The Jewish state is about to play a much bigger role in the region’s energy trade and petroleum politics.
Adesert oil pipeline that Israel once operated as a secret joint venture with Iran could be a major beneficiary from the Trump-brokered peace deal with the United Arab Emirates. With the UAE formally scrapping the eight-decade Arab boycott of Israel—and other oil-rich Gulf neighbors likely to follow suit—the Jewish state is on the cusp of playing a much bigger role in the region’s energy trade, petroleum politics, and Big Oil investments.
It starts with an under-used but highly strategic pipeline. Stepping cautiously out of the shadows, the Israeli managers of Europe Asia Pipeline Co. (EAPC) say their 158-mile conduit from the Red Sea to the Mediterranean Sea provides both a cheaper alternative to Egypt’s Suez Canal and an option to connect to the Arab pipeline grid that transports oil and gas not just to the region, but to the seaports that supply the world. “It opens a lot of doors and opportunities,” the pipeline company’s CEO, Izik Levi, told Foreign Policy. He reckons that the pipeline, which connects Israel’s southern port of Eilat with a tanker terminal in Ashkelon on the Mediterranean coast, could nip off a significant share of the oil shipments now flowing through the nearby Suez Canal.
While much of the hoopla over the UAE-Israel pact has focused on other sectors such as technology, health care, education, and tourism, the Eilat-Ashkelon pipeline brings the deal into the realm of petroleum, the beating heart of the Persian Gulf economy. Now that the Emiratis have broken the ice, opportunities for Arab-Israeli energy deals are broad and lucrative, ranging from investment in the Israeli pipeline itself, to adapting it for carrying natural gas or connecting it to pipelines across Saudi Arabia and the wider Middle East. “If they’re doing partnerships with Israelis, there’s tremendous potential for all kinds of business,” said Marc Sievers, a former U.S. ambassador to Oman, where Israeli Prime Minister Benjamin Netanyahu made a groundbreaking visit two years ago.
Just over 60 years ago when it was built, the Eilat-Ashkelon pipeline was a massive national construction project aimed at guaranteeing Israel’s and Europe’s energy supplies in the wake of the 1956 Suez crisis. Egyptian President Gamal Abdel Nasser had restricted shipping through the canal, triggering an invasion by Israeli, British, and French forces. Subsequent efforts by Egypt to block the 120-mile artificial waterway also played a role in Israeli-Arab wars in 1967 and 1973.
Most of the oil flowing through the pipeline came from Iran, which had close but discreet relations with Israel for decades under Shah Mohammad Reza Pahlavi. In 1968, the Israeli and Iranian governments registered what was then called the Eilat-Ashkelon Pipeline Co. as a 50-50 joint venture to manage the export of Iranian crude through Israeli territory and onward by tanker to Europe.
Much of the early oil flow appears to have been brokered by billionaire commodities trader Marc Rich, who was later indicted in the United States for continuing to trade with Iran after the 1979 Islamic revolution, when it was declared an enemy state. Rich was pardoned in 2001 by former U.S. President Bill Clinton, who said he was moved in part by appeals from Israeli leaders and intelligence chiefs. The rogue trader’s backers, including former Israeli Prime Ministers Shimon Peres and Ehud Barak, said he had repeatedly rescued the Jewish state from efforts to destroy it. Rich, who was never convicted, died in 2013.
A Swiss court ordered Israel in 2015 to pay Iran compensation of about $1.1 billion as a share of profits from the joint ownership of the pipeline since the two enemies broke off relations in 1979, but Israel has refused to pay up.
While the company’s main 42-inch pipeline was built to transport Iranian oil north to the Mediterranean, it now does most of its business in reverse. It can pump oil unloaded in Ashkelon from ships sent by producers such as Azerbaijan and Kazakhstan to tankers in the Gulf of Aqaba for transport to China, South Korea, or elsewhere in Asia. Running parallel to the crude pipeline is a 16-inch tube carrying petroleum products such as gasoline and diesel. The company also makes money from operating storage tanks at its shipping terminals.
The pipeline’s advantage over the Suez is the ability of the terminals in Ashkelon and Eilat to accommodate the giant supertankers that dominate oil shipping today, but are too big to fit through the canal. Known in oilspeak as VLCCs, or very large crude carriers, the ships can transport as much as 2 million barrels of petroleum. The 150-year-old Suez Canal, on the other hand, is only deep and wide enough to handle so-called Suezmax vessels, with just half the capacity of a VLCC. Oil traders thus have to charter two ships through the canal for every one they send via Israel. With one-way fees through the Suez reaching $300,000-$400,000, Levi says the pipeline allows Israel to offer a significant discount.
The company’s business has always been one of Israel’s most closely guarded secrets. Even today, EAPC releases no financial statements. Levi says he can’t disclose the names of customers—though he says they include “some of the biggest companies in the world.” What little information that is publicly known only came to light as the result of legal battles following a 2014 rupture in the pipeline that caused the worst environmental disaster in Israeli history, spilling more than 1.3 million gallons of crude oil into the Ein Evrona desert nature preserve.