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Mon Jul 25 02:20:13 SAST 2016

Why Russia may be a smart business partner for Israel

REUTERS | 24 February, 2016 09:21
More recently, Russian President Vladimir Putin again pitched Israeli Prime Minister Benjamin Netanyahu on allowing Gazprom to participate in developing Leviathan. File photo
Image by: AMIR COHEN / REUTERS

Israeli Prime Minister Golda Meir famously lamented that Moses "took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil."

That all changed, though, in 2009, when a massive offshore natural gas field named Tamar was discovered. The following year, an even larger field named Leviathan was also discovered in Israeli waters, and another large find was just announced in January. Israel's fields include more than 32 trillion cubic feet of gas - enough to supply the Israeli economy for 150 years, assuming the gas can actually be brought to market with the help of a suitable partner.

Since Israel possesses far more gas than it needs, Israeli leaders face an enviable dilemma: Where to export this bounty? Both economic factors - particularly the challenge of financing the development of Leviathan - as well as the Middle East's geopolitical complexities make the choice trickier than it sounds.

Israeli commentators discuss three main partner options - Egypt, Greece and Turkey - each possessing their own upsides and downsides. Yet one less-obvious option Israel's leaders should consider is Russia. Bringing in the Russian energy giant Gazprom would be controversial - and certainly not a standalone solution - but would arguably enhance Israel's security and strengthen its broader geopolitical position.

Russia wants in on Israel's gas windfall. Russia relies on Gazprom both to fund its budget and provide Moscow geopolitical leverage, and the Russians would surely prefer that Israel's gas does not compete with Gazprom's supply. This is particularly true vis-à-vis Gazprom's core European market, which Moscow naturally remains keen to protect.

Consequently, over the past four years Russia has made several attempts to enter Israel's gas market. In 2012 Gazprom bid for a 30 percent share of Leviathan, but lost out to Australia's Woodside Petroleum. The following year Gazprom signed a deal to market liquefied natural gas (LNG) from Israel's Tamar field, although that was nixed by Israel's Ministry of Energy, which prioritized using Tamar to supply Israel's domestic market. More recently, Russian President Vladimir Putin again pitched Israeli Prime Minister Benjamin Netanyahu on allowing Gazprom to participate in developing Leviathan.

It's easy to understand Russia's interest in Israel's gas, but what's in it for Israel? For starters, under Putin's leadership, the Israeli-Russian relationship remains strong. Given ongoing tension between Israel and the Obama administration, it's not the worst thing for Israel to continue expanding its relationships with other major powers such as Russia, China or India.

Second, the Russian military remains firmly ensconced on Israel's northern border, and Putin is committed to expanding Moscow's political and military influence in the Middle East. Israel frets about Russia's presence on its border, and one high-ranking Israeli military officer noted "Now we all have to contend with the Russian bear, which appears to be here to stay with boots and everything else on the ground, in the air and at sea."

Israeli leaders, though, embrace a realpolitik view regarding their national security, and Netanyahu prefers to handle Israel's security concerns regarding Russia's presence in Syria - especially Israel's "red line" on the transfer of advanced arms to Hezbollah by Iran or Syria - via military coordination and a search for common interests. In that context, inviting Russian participation in Israel's gas industry would offer the Israelis tremendous leverage in pushing Putin to prioritize core Israeli security interests in the region.

Finally - and perhaps most intriguingly - allowing Gazprom a role in Israel's energy industry could play a direct role in securing the safety and security of Israel's offshore gas exploration infrastructure. Israel believes Hezbollah could target this infrastructure in a future conflict - something that Hezbollah leader Hassan Nasrallah already threatened - and the Israeli Navy recently purchased ships specifically to protect offshore drilling platforms. Fifty percent of Israeli power generation comes via gas from the Tamar field - and only a single pipeline connects Tamar to Israel - presenting a huge risk to Israel's energy security.

Inviting the Russians in, though, could solve this problem in a stroke. Hezbollah remains a key piece of Russia's "Shi'ite alliance," an axis that greatly benefits from Russia's airpower over Syria. This provides Moscow tremendous leverage over Hezbollah, which allows Moscow - if it so chooses - to instruct Nasrallah not to touch Israeli gas infrastructure. Indeed, if Russian citizens were located on the offshore drilling rigs, it is almost inconceivable that Hezbollah - or even Iran - would attack these installations and risk Russian civilian casualties.

Putin clearly understands this. While lobbying Netanyahu to allow Gazprom to become a partner in Leviathan, Putin promised to stop extremist groups from attacking any Israeli gas infrastructure because "no one messes with us" - a statement one Israeli energy expert described as a "Russian attempt to say that beyond the economic interest we can add another positive consideration." This is an offer Israel should consider. In effect, Israel would offer Putin a trade: We'll help you achieve one of your critical objectives - ensuring Gazprom participates in any sale of Israeli gas to Europe - in exchange for Russia's acknowledgement of Israel's special security interest's vis-à-vis Hezbollah and Iran, plus guaranteed security for Israel's Mediterranean gas infrastructure.

To be clear, a Russian-Israeli gas partnership is far from perfect and includes a number of pitfalls. For one thing, the United States would surely not welcome seeing Gazprom involved in Israel's gas bonanza. Tensions between Washington and Moscow continue to exist, and both the United States and European Union seek to lessen Gazprom's influence rather than increase it. The Israelis could therefore surely expect intense American pressure not to work with Gazprom.

Russia may not be the world's best business partner, either. Putin uses Gazprom, long hobbled by corruption, as a weapon against his opponents, denying access to gas supplies as a form of political punishment. The Israeli government would need to ensure Gazprom does not use this type of tactic in Israel. Moreover, Israel would also surely want to avoid its gas bonanza becoming a prop in any of the Kremlin's geopolitical games.

Finally, Russian involvement is far from a complete solution to Israel's gas export conundrum. Short of Moscow's commitment to spending tens of billions of dollars developing and transporting gas from Leviathan - something Russia, with its sinking economy, can hardly afford - Israel still needs to clinch a deal with a large customer such as Turkey to maximize its gas windfall. However, while Gazprom might be only one small piece of an Israeli gas game plan, the Russian security guarantees it brings to the table would promote core Israeli national security interests.

Israel's political and military strategists should therefore consider fitting Russia into its gas puzzle. (Josh Cohen)

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