Gaza's gas fields: How Israel shackled Palestine's economy

A Palestinian fisherman prepares his fishnets along a beach off the Mediterranean Sea in Rafah in the southern Gaza Strip on September 2, 2020. (Photo by SAID KHATIB / AFP) (Photo by SAID KHATIB/AFP via Getty Images)
9 min read
26 May, 2021
Analysis: The discovery of natural gas in Gaza once promised economic and energy independence. But as with every other aspect of Palestine's development, its potential was shackled by Israeli restraints.

Most Palestinians of a certain generation can remember the September day in 2000 when PLO leader Yasser Arafat appeared on Palestinian national TV to announce the discovery of natural gas off the coast of Gaza.

From the bridge of a fishing boat, and with a wide smile on his face, the Palestinian leader described the discovery as “a gift from God” to the Palestinian people for generations to come.

"This will provide a solid foundation for our economy, for establishing an independent state with holy Jerusalem as its capital,” he added.

Confidently, in his usual theatrical manner, Arafat signalled to the British Gas (BG) engineers to light the flare on top of the floating platform, sending a column of flames into the sky.

Fresh out of failed negotiations at Camp David with Israel and virtually on the eve of what would soon become the Second Intifada, the timing was convenient for the Palestinian leadership.

"Since the beginning of the Second Intifada, Israel has established de facto control over Gaza’s offshore gas reserves"

In retrospect, Arafat’s optimism was perhaps premature; boosting the Palestinian economy, like everything else, was Israel’s decision.

With the eruption of the Second Intifada, the gas field was shut down, and negotiations in the following years to revive it proved fruitless, often marred by Israel’s security and political considerations.

Following the end, last week, of the fourth Israeli war on Gaza in 13 years, which left 274 Palestinians, including 66 children, dead, the detrimental impact of these restraints on Palestine’s economic development has only been further reinforced.

Background

The 1995 Oslo II Accords, Annex I, between the Palestinian Authority (PA) and Israel granted the former maritime jurisdiction of up to 20 nautical miles (23 statute miles) from the Gaza coast, which enabled the PA to sign a 25-year contract with British Gas in November 1999 for gas exploration.

The British company had already discovered a large gas field in the area, the Gaza Marine, earlier that year, approximately 22 miles offshore, at a depth of 2,000 feet and with a capacity of 1 trillion cubic feet of good quality natural gas.

Two Palestinian fishermen paddle their small boat a few hundred yards off the beach in Gaza City while casting their nets in search of fish. [Getty]
Palestinian fishermen paddle their boat a few hundred yards off the beach in Gaza City. [Getty]

Yam Thetis, a consortium of three Israeli companies and a US firm assigned to the adjacent Israeli gas fields, protested that the PA wasn’t a sovereign state and, therefore, lacked the authority to sign gas exploration contracts.

Nevertheless, Israel’s then prime minister Ehud Barak, in July 2000, granted BG security authorisation to drill the first well, Marine-1, and later in November, Marine-2.

It was a political decision, not a legally binding recognition of the PA’s jurisdiction over the Palestinian territorial waters, marking, in fact, a pattern of Israel’s interpretation of the Oslo Accords, often favouring Israeli full control over Palestinian decision-making and livelihoods.

Analysis
Live Story

Since the beginning of the Second Intifada, Israel has established de facto control over Gaza’s offshore gas reserves. In the wake of Operation Cast Lead in December 2008, the Israeli government effectively brought the gas field under its control with no regard for international law.

Bypassing the PA and Hamas in Gaza, the Israeli defence authorities in 2007 wanted to sign a deal with BG, where Israel would deprive the Palestinians of financial revenues from Gaza’s gas and, instead, pay them in goods and services.

For Israel, the system fitted two long-standing colonial policies. First, to keep Palestinians on the verge of a humanitarian crisis but never in complete meltdown, therefore reducing the political struggle to mere daily survival, and, second, to maintain control over Palestinian economic lifelines, effectively using them as a tool for political pressure and collective punishment when needed.

Unrealised potential

According to the Brookings Institute, exploitation of the Gaza Marine was projected to produce revenues of $2.5-7 billion. It was to provide a domestic energy source, sufficient power for Gaza’s water desalination efforts, as well as eliminate the PA’s debt, currently estimated at $3.9 billion, or 89% of the annual GDP.

As the gas field remains inaccessible, Palestinians continue to accumulate losses of billions of dollars that would have otherwise, at least, stabilised the Palestinian economy and, more importantly, solved the chronic energy crisis in the Gaza Strip.

"Israel maintains control over Palestinian economic lifelines, effectively using them as a tool for political pressure and collective punishment when needed"

The densely populated territory requires about 560 megawatts of electricity to meet the population’s needs. What is available now is only 200 megawatts - 60% of which comes from Israel via 10 power lines, the rest from Gaza’s diesel-run power plant with fuel provided by Israel and paid for by Qatar. The power plant produces electricity for roughly 12 hours a day. The gap is bridged through unsafe methods such as generators, which continue to cause accidents and claim lives.

As an alternative solution, reported in February this year, a plan is being formulated by a quartet of Israel, Qatar, the PA, and the EU to provide Gaza with gas from Israel’s deep-water Leviathan field through a pipeline that would come directly from Israel.

Part of the pipeline would be funded by Qatar and the section in Gaza paid for by the EU. If an agreement materialises, construction could commence within the year, according to media reports. The flow of Israeli gas to Gaza would double, or even quadruple, the output of Gaza’s power plant, achieving a 24/7 supply of electricity.

