Egypt cancels 15 year gas supply contract to Israel

April 25, 2012

According to Israeli Prime Minister Benjamin Netanyahu, the termination of a contract between Egypt and Israel is a business matter and not a political issue between the two counties. Netanyahu's statement on Monday backs away from other officials' earlier responses to the action.

announced Sunday, April 22 that it will stop supplying Israel with natural gas over a disagreement about payments. The company's leader claims the other side is in "breach of contract" as Gasco has not been paid for what has already been delivered.

In 2005, Israel and Egypt, under former president Hosni Mubarak, signed a 15-year trade deal whereby Egypt would supply natual gas at a discounted rate to the Israelis. Tensions between the two countries have made Israel cautious about relying on Egypt for its energy. Since the 2011 Egyptian revolution, the pipelines for transporting natural gas from Egypt to Israel have been damaged up to 14 times.

When this decision was broadcast on Sunday night in Egypt, commentators for Egyptian news services discussed whether this decision was a blatant contractual infringement, a necessary commercial move, or an attack on the original peace treaty between Egypt and Israel made at in 1978. In Israel,, the finance minister, said, "This is a dangerous precedent that diminishes the peace treaty [between the two countries]."

, foreign affairs minister, had called on Egypt to reverse the decision and prevent the contractual dispute from escalating into a political issue. Since Netanyahu's more recent comment, Lieberman has also backed away from characterizing the issue as a political dispute.

Egypt’s natural gas exports once made up 40 percent of Israel's natural gas reserves, but Israel has looked for other options as the political atmosphere in Egypt changed. Israel is developing its own offshore fields, and it has begun to import other types of “dirty fuels,” like gas and diesel. As a result, Israeli consumers have seen a nine percent increase in electricity costs and Israel is preparing for the possibility of blackouts.