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How to Kill an Economy

Egypt sours on its (lucrative) gas deal with Israel.

Mar 12, 2012, Vol. 17, No. 25 • By LEE SMITH
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The agreements were signed in 2005, but Egyptian gas didn’t reach Israel until 2008, two years after Israel started to tap its own fields. In May 2009, the Egyptian government amended the gas purchase agreement to double the price, while also applying a higher price retroactively to the gas that had already been supplied. Israel was now paying Egypt more than what Cairo was charging customers like Jordan (which relies on Egyptian gas for 80 percent of its electricity), and twice what it paid for its own gas.

Far from getting a sweetheart deal from the Egyptian government, says Wurmser, Israel was being blackmailed. “The Israelis had to stomach an unfair situation because the consumer agreements with the Israeli customers were already signed.” As for the notion that Israel was paying Egypt much less than the going rate, Wurmser explains that there’s no such thing as an international market price on gas. “Gas infrastructure can only be built by market agreements. You don’t have free-floating Liquefied Natural Gas tankers. It’s run like a railroad system. There are specific calculations regarding how to service that particular train, which routes it will run, etc.”

Obviously, a precise understanding of market mechanisms will have no bearing on the case of Hussein Salem. The Egyptian street wants blood and the current rulers in the military will be only too happy to slake its thirst—if only to keep the mob from coming after them.

But if the gas agreement with Israel was on the level, then what is the basis for the charges of corruption against Salem? That he didn’t spread the wealth evenly among his fellow Egyptians? This is hardly an atmosphere conducive to business or investment. Rather, it suggests Egypt is perched, once again, on the precipice of an Arab socialist nightmare.

The country’s economy is bottoming out. Maiman notes that between the lack of tourism, a steep drop-off in workers’ remittances from neighboring Libya, the flight of capital and a lack of foreign direct investment, the country desperately needs money. Egypt is going begging to the Arab states, the IMF and World Bank, while it is sitting on natural gas that it refuses to profit from for political reasons. And if Egypt fails to meet its contractual obligations to Israel, it is difficult to see investors taking further risks in a political climate dominated by Islamists.

With the entire region now in upheaval after the Arab Spring, Maiman still thinks that Israel and Egypt “are two countries that could provide stability and create a tone for the region, by cementing their relationship.” Mubarak’s fall gave hope to many that Egypt, static for 30 years, might once again lead the Arab world. The sad reality is that the largest and still most influential of Arab states may drag the Middle East in the wrong direction.

Lee Smith is a senior editor at The Weekly Standard.

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