Last updated: 23 April, 2012

Israel shrugs off impact of Egypt nixing gas deal

Israel on Monday rushed to downplay the significance of Egypt cancelling its gas export deal with the Jewish state, casting it as a “commercial dispute” with no impact on their diplomatic ties.

“The deal to supply gas is not part of the peace deal, but it is an important commercial deal that was an expression of the stable ties between the states,” Foreign Minister Avigdor Lieberman told Israeli public radio in an interview from Baku.

“The unilateral cancellation of the deal is not a good sign, and we hope that this dispute will be resolved like any other commercial dispute, without taking it to the political realm,” he said.

On Sunday, Egypt said it had scrapped the 2005 gas export deal with Israel, which generates 40 percent its electricity from natural gas, with Egypt providing 43 percent of its gas supplies.

The accord with the East Mediterranean Gas Company (EMG), which exports the gas to Israel, was cancelled “because the company failed to respect conditions stipulated in the contract,” Mohamed Shoeib, head of the state-owned Egyptian Natural Gas Holding Company (EGAS) told AFP.

But a spokesman for Israeli Prime Minister Benjamin Netanyahu insisted the agreement had not been cancelled, blaming a “legal dispute” between the two companies.

“The gas supply deal between Israel and Egypt has not been cancelled. There is a legal dispute between Israeli and Egyptian companies,” said spokesman Ofir Gendelman in a message posted on Twitter.

The dispute, he wrote “has not been resolved yet, and it has nothing to do with the diplomatic relations between Israel and Egypt.”

The contract with Israel, which signed a peace treaty with Egypt in 1979, has always been controversial in the Arab world’s most populous country.

Agreed under the Mubarak administration, it had repeatedly been challenged in the courts over its secretive clauses, with opponents claiming Israel was paying below-market prices.

It was the largest ever trade deal between the two former foes.

A pipeline in Egypt’s Sinai Peninsula which had been used to supply gas to Israel and Jordan has been attacked 14 times since since the overthrow of president Hosni Mubarak in February 2011, with the latest attack on April 9.

Despite the Israeli government’s efforts to downplay the EGAS announcement, some Israeli officials voiced concern that the cancellation was yet another blow to the Jewish state’s worsening relations with its southern neighbour.

Ties frayed after Mubarak’s ouster and deteriorated even further in September when protesters stormed the Israeli embassy in Cairo.

On Sunday night, Finance Minister Yuval Steinitz said in a statement relayed by Israeli media that the scrapped deal was “a dangerous precedent that overshadows the peace agreements and atmosphere of peace between Israel and Egypt.”

By Monday, however, Steinitz had toned down his reaction, and a statement from his bureau said he was “very concerned” over the “economic aspects” of the cancelled deal, without commenting on relations with Egypt.

Steinitz further noted in his Monday statement the importance of increasing Israeli efforts to “fortify our energy independence.”

Since the interruption of gas supplies following the fall of Mubarak, Israel has been pushing for the speedy exploitation of several recently-discovered gas fields off its northern coast, which could compensate for the loss of Egyptian gas.

Israel has already moved to begin exploiting the fields, signing a deal with Cyprus to mark out maritime borders, but it faces challenges from Lebanon, which claims that the gas fields lie in its territorial waters.