No one wants to make the call: What should Israel do about the UAE oil pipeline deal?

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We had never seen anything like it. Last week, a government-owned company filed a complaint with Attorney General Avichai Mendelblit against a cabinet minister for allegedly abusing her ministerial authority.

“Given these actions, and to protect the rule of law and basic norms required of administrative entities, your honor the attorney general is requested to instruct the minister and her ministry to desists and act only within the authority granted to her by law,” an outside lawyer retained by the government company wrote.

The government company is the Europe Asia Pipeline Company (formerly the Eilat Ashkelon Pipeline Company) – a state-owned infrastructure firm that has enjoyed the dubious privilege of secrecy and immunity for decades. It also certainly understands a thing or two about conduct violating the law. EAPC’s complaint is directed against none other than Environmental Protection Minister Tamar Zandberg.

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The unprecedented letter to Mendelblit was prompted by instructions that Zandberg issued to her professional staff to break off contact with representatives from EAPC. Zandberg, who was appointed minister in June, took the step due to her opposition to an agreement that EAPC had entered into in connection with the import of crude oil from the United Arab Emirates through the southern Israeli port of Eilat.

The agreement calls for the oil to be transported through the company’s pipeline over land to Ashkelon, on Israel’s Mediterranean coast, from which it would be transported by ship to Europe.

EAPC had made the surprising announcement in October 2020 that it had a binding memorandum of understanding to transport the UAE oil. Finance Ministry officials had not known about the deal, and nor had the Energy Ministry heard about it. Even the staff of the Environmental Protection Ministry learned about it from media reports.

On the other hand, a sizable group of dignitaries who attended the signing ceremony in the UAE capital, Abu Dhabi, were proof that not everyone in Israel was taken by surprise. Among those appearing in a photograph released by EAPC from the signing ceremony were the American treasury secretary at the time, Steve Mnuchin; Avi Berkowitz, President Trump’s special representative to the region for international negotiations; and Emirati Finance Minister Obaid Humaid al-Tayer. Also on hand were EACP chairman Erez Kalfon, company CEO Itzik Levy and two Israelis who had previously been executives at Paz Oil: former CEO Yona Fogel and the former head of the company’s Ashdod oil refineries, Malachi Alper.

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Secrecy derived from dispute with Iran

A few days after the signing of the memorandum of understanding, it was revealed that the business model involved was more complex than had been originally described. It was also suspiciously reminiscent of the business model from the Egyptian energy firm Eastern Mediterranean Gas, which brokered the sale a decade ago of Egyptian natural gas to the Israel Electric Corporation.

EAPC was established as a joint venture between Israel and the National Iranian Oil Company in 1968, well before the Islamic Revolution in 1979, to build and operate an oil pipeline from Eilat to Ashkelon and ports for tankers and storage facilities. It has made use of the secrecy that it has enjoyed in the course of its decades-long arbitration with Iran over the Iranian government’s holdings in the company – keeping business dealings that are completely unrelated to the dispute with Iran from public view.

It was only the public outcry – and a petition to the High Court of Justice filed by a number of Israeli environmental organizations – that forced it to release a portion of its contract regarding the UAE oil – and then only after it had been signed. From the information that has been released, and from what has not yet been disclosed, it turns out the deal involves unloading some 50 to 70 oil tankers a year at the port of Eilat port. The contract would run for a decade, with an option to extend it for another 10 years. In other words, it involves transporting 14 million tons of crude oil a year, generating annual revenues estimated in the hundreds of millions of dollars – and some claim even up to $1 billion a year – if the contract is carried out in full.

The Europe Asia Pipeline Company’s Eilat port facility.Olivier Fitoussi

The problem is that EAPC’s business license for the Eilat port limits the company to receiving 2 million tons of oil a year – the equivalent of just 10 to 12 tankers. That is why EAPC acted quickly, and with finesse. First, the company informed only the lower echelons in the field at the Environmental Protection Ministry about its intention to expand its “routine” operations, as part of its “regular” activity, and to add a few more tankers to an annual five to 10 tankers a year.

EAPC asked the marine and coastal unit of the Environmental Protection Ministry to expedite directives to boost the number of tankers. The low-level officials, who were not aware of the bigger picture, took the bait and began technical discussions with EAPC on the matter. The penny only dropped at the Environmental Protection Ministry after the public criticism surfaced, but by then it was too late.

The final agreement had already been signed. The Abraham Accords, which the United States brokered last year to forge peace agreements between Israel and the UAE and other Arab countries, provided patronage of sorts for the deal, and the request from then Environmental Protection Minister Gila Gamliel to the Israeli cabinet secretary and the National Security Council to conduct a cabinet debate on the agreement was ignored. Then the ball was kicked back into the court of public opinion.

Three environmental organizations, the Society for the Protection of Nature in Israel, the Israel Union for Environmental Defense and Zalul, filed a petition in May with the High Court of Justice seeking an order revoking the agreement because it had not been brought before the cabinet for approval. The organizations purportedly had a point.

After all, the Israel Electric Corporation, which is also a government company has been required to submit its natural gas contracts to the socioeconomic cabinet. Why shouldn’t the EAPC have to follow suit on its own agreement with a foreign country binding a government corporation?

EAPC has argued in its defense that the agreement doesn’t confer any rights or make any commitments that could limit the Israeli government in the future – and that it therefore doesn’t require cabinet approval. The government has not yet responded in court to the petition. It requested an extension of time due to the change in governments. And the new government has found it difficult to come to a unified stance on the case in court.

