How Israel reset the energy map

HELEN THOMPSON

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The oil price shock delivered around the Yom Kippur War did more to define the 1970s as a decade of energy crisis than any other event. As Egyptian troops crossed the Suez Canal on 6 October 1973 in an attack co-ordinated with that of Syria on the Golan Heights, the Egyptian navy blockaded the Bab al-Mandeb Strait – the narrow body of water that connects the Red Sea to the Gulf of Aden – cutting off Israel’s access to its principal supply of oil from Iran. A week and a half later, the six Persian Gulf members of the OPEC oil cartel raised their posted oil price from $3 to $5.12. Determined to raise the market price, too, the Arab members of OPEC (OAPEC) began the following day to reduce production. While these two moves affected most importers, OAPEC then responded to President Richard Nixon’s request to Congress for $2.2 billion in military aid for Israel by embargoing the sale of oil to the United States and the Netherlands. Although the war ended with a ceasefire on 25 October, OAPEC cut production again in November and the Persian Gulf OPEC members increased the posted price to $11.60 the following month. The embargo remained in place until March 1974, having earlier been extended to include South Africa, Portugal, and Rhodesia. As a cumulative result of these actions, market prices for oil more than doubled between the start of the war and the end of the embargo.

The immediate effects on daily life were dramatic. All western states introduced some form of energy rationing. Several European governments banned driving on Sundays. In Japan, ministers cut the supply of oil and electricity to industry by a fifth. Across the Pacific, the Nixon administration legislated for a 55 miles per hour speed limit on the country’s highways and extended daylight saving time. On 7 November 1973, Nixon, who was in no psychological condition to deal with the crisis as his presidency was simultaneously being overwhelmed by Watergate, made a national televised address, declaring that ‘until we provide new sources of energy for tomorrow, we must be prepared to tighten our belts today’.

Geopolitically, it seemed a world had ended and with it any notion of western unity. At times, Henry Kissinger, then both Nixon’s National Security Adviser and Secretary of State, talked as if Washington had the power to seize control of the Middle Eastern oil fields. On one occasion, he pronounced that unless the Arab states accommodated the oil-importing states, they would ‘go the way of the Greek city states’. He was just as unhappy with the British and French governments, who both made bilateral deals with OAPEC members and refused to let the United States use their military bases in the event of war with the Soviet Union. They had, Kissinger fumed, acted ‘as if the alliance did not exist’. During the American-led talks in 1974 to create the International Energy Agency, a near-broken Nixon threatened to remove troops from western Europe if its governments did not accept an institutional framework through which the large oil-importing states would co-operate with each other.

The oil price shock of 1973-74 was as much symptom as cause of the 1970s’ energy crisis. Well before the Yom Kippur War began, oil politics was in tumult. In the old world, the shape of which, outside the Soviet Union, had emerged by the early twentieth century, the United States was largely self-sufficient and supply came from independent oil firms centred in Texas. Meanwhile, seven international oil companies constituted by the successors to John Rockefeller’s Standard Oil, British Petroleum, and Shell dominated production in the Middle East, Africa, and Latin America. In the post-Second World War version of this set up, there was a clear demarcation in supply: except in an emergency, oil from the western hemisphere was for the Americas while oil from the Middle East, supplemented from the 1960s by Soviet exports, went to western Europe, Asia, and Australasia. This division depended upon the willingness of the non-Soviet and non-American oil-producing states to accept price setting by the international oil companies, the American federal government acting to keep foreign oil, unless Mexican or Canadian, out of the United States, and Britain’s imperial ability to use its navy to keep the waters around the Middle East open.

By early 1973, none of these conditions held. While the international oil companies had fended off the creation of OPEC in 1960, the arrival of Colonel Gaddafi in power in Libya in 1969 heralded the beginning of the end of their Eurasian and Latin American supremacy. Forced by Gaddafi to raise their prices after he ordered production shut down, they increasingly found their assets nationalised, not least in 1972 by the Ba’athist government, which had seized power in Baghdad in 1968. Where their assets remained intact, they still had to accept new terms of revenue sharing in the Tripoli and Tehran agreements of 1971, which gave the states 55 per cent of the profit on higher prices. Just a month before Egypt and Syria attacked Israel, the international oil companies had begun negotiations with OPEC in Vienna to raise prices again.

