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Egypt-Israel 'peace dividends' enrich elite

Egyptian and Israeli business tycoons used their countries' close relations after the peace treaty to enrich themselves.

Last updated: 10 Jun 2014 14:59
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Egyptian and Israeli businessmen and government officials signed gas deals worth billions of dollars [File: EPA]

It's a familiar narrative; the nexus of Western intervention, regime change and the oil and gas industry in the Middle East. Ever since British entrepreneurs discovered oil in Persia in 1908, Western powers have tried to secure their energy supplies by co-opting friendly leaders in the region and overthrowing those who challenged their interests.

Energy has also played an important, but less publicised role in the most sensitive relationship in the Middle East, Israel's peace with Egypt. Now, the largely hidden story of the two countries' energy interdependence is likely to have profound effects on their destinies.

It's a story that begins with Israel's invasion of the Sinai Peninsula during the Six Day War in 1967. Before then, a lack of energy reserves was one of Israel's key strategic weaknesses. Israel commandeered Egyptian oil production and also began exploring for new fields both on land and in the Gulf of Suez. In the following years, up to two-thirds of Israel's energy needs were supplied from land it occupied.

Interactive: Egypt's Lost Power

As the Carter Administration began to broker talks that would lead to the Camp David Accords, the issue of oil in the Sinai was proving to be a major stumbling block. As late as 1977, Israel was putting new wells into production and drilling in the waters off the Sinai coast as part of a $180m exploration programme.

As a result of Israeli intransigence, the United States stepped in with a secret commitment to guarantee energy supplies to Tel Aviv in the event of disruption.

After signing the 1978 Accords, Israel returned the oil fields in the Sinai to Egyptian control. But the agreement also included a commitment that Egypt would supply Israel with oil and maintain its flow from the Sinai.

"Energy was always a factor in a relationship between Egypt and Israel," Edward Walker told Al Jazeera during a meeting in Washington. Walker was involved in the Accords and would later become US ambassador to both Egypt and Israel.

"We were looking for the gas and the use of gas as a mechanism for tying these countries together. Whenever you have mutual interest between even two enemies, and they agree on how to deal with it so that they both profit, that’s perfect. That’s exactly what you want and that will tend to overcome a long history of prejudices and so on because people they like money, and money talks," he said.

Walker was involved in facilitating a $1.2bn oil refinery project at Alexandria, called MIDOR, which brought the two countries' energy sectors together and substantial Israeli investment in Egypt in 1993.

Such projects were called the 'peace dividend' in the West. Shared business interests served Washington's primary goal - to seemingly legitimize Israel in the eyes of the Arab world's most populous nation and prevent another war between these two former enemies.


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But the people that the MIDOR oil refinery project brought together were not conventional businessmen. The impetus for the project was political and the sensitivities were such that the governments turned to trusted lieutenants - former intelligence agents and military officers who worked alongside their political patrons.

In fact, the US had worked hard to bring the military and intelligence services of Egypt and Israel together at Camp David in order to ensure that the key stakeholders were not about to start another war.

This relationship prospered, according to Dr Omar Ashour from Exeter University: "From the 1990s on, the relationship between the Egyptian military and Israel was actually one of almost an alliance, of close cooperation in terms of intelligence sharing."

"It always boils down to: Is it enough of an income earner to be able to cover everybody?"

Edward Walker, Former US ambassador to Egypt and Israel

While the peace accords brought the military and intelligence services into the realm of the energy sector, the deal was also secretive with no effective oversight. This was deliberately so, because the majority of the Egyptian people did not want their country making deals with Israel.

The scene was set for former intelligence agents to amass vast personal wealth - and distribute it among their political and military patrons.

"The 'peace dividend' that we’ve seen is that members of the business elite, specifically the corrupt business elite and members of the intelligence agencies, they built lots of close relationships," Mika Minio-Paluello, an energy analyst at the London-based think-tank Platform, told Al Jazeera.

"A lot of the businessmen who managed to stash millions away in Switzerland together, they're closer," said Minio-Paluello. "Did it bring the people of Egypt and Israel closer? No, of course not."

In Israel, the business interests of former intelligence agents are subject to legal oversight and even if connections are regularly exploited for financial gain, it has not significantly affected the productivity of the energy sector. In Egypt, this is not the case.

Hussein Salem was the architect of Egypt's energy deals with Israel. He was President Hosni Mubarak's confidant and facilitator. He also funneled money to the ruling family from the energy deals that the president signed off, while keeping handsome rewards for himself.

Former US Ambassador to Egypt Edward Walker confessed to liking Salem. "He could make things happen," Walker told Al Jazeera. Salem was seen by both the US and Israel as the 'number one man' who helped the 'normalisation process' between Egypt and Israel.

Walker is a tall elegant man, now in his seventies. He also has a devilish humor and mocks diplomatic niceties. The gas deals were "helping to cement the Egypt-Israel treaty and that's why we were always very positive about it without getting into the whole corruption side of it".

"It always boils down to: Is it enough of an income earner to be able to cover everybody?" Walker said.


VIDEO: Egypt: New leader...but what's next?


Some two decades after Walker helped broker the MIDOR oil refinery deal with Hussein Salem, the results of the corruption, tolerated by the US, are felt starkly in Egypt.

The Egyptian energy industry has been devastated by lack of investment, mismanagement and short-sightedness as successive petroleum ministers have been more interested in lining their own pockets than developing the rich seams of natural gas that the country possesses.

Once a net exporter, the country is unable to supply its growing domestic demand for gas. As a result of gross failures to predict supplies, Egypt has breached contracts to multinationals that are suing in international arbitration courts. Egypt's foreign reserves at best are about $14bn. It already owes $6bn to British companies BG and BP and has known further claims of $14bn from other energy companies.

The story, which began with a peace deal that was meant to provide Egypt with a glowing future and a substantial 'peace dividend', has a twist in the ending.

At one time, Egypt had the oil that Israel coveted. Now as Egypt's energy sector malfunctions, Israel has struck a bonanza in the Mediterranean. It has laid claim to some of the largest deepwater gas finds discovered this century.

Through deals between multi-national energy companies, Israeli gas is poised to be pumped to Egypt. It is no wonder that so many Egyptians are bemused about the benefits of their relationship with Israel.

Walker is no doubt right to say that 'people like money'. In Egypt, the military and political class liked it so much that they kept it all for themselves.

Phil Rees was the Director and Executive Producer of Al Jazeera's investigative documentary, "Egypt's Lost Power". Click here to watch it.

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Al Jazeera
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