How Egypt's reliance on Israeli gas could blow up in its face

Cairo has effectively placed the keys to Egypt's industrial output in the hands of a historically adversarial state

Fire from an attack on an Egyptian pipeline connecting to Israel is seen in July 2011 (Reuters)

Fire from an attack on an Egyptian pipeline connecting to Israel is seen in July 2011 (Reuters)

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Since the mid-1990s, negotiations over natural gas between Egypt and Israel have oscillated between strict secrecy and political exploitation.

In 1994, the first discreet talks began over the possibility of exporting Egyptian gas to Israel via undersea pipelines, at a time when the Egypt-Israel peace treaty was still hugely unpopular, and any such step was seen as a political gamble.

Yet economic interests and deep security ties between the two countries’ intelligence services pushed the matter forward, culminating in a 2005 agreement to supply Israel with Egyptian gas at preferential rates. That deal later sparked a major scandal when it was revealed that the prices were far below global market levels.

The arrangement, implemented through the East Mediterranean Gas Company in direct coordination with Egypt’s General Intelligence Service (GIS), eventually led to one of the largest international arbitration cases brought against Egypt. Following the 2011 revolution, with repeated attacks on the Sinai pipeline, gas deliveries ceased.

Israel’s Electric Corporation filed for arbitration and, in 2015, won a final ruling awarding it $1.7bn in compensation. A similar case was brought by Spain’s Union Fenosa after gas supplies to the Damietta liquefaction plant, which was 80 percent owned by the Spaniards, were cut. The company won $2bn in compensation.

These combined liabilities placed Cairo in a severe financial and diplomatic bind, prompting the search for a solution to settle all disputes in one stroke.

That solution was for Egypt - once a net exporter of gas - to become an importer of Israeli gas. In February 2018, Israel’s Delek Drilling announced a $15bn, 10-year deal to export gas to Egypt. Israeli Prime Minister Benjamin Netanyahu hailed it as a “day of celebration”, declaring it would bolster Israel’s economy, security and regional standing.

Egyptian President Abdel Fattah el-Sisi, for his part, downplayed the criticism, insisting the government was not a party to the agreement and that it was purely a matter for the private sector - though all indications point to the GIS, which under 2022 amendments to Law 100/1971 gained the right to establish and hold stakes in companies, as the real architect of the deal.

Why Israel?

The key question remains: why Israel specifically? The answer lies less in economics than in geopolitics. The agreement - boosted this month by a record $35bn deal that will see a tripling of Egyptian gas imports - is part of a broader effort to normalise and institutionalise new regional alignments in the Eastern Mediterranean, integrating Israel as a central energy supplier and political actor.

Sisi has positioned himself to the West as a “moderate” interlocutor with Israel, offering it practical recognition and, in return, securing valuable political credit in Washington and Tel Aviv, which ensures their continued backing regardless of Egypt’s human rights record.

American pressure has been decisive. Washington championed the creation of the East Mediterranean Gas Forum (EMGF) in Cairo in 2019, bringing together Egypt, Israel, Greece, Cyprus, Italy, Jordan and the Palestinian Authority, while excluding Turkey and Russia. The US goal was not merely “cooperation”, but to make Egypt the export bridge for Israeli gas via its liquefaction facilities in Damietta and Idku, re-shipping it to Europe and reducing the EU’s dependence on Russia.

In any future conflict, Israel could, with a single decision, cut gas supplies, plunging Egypt into blackouts, halting factories, and crippling its war industries

For Sisi, this role promised far greater political dividends than economic ones, placing him at the centre of a western strategic project. Alternative paths to energy independence - such as sourcing from Algeria, Qatar, Iran or even Russia - were dismissed.

Such options would require complex diplomacy, risk placing Egypt outside the US strategic orbit, and, in some cases, involve states firmly in the opposing Middle Eastern camp (notably Iran and Russia). Instead, the Israeli option aligned perfectly with the geopolitical axis Cairo had chosen.