Over in the United States, national oil output peaked in 1970, and the following year Nixon put in place a system of federal controls on the domestic price of oil. With the country now needing more foreign oil, Nixon also dismantled, in April 1973, the strict regime of import quotas, which had privileged Mexican and Canadian exports, introduced by President Eisenhower fourteen years earlier. For its part, the British government under Harold Wilson had come to the conclusion back in late 1967 that Britain was too financially weak and militarily vulnerable to continue as an imperial power in the Middle East, and by 1971 Edward Heath had largely executed the plan for withdrawal from east of Suez drawn up under his predecessor.

In the pre-1973 energy world, the Arab states had used embargoes and oil transit as a geopolitical weapon. What changed with the Yom Kippur war was their ability to deploy this tactic effectively against the United States. By contrast, for Israel, Britain, France and West Germany energy insecurity tied to the Arab-Israeli conflict was already a fact of life; for Israel it was permanently existential because no Arab state had ever been willing to sell it oil.

During the Suez Crisis of 1956, the Egyptian President, Gamal Abdel Nasser, blockaded Israel’s access to the Straits of Tiran – which connects the Red Sea to the Gulf of Aqaba on the eastern side of the Sinai Peninsula – at a time when Israel had built a port at Eilat on the southern tip of the Gulf to allow for Iranian oil imports to arrive from the Persian Gulf without the tankers having to go all the way around the Cape of Good Hope. Indeed, it was for this very reason that Israel joined Britain and France in a war against Egypt, which led to Nasser closing the Suez Canal in 1956. Throughout that war, Saudi Arabia embargoed oil sales to Britain and France while Syria shut flows through the Iraq Petroleum Company pipeline owned by a group of the international oil companies. Eisenhower was able to force British Prime Minister Anthony Eden to retreat in good part because he would not release oil supplies from the US emergency programme, telling one of his advisors that Britain and France could ‘boil in their own oil so to speak’. While Israel captured Sharm al-Sheik on the southern tip of the Sinai Peninsula, giving Israel strategic control over the Straits of Tiran, it too had to retreat in exchange for a not particularly well-kept promise by Egypt to keep these waters open under the surveillance of a United Nations’ Emergency Force.

Nasser’s closure of the Straits of Tiran to all Israeli shipping in May 1967 was Israel’s justification for a pre-emptive strike against Egypt in the Six Days’ War. By this time, 90 per cent of all Israeli oil imports went through the Straits of Tiran and came from Iran. Furious with Tehran for abetting Israel, Nasser was explicit that his strategic aim in 1967 was to ‘serve the cause of Palestine… by preventing Israel being supplied with oil’. In practice, Israel gained a great deal energy wise from the ensuing war since, in capturing the Sinai peninsula, it acquired the oil fields of Abu Rudeis, as well as an ability to keep the Straits of Tiran open. Nonetheless, it could not stop Nasser shutting the Suez Canal again and this time keeping it closed for eight years.

Israel’s post-1956 energy vulnerability also posed a risk to western European states during the late 1950s and 1960s. After the Six Days’ War started, the main oil-producing Arab states imposed an embargo on Britain, West Germany and the United States. While the restrictions on Washington were merely symbolic, since it was not importing Middle Eastern oil, they hurt London and Bonn. Although the United States and Venezuela could provide emergency supplies, the financial pressure of importing dollar-denominated oil from the western hemisphere, as well as Iranian oil from around the Cape of Good Hope, put such pressure on sterling that it pushed Wilson’s government to its January 1968 announcement that Britain would have to withdraw from the Persian Gulf. This move came just months after a hasty British exit from Aden. By 1969, a Marxist group had seized control in the now independent South Yemen, leaving in place a Soviet-backed regime that could control access to the Red Sea from the Indian Ocean through the Bab al-Mandeb Strait.

What had, crucially, changed by October 1973 was the position of the United States. Now needing a high volume of imported oil that could not all come from the western hemisphere, it could be stung by the kind of embargos the west Europeans and Israel had already endured. When it could not then provide emergency supply to the west European states during the Yom Kippur War, West Germany and, most dramatically, Britain told Israel it should renounce the territories gained in 1967, with the aim of avoiding the new Arab embargo.

