The Middle East Channel

Donor aid to Palestine masks the real problem

During its latest meeting on the Middle East peace process, the Council of the European Union repeated its warning that the emergence of a viable Palestinian state living peacefully beside Israel was in jeopardy. Perhaps angered by reports that more than 60 development projects funded by the European Commission and several EU states had been deliberately demolished by Israel, the Council blamed the Israeli government for threatening to make a two-state solution "impossible" through increased settlement construction, house demolitions, forced population transfers, and revoking Palestinian residency rights in Jerusalem. The EU urged the donor community -- especially donors from the Middle East -- to do more to assist the Palestinians by providing financial assistance for donor-funded projects in areas under Palestinian Authority (PA) control. 

But, it is difficult to take the EU Council's conclusions about the need for further donor aid from "donors in the region" seriously. In particular, donors from the Middle East have a long history of providing financial support to the Palestinians since Israel's establishment in 1948.  More aid -- wherever it comes from -- is surely not going to create a Palestinian state, which the EU said it is avowedly committed to. The call for further aid to the PA is all the more incongruous because a truly independent Palestinian state with sovereignty over its population, territory, and natural resources would not need to survive on handouts from the "international community." As the EU acknowledged, "the majority of the Palestinian Authority's budget is met by its own customs and tax revenues." Beyond the proceeds the Palestinians receive from taxation, they could raise money from a plethora of other economic activities from tourism to exporting natural gas.

Yes, you read that right. There are two natural gas fields in Palestinian territorial waters off the coast of Gaza. Gaza Marine, the main field, is located 603 meters below sea level, 36 kilometers west of Gaza City. The second smaller field, the "Border Field," straddles the boundary separating Gaza's territorial waters from Israel's territorial waters. According to the British Gas Group website, which is the operator of the fields, the reserves found in the two wells are estimated to amount to 1 trillion cubic feet (TCF) of natural gas. Consolidated Contractors Company (CCC), BG Group's partner in the Gaza Marine project, believes that there are 1.4 TCF. Although this is not a huge quantity of gas compared to some countries' reserves, it is still more than sufficient to meet Palestinian needs for the next 15 years at current consumption levels in the West Bank and Gaza.

The failure to develop the gas fields are a potent illustration of why more donor aid is not the answer, especially when Israel has made a habit of destroying various European development projects. That the gas fields belong to the Palestinian people is clear under international law.  Even Israel does not dispute this. Indeed, when Israel gave the development consortium the go-ahead to explore for gas off Gaza's coast in the late 1990s, it was envisaged that Israel would be the main buyer of the Palestinian gas.

If the gas off the shore of Gaza were sold at market price, the PA would earn huge windfalls in revenue, even after the investors have recouped their initial investments. Moreover, in addition to the direct revenue that the PA would generate from the commercialization of the gas fields, the Palestinian economy could save more than $8 billion in energy costs over the life of the project, if the gas were used for generating electricity in Gaza and in the West Bank. In other words, an independent Palestinian state would not, in the future, have to survive on aid from the international community, but would have sufficient resources to be able to finance its own development. 

And yet, 13 years after two commercially viable gas fields were discovered, efforts to develop them remain deadlocked despite the international backing the project enjoys. Meanwhile, the besieged Gaza Strip suffers prolonged power cuts and the Palestinian economy bears a huge financial cost -- as do the Western taxpayers keeping it afloat.

According to CCC, the failure to develop and commercialize the gas in Gaza is due to the Israeli government's insistence that it purchase the gas at prices below market value.  Apparently, Israel wanted to negotiate a contract with the consortium whereby it would only pay $2 per cubic foot rather than the market price of $5 to $7. As a source inside CCC told me: "The biggest resource in Palestine is being held up by the Israelis. If this is resolved it would reduce the subsidy the EU and U.S. gives the PA."

Up to 2009, Israel viewed the gas fields off Gaza as essential to its energy security even though it discovered the Yam Tethys (Tethys Sea) gas fields around the same time as those off the Gaza coast because that field was nearing depletion. However, since 2009, Israel has made large discoveries of gas in the Tamar and Leviathan fields. Tamar, which holds about 9 TCF of gas, is currently under development and is expected to start generating gas by 2013. It will provide sufficient gas to meet Israel's needs for the next 25 years. Leviathan holds larger gas quantities (~17 TCF), but is further from Israel's coast, and much more expensive to develop. There is no clear development plan for Leviathan, but when development goes ahead, it would turn Israel into a net gas exporter. Thus, Israel has its own quantities of gas, and does not need the fields off Gaza. One can only conclude that Israel continues to block the development of the gas fields as part of its blockade against the Gaza Strip.

According to Dr. Muhammad Mustafa, chairman and CEO of the Palestine Investment Fund -- which is one of the partners of the Gaza Marine project -- it would cost $800 million to develop Gaza Marine. No energy company is going to make this financial commitment unless it can find a buyer who will agree to a long-term contract where the price of the gas is set at a price representing market value. And for a credit worthy buyer to agree to sign a contract with the consortium, the developers would need political and security clearance from Israel to export the gas. Unfortunately, successive Israeli governments have been unwilling to provide this. Thus, the developers are faced with an ultimatum: either agree to sell the gas to Israel at below market price or don't sell it at all.