In practice, the arrangement was more than an energy trade; it recast the strategic relationship between Egypt and Israel. Importing Israeli gas allowed Egypt to liquefy it at its own plants, especially in Damietta and Idku, for re-export to Europe, while at the same time resolving the arbitration cases with Tel Aviv and Madrid.

Yet what looks on paper like a win-win economic deal masks deeper transformations that cut to the core of Egypt’s sovereignty over its resources.

Consider the actual structure of Egypt’s gas sector: even with the discovery of the giant Zohr field in 2015 - touted as the salvation of Egypt’s energy balance - the state, through its holding company EGAS, owns only about 40 percent of production. The remainder is split among Italy’s Eni, Britain’s BP, Russia’s Rosneft and the UAE’s Mubadala, each free to sell their share to the government or on the open market.

In other words, the oft-repeated claim of “self-sufficiency” is largely an accounting illusion; the so-called surplus is mostly corporate property, not the state’s.

Stark implications

What’s more, the most decisive player has been the GIS itself, which under its new legal powers has become a direct economic actor with energy holdings and negotiating authority. Its influence has extended beyond Egypt’s domestic energy balance to reshaping regional gas relations in ways that serve political aims beyond Cairo.

This is where the EMGF plays a pivotal role. For Washington, it is a tool to re-engineer the Eastern Mediterranean energy map, cement Israel’s place as a normal fixture in the regional order, and deny its rivals any leverage in energy markets.

For Egypt, it has made the country indispensable to Israel’s gas export strategy, but also tied its own energy security to a web of dependencies whose ultimate decision-making lies abroad.

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The security implications are stark. Israeli gas now feeds Egypt’s power plants and factories, including those producing military equipment. This effectively places the keys to Egypt’s industrial output, and even its defence capabilities, in the hands of a state that has historically targeted Egyptian soldiers on the border.

In any future conflict, Israel could, with a single decision, cut gas supplies, plunging Egypt into blackouts, halting factories, and crippling its war industries.

The dependency stretches to Gaza as well. The Gaza Marine field, discovered in 1999 about 36km offshore, has remained untapped under Israeli blockade and political pressure. Now it is being revived as part of a broader political-economic package: Gaza’s reconstruction, under a Palestinian leadership “acceptable” to Israel, with direct Israeli oversight of development and production.

In 2021, Egypt and the Palestinian Authority signed a memorandum of understanding to develop the field and sell most of its output to Egypt, under arrangements managed by energy companies linked to the GIS. This not only binds Gaza’s economic security to Israel but also casts Cairo not as a guarantor of Palestinian independence, but as an operational partner in Tel Aviv’s strategy.

All of this is unfolding amid a global energy realignment. The war in Ukraine, sanctions on Russia, and Europe’s urgent need to diversify gas supplies have turned the Eastern Mediterranean into an attractive alternative.

But making Israel a central player in this system was only possible with the acceptance and cooperation of major Arab states - Egypt foremost among them. The result is a dense network of pipelines, liquefaction plants, and long-term contracts ensuring Israel’s indispensability to Europe’s energy security for decades to come.

A new equation

The 2018 deal thus became more than an agreement between two companies. It is the embodiment of a new equation: a country that once owned its resources and exported its surplus now finds itself dependent on imports from a neighbour that once occupied its land and still occupies Arab territory, all under the banner of “economic cooperation”.

While the Egyptian government sells these policies as strategic triumphs, the facts on the ground suggest something closer to the surrender of national leverage

While the Egyptian government sells these policies as strategic triumphs, the facts on the ground suggest something closer to the surrender of national leverage in exchange for regionally assigned roles crafted abroad.

Ultimately, this is not just a story about gas; it is a story about sovereignty, and how natural resources can shift from being a source of strength to a tool of subjugation when placed within asymmetric political alliances.

Egypt, long self-styled as the beating heart of the Arab world and its security backbone, now shares the decision to power its factories and defence systems with an external actor, reflecting deeper changes in the regional order, and the transformation of energy from a commodity into a geopolitical weapon.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye.

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