Meanwhile, Israel, was now constrained by an American desire for a ceasefire to end the embargo to which Washington was subject. Under pressure from the Nixon administration, Golda Meir’s government in Tel Aviv agreed a ceasefire without Egypt first ending the blockade of the Bab al-Mandeb Strait that prevented tankers reaching Eilat. Then, her successors Yitzhak Rabin and Menachem Begin had to make an oil peace, first in the 1975 preliminary agreement and then in the Camp David Accords of 1978 as the prelude to the 1979 treaty that normalised relations with Egypt. Here, they exchanged the Abu Rudeis oil fields and the new wells Israel had started drilling on the Sinai – which by the mid-1970s were supplying more than half of Israeli consumption – for access to the Suez Canal and guarantees on the Straits of Tiran and the Bab al-Mandeb Strait.

The cumulative fallout of these events before and after October 1973 ensured that the Iranian Revolution in early 1979 brought more than a second oil price shock. The loss of Iran as an American ally, followed at the end of the year by the Soviet invasion of Afghanistan, transformed the geopolitics of energy in and around the Middle East. Now, American Presidents could not suppose that the United States could depend on Middle Eastern oil imports without having a military presence in the Persian Gulf. Continuously from January 1980, the United States has abided by the Carter Doctrine, which says that ‘an attempt by any outside force to gain control of the Persian Gulf will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repealed by any means necessary’.

If this new stance reflected the United States’ position as the world’s largest oil importer until the 2010s, Israel’s predicament after the Iranian Revolution pushed Carter to give a formal emergency oil guarantee to Tel Aviv when the export of American oil was otherwise prohibited. Once the Shah left Tehran in January 1979, Iran imposed an oil embargo on Israel, just three months after the Camp David Accords that set out the exchange of the Sinai oil fields for peace with Egypt. By 1980, Israel could only buy oil on a publicly contracted basis from Egypt and Mexico. Knowing the Americans could not be called on except in an absolute emergency, Israel had, in practice, to rely on the spot markets and a covert trade through the land pipeline built after the 1967 war from Eilat to Ashkelon on the Mediterranean, organised by the later-fugitive commodities trader Marc Rich. Fortunately for Israel, by the time it invaded Lebanon in 1982 to remove the Palestinian Liberation Organisation from the country, new supplies from Alaska, Mexico, and the North Sea had ended the general 1979-1980 oil crisis, leaving an OPEC impotent against Israel paradoxically at just the moment it was freed from the previous separation between Iran and the Arab states.

Fifty years on, energy insecurity for importing states is rife again, not least in the aftermath of Russia’s invasion of Ukraine. But Israel’s vulnerability to Hamas’ devastating pogrom in southern Israel on the near anniversary of Egypt and Syria’s attack in 1973 is not matched by repetition in the energy story. Thanks to the offshore Leviathan, Tamar, and Karish fields, Israel is self-sufficient in gas, even as operations at the Tamar field were suspended the day after Hamas’ terror began. More than half its oil imports come from Azerbaijan, which it reciprocates with substantial military exports, and the shale-rich United States and Brazil are its next largest suppliers.

Israel now also has significant energy partnerships with several Arab states. It began exporting gas to Jordan in 2017 and Egypt in 2020. After the Abrahams Accord – which normalised relations with the United Arab Emirates (UAE), Bahrain, Morocco, and Sudan – it agreed a joint energy strategy with the UAE, which will allow the Gulf kingdom to sell oil through the Eilat-Ashkelon pipeline. One of the Abu Dhabi sovereign wealth funds has a 22 per cent stake in the Tamar gas field. In October 2022, Israel signed a maritime agreement with Lebanon, which was even supported by Hezbollah, marking borders to allow for further gas exploration in these eastern Mediterranean waters. Ironically, it is now Iran that is appealing forlornly to the Arab states for oil sanctions against Israel in the name of Islamic solidarity, even as the Jewish state’s supply is coming from outside the Middle East .

A full-scale war between Iran and Israel would be another matter for everybody. The fact that China, having replaced United States as the world’s largest oil importer, is dependent on Iran makes it hard for Washington to tighten, or indeed strictly enforce, the existing sanctions on Tehran without a confrontation with Beijing. Several European states, including Britain, France, Germany and Italy, are now dependent for gas from Hamas-supporting Qatar, but at least some of the Arab leaders have seen a future based on energy co-operation with Israel and have something to lose from allowing Iran a free reign to act in the name of Palestinian cause. Nobody could have predicted this in the autumn of 1973.