The moral of the story is that the EU, which invests hugely in the Palestinian economy, would be better off assisting the PA with the development of the gas fields by publicly calling on Israel to allow for their development, rather than calling on third states to donate more funds for specific EU approved projects. This is especially salient as more than a quarter of all Palestinian structures demolished by Israel in 2011 were funded by international donors including European governments and the EU. Electricity is a necessity for the Palestinians, and especially for the residents of the beleaguered Gaza Strip where power cuts are a normal and everyday occurrence. The proceeds received from the sale of the gas and the savings to the Palestinian energy sector would give a huge financial boost to the PA and would allow it to provide the foundations for a truly independent Palestinian state. Finally, it would save substantial sums of money for the EU, which is by no means a small matter, especially in a time of financial austerity.

Victor Kattan is the Program Director of Al-Shabaka: The Palestinian Policy Network.

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The Middle East Channel

Progress slowed in second day of Baghdad talks with Iran

Progress has slowed during talks in Baghdad between six world powers and Iran over the country's nuclear development program. On Thursday, Iran's lead negotiator, Saeed Jalili, met with Catherine Ashton, the European Union's foreign affairs chief, but Iran rejected the offer. Iranian media stated that Ashton did not have anything new to offer in her proposals. The package was criticized by Iran's Islamic Republic News Agency as "outdated, not comprehensive and unbalanced." The P5+1 (the United States, Britain, China, France, Russia, plus Germany) want Iran to halt weapons grade nuclear enrichment, while Iran is pushing for the easing of sanctions, particularly new U.S. and EU sanctions on oil exports and banking set to take effect on July 1. This was the second round of the latest series of talks. The P5+1 would like a commitment from Iran for regular meetings. However an Iranian official said there is no point for continued negotiations without the two sides reaching an agreement.

Syria

The U.N. Human Rights Council's Independent Commission of Inquiry on Syria released a report finding the government responsible for the majority of the latest human rights abuses in Syria. The report covers March through the beginning of May including violent incidents perpetrated by both the Syrian regime and the opposition, saying the conflict has become increasingly militarized. However, it stated the most serious acts were committed by "the Syrian army and security services" using a "wide range of military means, including heavy shelling of civilian areas." It claimed Syrian forces continue to use deadly force against anti-government protesters across the country. The report came as regime forces continue to bombard the opposition stronghold of Rastan. Meanwhile, the opposition Syrian National Council has accepted the resignation of its president, Burhan Ghalioun. The general secretariat will meet to elect a replacement on June 11 and 12. At the same time, Syria's new parliament held its opening session after a controversial and largely boycotted election. In a rare announcement, Syria's oil minister, Sufian Allaw, admitted that European and U.S. sanctions are taking a toll,  costing the government $4 billion.

Headlines  

  • Egyptians go to the polls for the second day of presidential elections after a calm start to voting.
  • Israeli protesters in Tel Aviv attacked two African migrants in a demonstration following a statement by Prime Minister Netanyahu that "illegal infiltrators [were] flooding the country."
  • A Tunisian prosecutor has appealed for the death penalty for ousted dictator Zine el-Abidine Ben Ali who is being tried in absentia. 

Arguments and Analysis

‘Washington's Bahrain in the Levant' (Pete Moore, Middle East Research Blog)

"Despite sharing some of the socio-economic and political problems that propelled uprisings in other Arab countries, Jordan remains an exception to the trend. And if it can be kept that way, much of the world inside the Beltway will celebrate. In that respect, Jordan is like Bahrain. A serious threat to regime stability in either country is seen to endanger core US and allied interests. So, as Jordan enters its second summer since the start of the regional uprisings, now under a caretaker government struggling with a moribund economy, there are expectations of change. There are parallels, of course, to the atmosphere during the summer of 1989, following mass demonstrations and violence in the south, and the summer of 2003, after the US invasion of Iraq. But there are some intriguing differences this time."

‘The Syrian Crisis Turns Uglier' (Patrick Seale, Middle East Online)

"The Syrian crisis has moved in recent weeks one dangerous step closer to civil war. The ceasefire which Kofi Annan, the UN and Arab League envoy, proudly engineered on April 12 is now barely alive. The presence of some 200 UN monitors, due to be increased to 300 by the end of the month, has somewhat reduced the violence, but has by no means put an end to it. While there are fewer large-scale battles, such as the one which destroyed whole quarters of the central city of Homs in March, clashes continue daily right across the country. If the violence is unchecked, the battle for Homs -- with its tit-for-tat massacres -- could come to seem a mere foretaste of the horrors to come. Sectarian passions are being fuelled and, for the moment at least, neither side is ready to put up its guns. On the contrary, rebel fighters, increasingly well armed and funded from abroad, and more than ever determined to topple President Bashar al-Assad, have launched what amounts to an urban guerrilla war. They reject any negotiation that might leave him in place. In recent weeks they have been joined by dozens, possibly hundreds, of Islamist extremists, flowing into Syria across the Lebanese, Iraqi and Jordanian borders."

'The Struggle to Succeed Grand Ayatollah Ali Sistani' (Paul McGeough, Foreign Affairs)

"As Sistani ages, a struggle to succeed him has begun, putting the spiritual leadership of one of the world's foremost faiths in play. But with neighboring Iran moving to install its preferred candidate in the position, the secular political foundations of Iraq's fledgling democracy are at risk. Consequently, what amounts to a spiritual showdown could pose a challenge to Washington's hope for postwar Iraq to serve as a Western-allied, moderate, secular state in the heart of the Middle East."

--By Jennifer Parker and Mary Casey 

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