Environment minister uncompromising

That’s due to the uncompromising stance of the new environmental protection minister, Tamar Zandberg of Meretz, and the cautious approach of the rest of the cabinet – led by Prime Minister Naftali Bennett. They have been concerned that the public could label them as enemies of the environment – and on the eve of this week’s UN Climate Change Conference in Glasgow no less.

For years, Meretz has been riding an electoral – and ideological – green wave. It would have been completely natural, when Zandberg took office, for the party to have embraced a policy of no additional environmental risks in the Gulf of Eilat and for the Emirati oil deal not to come to fruition.

But the High Court denied the environmental groups’ request for an interim order suspending the agreement. EAPC continued to pursue the matter with its contacts at the Environmental Protection Ministry – having already invested 15 million shekels ($4.8 million) in preparing for various risks – including the installation of cameras and the purchase of a marine oil boom for use in the event of an oil leak.

After the Environmental Protection Ministry rejected two risk assessments from EAPC, saying that they “weren’t worth the paper they’re printed on,” senior EAPC executives asked to meet with environmental regulators to work out a list of requirements that the company would need to meet. Then, however, after Zandberg’s directive barring such contacts, the ministry representatives told EAPC they would not be able to meet and that the cabinet would have consider the issue first.

Enviroment Minister Tamar ZandbergEmil Salman

On the surface, it would appear that Zandberg is right. It is her obligation to promote an environmental agenda – which is arguably inconsistent with the prospect of 70 oil tankers sailing over coral reefs off Eilat, a city whose beaches are also a strategic economic asset. And then there is the issue of transporting millions of cubic meters of oil over land in a pipeline that has already leaked in the past.

Zandberg’s position is also supported by an array of professionals and academics who expressed shock over the oil agreement. It is therefore not ridiculous to oppose the deal.

On the other hand, EAPC is also right. It produced a nice contract involving what has been its core business for decades. It informed whoever it needed to and didn’t inform those it didn’t need to. It is willing to comply with requirements that are imposed on it, but in an effort to stall the deal, the requirements have not been provided.

Cabinet ministers, the company has said, cannot be allowed to take the law into their own hands. EAPC argues that the nearby port of Aqaba in Jordan, next to Eilat, has been unloading 220 oil tankers a year – so why should 70 tankers anchored at Eilat, all of which are new and double- hulled, threaten the gulf?

In reality, however, EAPC is fighting for its very existence. If access to the Eilat-Ashkelon pipeline is perceived in the oil world as threatened for environmental reasons, future contracts for use of the pipeline would also be threatened, and the company’s most valuable asset would become irrelevant. In addition, the developments could be a death knell for company’s existing contracts.

The Jordanian port of Aqaba.NAPA/Shutterstock.com

If the Eilat-Ashkelon pipeline is put out of action, it would be only be a matter of time before an alternate pipeline is laid through Egypt’s Sinai Peninsula – or for other means of transporting oil other than the Suez Canal to be developed. That would seal EAPC’s fate.

Wanted: A government bureaucrat’s signature

This existential threat that EAPC faces is what is behind its exceptional complaint to Mendelblit – and behind the attempts to involve the National Security Council in the fight too. The complaint asserts that ending EAPC’s operations in Eilat would disrupt Israel’s strategic supply of imported oil, that it would empty the emergency oil reserves stored in the pipeline and bring the day closer when Israel’s southern gateway is shut.

But the National Security Council is not rushing to intervene. Bennett and his prospective successor as prime minister, Yair Lapid, have been cautious about involving themselves in the matter.

That, on one hand, is due to concern that they would be seen by the public as insufficiently green and, on the other hand, over concern of damaging Israel’s relations with the UAE. Even Energy Minister Karine Elharrar avoided taking a public stand on the issue, saying in an interview with Markerweek over the weekend that she was “indifferent” to the issue.

While everyone waits for someone to pull the chestnuts out of the fire for them, it is the Finance Ministry whose Government Corporations Authority reaps an oil dividend year after year. And the ministry’s director general, Ram Belinkov, (but not Finance Minister Avigdor Lieberman) sent a letter over the weekend backing EAPC and the UAE agreement.

“Our position is that there is no basis for the government to use its authority as the owner of a government company to intervene in the transaction in question,” he wrote, addressing the issue of whether the government might order EAPC to withdraw from the agreement, which it could under Section 4A of the Government Corporations Law.

“Use of the above could do serious damage to EAPC as a company in particular, government companies in general and to the State of Israel, both in terms of revenues, reputation and trust in their ability to conduct business,” Belnikov warned.

However, it doesn’t appear that a government initiative to cancel the contract is on the horizon. In fact, it isn’t necessary. The deal could be killed off in a variety of different ways, without government intervention, and in a tolerable way – for example, by delaying Mandelblit’s response past the deadline for allowing the increased number of tankers or by slowing the Environmental Protection Ministry’s approval process.

Imports in excess of two million tons of oil per year require the EAPC to submit an “emergency plan for the treatment of marine pollution” to the ministry with revised data. Without that, the company would lose its business license and be barred from unloading any petroleum in Eilat.

In other words, if Mendelblit closed ranks with Zandberg, an official’s signature would still be required to approve the deal. Go find an official who would take exclusive responsibility for allowing 70 oil tankers a year to sail over a rare coral reef, and in a year in which Israel sent a 140-strong delegation to the Glasgow conference. And when climate change is in the headlines.