Open Zion

09.16.13

Why Natural Gas Won’t Right the Wrongs of Oslo

As Israel positions itself as a natural gas exporter, the Palestinian Authority, which lacks a source of cheap fuel, is poised to become one of its first customers. But while selling gas to the Palestinians—and theoretically rescuing them from the social, political, and economic issues that accompany high oil and gas prices—may be seen as a positive development and a sign of improving bilateral relations, in reality it is needed precisely because of restrictions imposed by the Interim Agreement on the West Bank and Gaza, or Oslo II. If Israel does indeed send gas to the Palestinians as is predicted, such a dynamic will only perpetuate the problem of energy dependency created by the Oslo Accords.

The Paris Protocol, which was incorporated into Oslo II, was signed in 1994 and intended to last for an interim period of five years. It established a customs union between Israel and the Palestinian Authority, not an economic border, which resulted in “a Palestinian economy integrated in and dependent on the Israeli economy.” Regarding fuel, the Protocol stipulates that the difference in the price of gasoline in the Palestinian territories cannot be more than 15 percent of the price of gasoline in Israel, despite the fact that GDP and average income in Israel are significantly higher than in the West Bank and Gaza. If prices rise in Israel, they also have to rise in the Palestinian territories.  

At some point, this burden becomes unbearable. The protests in September 2012 that resulted from then-Prime Minister Salam Fayyad’s announcement of increasing fuel and cooking gas prices, prompted days of demonstrations in the West Bank against the high cost of living. Protesters’ demands actually included terminating the Paris Protocol, but Fayyad was able to quell the upheaval by cancelling price hikes and cutting the value added tax rate—which is also pegged to Israel—by two percent.

Of course, financing these subsidies necessitated cutting costs elsewhere—in this case, the salaries of top government officials. But if the West Bank had cheap gas, the logic goes, the Palestinian Authority would not have to resort to such economically painful measures in order to maintain stability, nor would the people be so inclined to protest in the first place. Selling natural gas to the Palestinian Authority is seen as a way to help stabilize the West Bank.

Still, Israel’s concept of stability provides for neither sustainable self-sufficiency nor independence. The very idea of receiving Israeli gas through a pipeline is controversial, and making such a politically contentious decision is not a move that the embattled Fatah leadership can necessarily afford to take a chance on. On the other hand, Israel also knows that Ramallah cannot say no if the price and conditions are right, since no other hydrocarbon-exporting country is looking to invest in this sort of operation.

Natural gas from the Tamar and Leviathan fields may be significantly cheaper than what Palestinians in the West Bank currently have access to, but that does not change the fact that an import arrangement with Israel would only reinforce its energy dependence on the state. Not only would the Palestinian Authority still be beholden to Israel for its energy supply, but that supply would also be subject to the ups and downs of Israeli market forces. Price fluctuations in Tel Aviv would certainly have ripple effects in Ramallah, just as gasoline prices do according to the Paris Protocol. Meanwhile, the Israeli government will not be making export-related decisions entirely on its own—it has to involve the natural gas exploration and production companies currently operating in the country, which are interested in seeing a return on their investments and maximizing profits.

If Israel exports natural gas to the Palestinian Authority, it will not be rescuing Palestinians from problem of energy dependence rooted in the Paris Accords. Rather, it will only serve to reinforce the idea behind a framework that has been in place for nearly twenty years. Natural gas may be cheap, but it will not right the wrongs of Oslo.