Palestinian Energy

Why Natural Gas Won’t Right the Wrongs of Oslo

As Israel positions itself as a natural gas exporter, thePalestinian Authority, which lacks a source of cheap fuel, is poised to becomeone of its first customers. But while selling gas to the Palestinians—andtheoretically rescuing them from the social, political, and economic issuesthat accompany high oil and gas prices—may be seen as a positive developmentand a sign of improving bilateral relations, in reality it is needed preciselybecause of restrictions imposed by the Interim Agreement on the West Bank andGaza, or Oslo II. If Israel does indeed send gas to the Palestinians as ispredicted, such a dynamic will only perpetuate the problem of energy dependencycreated by the Oslo Accords.

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

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

Of course, financing these subsidies necessitated cuttingcosts elsewhere—in this case, the salaries of top government officials. But ifthe West Bank had cheap gas, the logic goes, the Palestinian Authority wouldnot have to resort to such economically painful measures in order to maintainstability, 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 helpstabilize the West Bank.

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

Natural gas from the Tamar and Leviathan fields may be significantlycheaper than what Palestinians in the West Bank currently have access to, but thatdoes not change the fact that an import arrangement with Israel would onlyreinforce its energy dependence on the state. Not only would the PalestinianAuthority still be beholden to Israel for its energy supply, but that supplywould also be subject to the ups and downs of Israeli market forces. Pricefluctuations in Tel Aviv would certainly have ripple effects in Ramallah, justas gasoline prices do according to the Paris Protocol. Meanwhile, the Israeligovernment will not be making export-related decisions entirely on its own—ithas to involve the natural gas exploration and production companies currentlyoperating in the country, which are interested in seeing a return on their investmentsand maximizing profits.

IfIsrael exports natural gas to the Palestinian Authority, it will not berescuing Palestinians from problem of energy dependence rooted in the ParisAccords. Rather, it will only serve to reinforce the idea behind a frameworkthat has been in place for nearly twenty years. Natural gas may be cheap, butit will not right the wrongs of Oslo.