Egypt's cancellation of gas sales to Israel was inevitable
The gas pipeline had long drawn complaints of Mubarak-era corruption, popular anger at Israel, and the failure of commercial dealings to improve Egypt-Israel ties.
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The gas deal was imagined by its political architects (the US and Israel had been pushing for a pipeline across Sinai as far back as the early 1990s) as something that would bring Egypt closer to Israel. But in fact its failure now is a reminder that the cold peace forged at Camp David never became anything more. Some business has been done and money made, another war remains unlikely, but the fact remains that the gas deal is a political liability in a changing Egypt where popular sentiment has far more force than it did under Sadat or Mubarak.Skip to next paragraph
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Eastern Mediteranean Gas (EMG) is a business partnership that shows the benefits of having friends in high places. Hussein Salem, a wealthy Egyptian who was widely viewed in Cairo circles as a bag man for Mubarak and his family, is one shareholder. Mr. Salem fled his homeland soon after Mubarak fell and has since been fighting extradition attempts on corruption charges connected to the gas deal.
Yossi Meiman, an Israeli businessman with close ties to former Prime Minister Ariel Sharon, is another. Mr. Maiman managed to cash out a direct 12.5 percent stake in EMG in 2008 – by having Ampal American-Israeli Corporation, a company he controls, issue about $230 million in bonds to buy him out. Those bonds are now set to default. Jewish-American billionaire and philanthropist Sam Zell is another partner.
Aside from political risks, EMG had a sweet deal. A guaranteed supply of gas at a fixed price at one hand, with a guaranteed buyer at a 50 percent markup, at the other. The size of that markup, negotiated as it was between a company partially controlled by a close business associate of Hosni Mubarak and the state oil company, had led to whispers of corruption in Egypt from the moment the deal was signed in 2005. With the uprising against Mubarak last year, the whispers have become shouts.
Egypt's leading presidential candidates have all attacked the deal. Amr Moussa, the former head of the Arab League who was popular regionally for his fiery anti-Israel rhetoric, praised the cancellation, saying the gas deal was obviously tainted with corruption.
Going forward, it's conceivable but not likely that gas sales will resume. Israel, always leery of counting on a neighbor like Egypt, has major gas developments of its own under construction, and the country is confident it will soon be able to replace lost supply. Egypt has substantial demand for subsidized fuel at home, and resource nationalism is a potent issue at a time of economic crisis.