Israéliens et Arabes, unis même dans le pétrole: Une mauvaise nouvelle pour les raffineries européennes, une bonne pour l’Asie.

Israelis and Arabs, united even in oil: Bad news for European refineries, good news for Asia.

by Samuel Furfari – a Google translated version of the original French article in Atlantico, linked above, by permission of the author

Relations between Israel and the UAE create a new geopolitical situation in the field of energy. While their state of war was the consequence of the oil crises, today it is the opposite. An existing pipeline between Eilat and Ashkelon will be used to send refined products in the Gulf to the Mediterranean Sea. This will reduce the price of petroleum products in the EU and add further difficulty to EU refineries. In the other direction, this behavior will allow the oil of Azerbaijan and later that of Turkey still to be produced in the Black Sea to reach Asia more easily. A new geopolitical energy balance is being forged in the absence of the EU.

Samuel Furfari

When peace sets in, everything changes. The EU’s tremendous historic success was based on the peace and reconciliation Robert Schuman wanted after the horrors of two world wars. Schuman had proposed that the energy of the time – coal – be the vehicle for this reconciliation. After years of a state of war, peace between Israel and the United Arab Emirates (UAE) will deepen reconciliation through another energy – oil. In a recent column, I proposed that Lebanon seek peace with Israel in order to use its natural gas and end the unacceptable pollution of its electricity production from fuel oil. We are going to see in this forum that the Israeli-Arab reconciliation has surprising effects also in the field of energy geopolitics, thus strengthening security in the region, because energy integration is synonymous with security.

We are witnessing an extraordinary turnaround in history. The oil crises of the 1970s were due to the will of some Arabs, notably Colonel Muammar Gaddafi, to demand that OECD countries abandon their support for Israel. They had manipulated OPEC by staging an oil shortage. Today, as we will see, Arabs and Israelis are working together to facilitate the global oil trade.

When I visited the Israeli port of Eilat on the Red Sea four years ago, the oil unloading facilities and huge storage tanks certainly caught my attention. They had been installed during the time of Shah Reza Pahlévi, because Iran was then trading with Israel. Moreover, these installations found their justification in the oil supply difficulties that Israel suffered after the Six-Day War with Egypt in June 1967. Faced with its shutdown installations, I thought to myself that one day, when the mullahs’ regime is replaced, there will probably be Iranian ships coming back to dock to supply the Hebrew state again. Maybe one day it will happen, but so far it is something similar, but different, which has turned out to be unthinkable only a year ago.

Under the cheerful gaze of the Trump administration, the two new friends have opened negotiations on a series of cooperation projects. This is also the case with oil. They will collaborate to transport oil and petroleum products between Eilat to Ashkelon on the Mediterranean coast through an existing pipeline. Europe Asia Pipeline Co (EAPC), a company controlled by the Israeli government, and MED-RED Land Bridge ltd have decided to contribute to this oil peace. The latter is a joint venture owned by Petromal, the UAE government holding company, Israeli firm AF Entrepreneurship, and Lubber Line, an international group active in energy infrastructure.

EAPC kept the cycle of the old Eilat Ashkelon Pipeline Co Ltd connection built in 1968 by the governments of Israel and Iran. Its aim was to transport 600,000 barrels per day over 254 km from Eilat and to have a storage capacity of 23 million barrels on the heights of Eilat. Since 2003, this pipeline can operate in reverse mode, supplying Eilat from the Mediterranean coast, thus strengthening security of supply. Two other pipelines supply refineries in Haifa (197 km) and Ashdod (36 km).

Resolutely turning its back on the Palestinians, the UAE has just signed this agreement in an area that was among Israel’s most sensitive. The security of the oil supply is crucial, because breaking this security parameter would immediately put the country on hold and in danger. This is why the pipeline is under military control. The geopolitical weight of the project is measured by the presence at the signing of the memorandum by US Treasury Secretary Steve Mnuchin and US envoy to the Middle East Avi Berkovitz. This is certainly a great victory for the Trump administration in this election period, even if the French-speaking press has hardly talked about it.

This pipeline retains the same strengths it had in the Shah’s time: oil can flow from the Red Sea to the Mediterranean Sea, but after 50 years it is even more justified. Since the fall of Sovietism, oil in the Caspian Sea has flowed through the BTC (Baku – Tbilisi – Ceyhan) pipeline from Azerbaijan to the Mediterranean Sea at the Turkish port of Ceyhan. The news gives reason to its designers who had chosen a contorted route passing through Georgia in order to avoid Nagorno-Karabakh and Armenia. Thanks to this new UAE-Israel collaboration, oil from the landlocked area of the Caspian Sea will be able to flow to Asia. Originally, the BTC pipeline was intended to supply the countries of the former Soviet bloc of the EU via the port of Trieste. It was also supposed to be used to supply the United States, but since their production skyrocketed from shale oil they no longer need it. Of course, from Ceyhan there is always a way to reach Asia, but you have to go through the Suez Canal. What Israel and the UAE are preparing is a partial bypass of this maritime link at a lower cost, while saving a huge amount of time. The same logic applies if the announcement of the discovery of deposits in the Black Sea made last August Recep Tayyip Erdoğan is confirmed. We understand why the new name of the pipeline is Europe Asia Pipeline Co!

Of course, if it remains with its current capacity, this pipeline is not intended to completely replace the Sumed pipeline (for Suez – Mediterranean) which avoids the passage through the Suez Canal to supertankers, by unloading at the Ain Sukhna terminal on the Gulf of Suez off Sidi Kerir, to end in Alexandria. The sizes of these pipelines are not comparable, as Sumed has a capacity of 2.5 million barrels per day. But this new collaboration can easily lead to capacity building and it would then be a serious competitor to the Sumed leadership and loss of revenue for Egypt.

The companies leading the project have announced that it will transport refined petroleum products from the Persian Gulf (which Arabs proudly call the Arabian Gulf) to the Mediterranean Sea, possibly bound for the EU. The refining industry in the EU suffers from stringent legislative measures, dilapidated facilities, as well as higher crude prices. Consequently, the profession of refiner is less and less profitable, which explains the successive closures of refineries which nevertheless create added value. Now that the Arab countries have equipped themselves with modern refineries, their petroleum products compete with those produced in the EU. If in addition you eliminate the costs of transport through the Suez Canal, the advantage increases. The indirect consequence of this peace between Israel and the UAE is an additional threat to the highly skilled employment of the European refining industry. From an importer of oil, the EU is in the process of converting itself into an importer of petroleum products which have higher added value and therefore more expensive to purchase.

Clearly, European diplomacy continues to be marginalized in the Middle East. The United States, Israel and the Gulf States are developing their geopolitics – and now their geopolitics of energy – regardless of the EU. With the latter now thinking only of decarbonising, it lets economic and diplomatic opportunities slip away, because whether it likes it or not, oil will remain essential for a long time to come. Not about to be replaced by biofuels or hydrogen – “hydrogen utopia” is the title of my latest book – the real issues of the world are woven elsewhere. It is to be feared that the EU remains trapped and alone in the mat it has woven for itself.

About the Author

Doctor of applied sciences and engineer, Samuele Furfari has been teaching energy geopolitics at the Free University of Brussels since 2003. He was a European civil servant for 36 years at the Directorate General for Energy of the European Commission. He is president of the European Society of Engineers and Industrialists.

Samuel’s books are on Amazon