Despite having the potential to be a desperately needed humanitarian intervention for Palestinians in Gaza, whilst also providing economic benefits for Israel, the project’s political sustainability remains in question.

There are concerns it would put Palestinian energy supplies, more than ever, at Israel’s mercy, further tightening its grip on Palestinian economic resources. Any new escalation in Gaza could also see Israel simply turning the gas off, a pattern similar to Israel’s repeated imposition of fishing zone restrictions and the withholding of PA tax revenues as a form of collective punishment. 

A Palestinian woman carries her baby near the rubble of Al Shorouq tower on 22 May. [Photo by Ahmed Zakot/SOPA Images/LightRocket via Getty Images]
A Palestinian woman carries her baby near the rubble of Al Shorouq tower on 22 May. [Getty]

Recent efforts

Almost parallel to the Qatari-EU effort to supply Gaza with Israeli gas, Egypt’s Energy Minister, Tareq Al-Molla, visited Ramallah in February to sign a memorandum of understanding on developing the Gaza Marine Gas Field. Palestinians hope that Egypt’s efforts and regional relations will allow them to develop the Gaza gas field after years of Israeli objections.

Chair of the state-owned Egyptian Natural Gas Holding Company (EGAS), Magdy Galal, stated that the company will cooperate with the PA to reach an agreement that will ultimately lead to the extraction of gas, its transfer to Palestinian areas, and possibly even its sale to Egypt. Only short pipelines will be used “to deliver Palestinian gas to Egyptian territories and then export it abroad,” Galal added.

This week, it was reported that new initiatives were underway to discuss the demarcation of borders between Egypt and the PA, which would include Palestine's maritime borders and an Exclusive Economic Zone (EEZ) off Gaza's coast.

Analysis
Live Story

A proposal to discuss the demarcation of borders was also reportedly discussed in recent ceasefire efforts between Egypt and Hamas.

On the surface, the Palestinian position on energy appears unified, but the PA-Egypt deal in February proved that this wasn’t the case. To Hamas, the PA acted unilaterally. In February, Moussa Abu-Marzouk, deputy chairman of Hamas’s politburo, tweeted “Gaza must be present in any understandings about the gas fields on its shores,” demanding to “know more details about the deal.” 

Hussain Al-Sheikh, the PA's minister for civil affairs, was quick to respond by saying that “the agreements are signed with states, not with factions and organisations,” seemingly implying that Hamas’ status in Gaza is de facto and therefore doesn’t qualify as a state-level government. 

For Gazans, the Hamas-Fatah verbal jousting is just white noise. What matters is a solution to the large-scale socio-economic deterioration devastating the besieged coastal territory, which has since 2014 worsened dramatically, to the extent of forcing thousands of Gaza’s youth to leave, most never to return.

"The question for most Palestinians is whether any guarantees actually exist to prevent Gaza’s energy sources from simply becoming another means of pressure, if not collective punishment, when fully developed"

The big question

In theory, a functional Gaza Marine will improve people’s lives. However, any speculation would be premature given it’s all tied to Israel’s decision to allow Palestinians to benefit from their own gas resources.

At present, the specifics of Egypt’s role in convincing Israel to ‘release’ the Gaza Marine field are unclear. It is likely, however, that Cairo’s diplomacy will stem from its role as the founder and largest producer in the newly established East Mediterranean Gas Forum (EMGF), which also includes Cyprus, Greece, France, Jordan, Israel, and Palestine.

The EMGF creates a new geopolitical reality where Israel can sit at the same table as the Palestinian Authority. With a scaled-down US presence in the region, Egypt’s “energy alliance” is supplementing international diplomacy with an active regional one, which views economics as a path toward political stability. Gaza’s gas is part of the equation.

In theory, at least, shared economic interests lead to shared values and make the costs of losing such mutual economic benefits higher than those of conflict. However, so far, the approach of ‘solving the conflict’ through economic initiatives has only served to emphasise the severe power asymmetry between Israel and the Palestinians.

As Rawan Odeh writes in a study for The International Centre for the Study of Radicalisation (ICSR), each proposed economic plan revolves around Israel remaining in control of macroeconomics in Palestine, and a Palestinian dependency on Israel.

Analysis
Live Story

According to 2019 United Nations figures, since 2000 the occupation has cost Palestinians $50 billion. Another UN report stated that as of 2020, the siege and frequent Israeli military operations have cost Gaza about $16 billion, equivalent to six times the value of its GDP.

What applies to the overall dynamics of the Palestinian economy under Israel’s control also applies to Gaza’s gas potential. Therefore it’s unrealistic to expect that an economic boom in Gaza is possible without lifting the siege and ending Israel’s control over the territory.

Experience has shown, above all with the most recent Israeli war, that the restrictions on Palestinian lives have created a volatile situation only conducive to further conflict.

The question for most Palestinians is whether any guarantees actually exist to prevent Gaza’s energy sources from simply becoming another means of pressure, if not collective punishment, when fully developed.

Without a political solution, such guarantees don't exist. In the recent conflict with Hamas in Gaza, as in all other previous escalations since Oslo, Israel has closed the crossings, blocked the flow of goods, including medical supplies, and caused severe damage to Gaza’s infrastructure - currently estimated at $244 million in losses and increasing.

Dr Emad Moussa is a researcher and writer who specialises in the politics and political psychology of Palestine/Israel.

Follow him on Twitter: @emadmoussa