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The Middle East’s New Energy Giant

The significance of Israel’s natural gas deposits.

Feb 21, 2011, Vol. 16, No. 22 • By MICHAEL MAKOVSKY
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Leviathan will also influence international relations through its impact on the global natural gas market. Israeli gas exports to Europe would compete with, and lead to reduced demand for, Russian gas, and thereby reduce Russia’s political influence in European capitals. And since Israeli gas exports would be priced by the gas market, they would further erode Russia’s beneficial gas export pricing, which has been uniquely pegged to oil prices, which are higher than gas prices. Reflecting Moscow’s interest in protecting its pricing and markets, its gas giant, Gazprom, which once wanted to sell Israel gas through Turkey, now wants to buy part of Israel’s gas fields. Reduced Russian influence in Europe is good for Israel’s chief ally, the United States. Washington has sought to undercut Russia’s dominant supply of natural gas to Europe, which is why it has supported construction of pipelines from Central Asia and the Middle East, like the proposed Nabucco line, that skirt Russia and Iran. 

Not surprisingly, Leviathan has raised some domestic issues in Israel as well, most notably regarding taxation. Since the 1950s, Israel has held down tax rates on natural resource extraction, an added incentive to companies that dared to explore there. Now that huge natural energy resources have been discovered, the Israeli cabinet recently decided to raise the profit tax—prospectively and partially retroactively. If the Knesset votes in favor of this new tax regime, it could well lead to less gas being extracted and would pose a roadblock to further investment. 

Despite some drawbacks and more details to be worked out, there’s no mistaking the fact that the Leviathan find represents a landmark event in the history of the state of Israel. Perhaps after all, on the matter of energy, Moses deserves greater navigational credit.

Michael Makovsky, a former energy market analyst at investment firms, is foreign policy director of the Bipartisan Policy Center and author of Churchill’s Promised Land: Zionism and Statecraft (Yale University Press).

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