the ruling was analyzed in November 2013 by lawyer Yoav Harris in the commercial business publication Hamit’an, it received scant attention until the recent ecological disaster.

Israel hatched the plan of building a pipeline in 1950 as a means of getting oil in a politically difficult time, according to Uri Bialer’s thorough examination of declassified documents, in a 2007 volume of Israel Studies.

Following the Sinai Campaign in 1956, Israel reached out to Iran, then ruled by Shah Reza Pahlavi. It took over a decade to work out the details, many of them in secret, and the plan almost died several times along the way, but was revived following the Six Day War in 1967.

Israel’s plan for the pipeline became public in October 1967, but details were hushed up within two days. The final agreement was signed in Iran on February 29, 1968, and included an operation contract that was set to expire in 49 years – 2017. The pipe-laying began in 1968, and the line was operational from 1969, when Iranian oil began to flow.

The partnership collapsed when the Shah fled Iran when the Islamic Revolution got under way in late 1978, and for more than a quarter-century Iran did not pursue legal action on how to claim its assets.

Harris commented that Iran took the arbitration path because, among other reasons, if it directly sued Israel, it would be recognizing the state to some degree, whereas arbitration allows it to somewhat avoid that issue.

The arbitration proceeding went forward in France and then eventually in Switzerland, with Israel failing at several appeals attempts in the Swiss courts to stop the arbitration. The appeals were exhausted in 2012, and the initial ruling against Israel was handed down in mid-2013.

Harris said that Israel can still dispute the ruling on a range of grounds.

First, if Israel shows up in court, it can try to present the merits of its defense, since it has not done so until now.

Those arguments are numerous and significant, ranging from civil arguments, such as that Iran was the party that broke the agreement and cut ties with the pipeline and with Israel, to criminal, accusing Iran of trying to destroy Israel through a range of terrorist schemes in multiple countries.

Why should Israel pay funds to a regime that may turn the funds around to Hamas, Hezbollah or its nuclear program to use against Israel, Harris said the state can ask. Israel can even object that paying Iran could violate domestic law and international sanctions.

Even if a final judgment is handed down against Israel, it is very unclear whether Switzerland or other European nations’ executives would actually try to seize Israeli assets in order to enforce it.

Asked how the arbitrators could even consider ruling for Iran, Harris said, somewhat critically, that such is the unique position of some jurists, who can focus solely on contractual documents in front of them while ignoring the broader context.

The Justice Ministry had not responded by press time, and the Foreign Ministry referred to the Prime Minister’s Office, which declined to comment.
Israel owes Iran $100m compensation for oil pipeline losses, rule Swiss arbitrators

Preliminary ruling relates to Tehran’s losses from a joint oil-pipeline venture after the 1979 Islamic Revolution.
By Avi Bar-Eli | Dec. 10, 2014

Israel may have to pay Iran as much as $100 million after a Swiss arbitration panel ruled that the Islamic Republic deserved to be compensated for the loss of its stake in a joint pipeline after its 1979 revolution, TheMarker has learned.

The preliminary ruling, which comes after two decades of arbitration, would pay the value of a 50% stake in the Iran Eilat Ashkelon Pipeline Company, which has more recently been in the news for a huge oil leak in Israel’s southern Arava region.

But the ruling, which could grant Iran between $50 million and $100 million, is still far from being final. It is the first of several rulings required in a complicated arbitration case between countries, during which the two sides will be able to file claims and counterclaims before the panel determines the final amount owed, if any.

The preliminary decision was made about a year ago but has never been published. Israel opposes the entire process on legal grounds, but was compelled to take part.

EAPC was formed in 1968 when the two countries were friends as a joint-venture company that would bring Iranian oil from the Gulf to Israel’s Red Sea port of Eilat and ship it to terminals in Ashkelon — avoiding the Suez Canal. From there the oil would be sold and shipped to Europe.

On the eve of the revolution that toppled the Shah and brought Ayatollah Khomeini to power, EAPC’s 242-kilometer pipeline contained about 800,000 tons of unrefined Iranian petroleum. That was worth $120 million at the time and about $400 million according to current prices.

Iran should have received half the proceeds from the sale of the oil, but because the new Islamic regime cut diplomatic ties, Israel never transferred the money. Only in the mid-1980s did Tehran act to recover the money and begin international arbitration proceedings in Geneva and Paris. In 2004 it sued Israel for $800 million, an amount it said was equal to all the assets in the joint venture.

The joint-venture agreement states that in the event of a dispute, the arbitration would be conducted in Tehran by a two-person panel consisting of an Iranian High Court judge and an Israeli counterpart. If the two failed to reach a decision, the International Chamber of Commerce would pick a third arbitrator to settle the matter.

Israel’s energy minister at the time the Iranians sought compensation, Moshe Shahal, proposed that Israel stick to the terms of the agreement and send an Israeli judge to Tehran – something the Iranian regime, now committed to a strongly anti-Israel policy, would never agree to.

In a history of the dispute that followed, published a year ago by attorney Yoav Harris of the Tel Aviv firm Doron, Tikotzky, Cederboum, Iran named its arbitrator in 1994 and asked Israel to name its representative. Israel refused on the grounds that the agreement did not sufficiently spell out the terms for arbitration but required the two sides to try to resolve any disagreements in negotiations – something that never happened.

A year later, the Islamic Republic asked a Paris court to order Israel to appoint an arbitrator. Harris contended that the court had no standing in the case, but in 2001 it issued a deadline for Israel to name an arbitrator. Israel’s appeal was turned down on the grounds that it refused to recognize the authority of the ICC in the matter.

As a result, the two sides agreed on Geneva as the site for arbitration. Israel again sought to stop the process in a Swiss court, but its petition was again turned down in 2012. Last year an appeal to the Swiss Federal Court also was rejected, so it was forced to pay 1 million shekels ($250,000) in court costs.