Israel’s gas discoveries since 1999 were a very big deal that raised social, economic, and diplomatic dilemmas Israel had never faced.
By AMOTZ ASA-ELThe platform of Leviathan natrual gas field in the Mediterranean Sea, off the coast of Haifa. (photo credit: MARC ISRAEL SELLEM)
Euphoria swept the seven-year-old Jewish state, as a black geyser’s eruption in the Negev suggested Israel’s fledgling economy would now become El Dorado.Delusion lasted long enough to produce a popular song that called on Israel’s women to “Erupt in dance / From Dan to Eilat / And cry loudly / Oil is flowing in Hulikat” (the well’s location), but died quickly as it turned out the well would deliver a negligible 350 barrels per day.Israel’s energy predicament thus remained intact, combining geological dearth with political blocking of access to Arab oil, while Western companies such as Shell surrendered to the Arab League boycott, and suppliers such as the USSR shut their spigots following the Sinai Campaign.Ironically, when Israel finally found gas, energy had long ceased to be a problem: oil prices had plunged, Israeli industry thrived, and post-Soviet Russia itself happily sold Israel oil.Even so, Israel’s gas discoveries since 1999 were a very big deal that raised social, economic, and diplomatic dilemmas Israel had never faced.This week, as gas from the largest field, Leviathan, began flowing to Israel, Jordan and Egypt, it should be noted in all fairness that the Benjamin Netanyahu who, in the face of his legal entanglement, did everything wrong is the same Netanyahu who, on the energy front, did everything right.As surveys showed the gas fields can feed Israel’s energy needs for 150 years and add an annual $2 billion to its GDP for several generations, politicians quickly set out to stir populist hysteria.The allegation was that corporate interests were out to rob the citizenry, and that greed was about to defeat compassion.It was a celebration of demagoguery. “Greed” – embodied by entrepreneur Yitzhak Tshuva’s Delek and its partners – was what drove the privately funded prospecting that found the gas, an effort that was evidently more efficient than decades of state-led prospecting.This is besides the fact that cheap electricity is no engine of social redemption, because it does not create jobs, and is also marginal in a household’s overall spending.
Obviously, Israel’s emergence as a gas producer did demand regulation that would parcel the fields, prevent their monopolization, and tax their returns.It happened the Israeli way: hollering in the Knesset, shouting in rallies, court appeals, public defamations, multiple expert panels, and a plethora of high-tax pressure groups ranging from West Bank settlers to Arab lawmakers. All this took years to exhaust itself, but at the end formulas were reached and mining began.THE TAXATION formula was hammered out by economist Eitan Sheshinski’s committee, which recommended a 20%-50% tax on profits once a company pumped gas worth 1.5 times its original investments. This is in addition to the previous law’s 12.5% royalty.What was rightly decried as unfairly low taxation was thus redefined to benefit the public without discouraging investors.Then there was the dilemma over the gas’s destination: home or abroad? A panel led by then-Energy Ministry director-general Shaul Tzemah recommended that 53% would be exported. Lawmakers and High Court appeals cried out that the public was being robbed; the Knesset joined in, and the target was lowered to 40%.Then there was the competition issue. The government decided to let Delek’s group retain Leviathan, but at the same make Delek sell – and its partner Noble Energy dilute – their stakes in another field, and fully shed their holdings in two others, which would go to competitors.While obviously not fully satisfying everyone, this set of compromises got the industry going while reasonably balancing corporate and social concerns.Even more crucially, the evolving gas industry was also designed to prevent debilitating economic side effects, and at the same time serve Israel’s foreign relations.THE POTENTIAL damage was about foreign cash flooding the economy, resulting in the currency and exports appreciating, unemployment spiraling, and industry stagnating, as gas did to Holland in the 1960s.Israel was a natural candidate for this syndrome. Detecting this in advance, Bank of Israel governor Stanley Fischer demanded the creation of a fund that would siphon the royalties, invest them abroad, and then direct the yields to social causes such as education, health and welfare.Called a sovereign fund, this mechanism prevents petrodollars’ infusion into the national budget directly, suddenly, and through politicians’ hands, instead dripping the bounty into the economy slowly, steadily and impartially. Made law in 2014, this fund is expected to start operating this year, once royalties exceed NIS 1b.Lastly, Israel leveraged its gas diplomatically, teaming with Greece and Cyprus to lead gas into Europe through Italy.Even more crucially, and paradoxically, multibillion-dollar deals were signed with Egypt and Jordan, which this week began getting Israeli gas. In other words, the same Arab world that once laid on Israel an energy siege is now buying gas from the Jewish state.Added up, this legislative, regulatory, and diplomatic resourcefulness has been a masterpiece of political wisdom and poise, which benefited from Benjamin Netanyahu’s twin passions – economics and diplomacy – while deploying the diligence, studiousness, and resolve of the man he wisely placed at the center of this effort, Energy Minister Yuval Steinitz.This week, in what will loom as an emblem of Netanyahu’s dialectical career, his gas project matured just when his response to his legal situation reached a new nadir, as what began with accusations of the prosecution, police, courts and media proceeded to an immunity request peppered with the fallacy that “immunity is a foundation stone of democracy.”It isn’t, Bibi. Democracy’s foundation is that when serving the national interest, as you did on the energy front, one is crowned, and when damaging the nation, as you are doing now on the judicial front, one is dethroned.www.MiddleIsrael.netThe writer’s best-selling Mitz’ad Ha’ivelet Hayehudi (The Jewish March of Folly, Yediot Sfarim, 2019), is an interpretation of the Jewish people’s political history.
