The Israel-Hamas war has brought to the forefront emerging challenges and new opportunities for energy cooperation across the East Mediterranean. Despite that the continuity of the war has cast a grey shadow over the development of energy and water related projects between Israel and its Arab neighbors, it has nonetheless surfaced regional interdependencies in terms of shared interests.
The war has neither affected Israel’s domestic supply of natural gas nor its international reputation as a reliable supplier. Israel’s Leviathan and Karish gas fields have continued production unimpededly throughout the war. Operations were, however, halted for five-weeks at Israel’s Tamar field, which normally meets about 70 percent of Israel’s energy needs, as precautionary measure due to the platform’s proximity to Gaza. This has interrupted supply to Egypt, though not to Israel’s domestic market and Jordan.
An actor that helped Israel maintain its position as a credible energy supplier is Greek medium-sized company Energean Oil and Gas, which operates the Karish field offshore Israel. Specifically, Energean Oil and Gas provided up to 60 percent of all of Israel’s gas demand at times during the closure period, having achieved maximum capacity. It is noteworthy that gas production from the Karish field only began in October 2022 after the United States brokered the delimitation maritime boundary agreement between Israel and Lebanon, leaving Karish on the Israeli side of the line.
Should war erupt with Hezbollah in Lebanon, the situation is deemed that it would be different. Leviathan and Karish gas fields would have to be shut down, and domestic supply would be impacted severely. Considering this vulnerability, Israel appears ready to invest in underground storage of natural gas both for domestic consumption and export. Following the war, Israel is also set to expand production at Tamar and Leviathan gas fields. Overall, multinationals involved still regard Israel as a reliable supplier despite its invocation of force majeure during the current war.
It is with no doubt that the Israel-Hamas war has exacerbated Egypt’s economic and energy-related challenges. The temporary closure of the Tamar gas installation caused an interruption of flows to Egypt, deepening Cairo’s energy shortages and lengthening its rolling blackouts. Following the resumption of Tamar’s operation, the consortium that operates the Tamar lease expanded its output to Egypt by 30 percent thus helping Cairo alleviate domestic shortages and increase the volume of gas available for export to Europe. The provisory halt of Israeli gas hampered industrial development and production in Egypt, highlighting the latter’s vulnerability and prompting Cairo to consider diversifying its supply options. The multifold repercussions of both the Israel-Hamas war and the Red Sea crisis affect European security across the Mediterranean having prompted the EU to sign a 7.4-billion-euro aid package elevating its relationship with Egypt to a strategic partnership. The European funds will be primarily directed to trade, investment in low carbon energy and increase of energy exports to Europe, migration management, culture, and youth empowerment.
Egypt de facto grapples with the impact of the war in Gaza and of the Red Sea hits on the Suez Canal. In particular, the lowering of transit fees in the Suez Canal, the fall in tourist revenues by 30 percent according to Standard & Poor’s Global Ratings and the reduction of re-exports of gas by 50 percent in the fourth quarter of 2023 compared to the same period in 2022 are expected to shrink Egypt’s foreign exchange reserves and its GDP. Despite ongoing challenges, Egypt appears poised to emerge as the region’s energy hub, clinching the title from a crowded field of contenders. In fact, Egypt has all the necessary ingredients to become a regional energy hub, namely a liberalized gas market, independent regulatory authorities, an independent transmission system operator, and an established hub operator. Egypt also stands solidly behind the Gaza Marine gas field development project, which is a long-awaited win-win initiative, that is set to be prioritized once the war ends due to its promising economic and diplomatic benefits for Palestine, Egypt, and Israel.
In the coming years, Egypt also plans to lead the region in renewables. Pursuant to Vision 2030, Egypt and the European Bank for Reconstruction and Development (EBRD) launched Egypt’s Energy Wealth Initiative. With a €35 million grant from the European Commission, Egypt will replace 5,000 megawatts of gas-powered generation capacity with 10,000 megawatts of renewable energy. Eventually, wind and solar farms in Egypt will be joined to Europe by the undersea GREGY (Greece-Egypt) interconnector, a €3.5 billion “Project of Common Interest” with the EU. Furthermore, Egyptian exports of green hydrogen, in the form of ammonium, are also planned to reach Europe’s ports, according to the Egypt-EU Memorandum of Understanding signed on the sidelines of COP27. The critical importance of Egypt in European efforts to move towards more reliable suppliers is crystal clear including the enhancement of European investments in renewable electricity plants and transport infrastructure in Egypt.
For its part, Jordan has benefited from its contract to purchase natural gas from Israel as it has insulated Jordan from global price hikes following Russia’s invasion of Ukraine. Notably, Jordan saves $1.2 billion annually compared to if gas was taken from the international market. Israel demonstrated its reliability as a supplier by pumping gas to Jordan even during the war in Gaza, although there has been much remonstration against the deal considering the war. However, the cost of the alternatives, such as extracting Jordanian shale gas, makes diversification away from Israeli supplies infeasible.
Regional initiatives, like the Prosperity Blue-Prosperity Green Project that foresees the construction of a water desalination plant at the Red Sea in return for establishing with UAE funding a clean electric power generation plant in Jordan, would greatly benefit Jordan and Israel but has been postponed due to the Israel-Hamas war. Specifically, the Prosperity Blue-Prosperity Green project foresees the supply of 600 megawatts of solar energy to Israel from a UAE-funded plant in Jordan in exchange for 200 million cubic meters of desalinated water from Israel. The Project’s envisioned water desalination plant would take eight years to complete according to engineering forecasts. Prosperity Blue-Prosperity Green Project could highlight the dividends of regional peace, but the conclusion of this project’s agreement is suspended until the war ends and Jordanian public discontent toward Israel subsides.
It is also noteworthy that by 2030, Jordan hopes to source 40-50 percent of its electricity from renewables. The kingdom is expected to develop its national electrical grid with the support of the World Bank and the German Agency for International Cooperation, aiming to increase the interconnection of its grid with neighboring countries like Egypt, Iraq, Syria, and Saudi Arabia.
Overall, regional cooperation is critical to harnessing the Eastern Mediterranean’s energy resources, but regional conflicts remain obstacles to collaborative energy projects. Prioritization should thus be given to dialogue and diplomacy to help mitigate tensions, and to formulate a comprehensive energy strategy across the region. Because as French President Emannuel Macron acutely highlighted on global diplomacy a few years ago: “we can make sure that the future is for dialogue and not war, cooperation and not discord, shared prosperity and not crises”.
