Israeli discoveries of energy reserves in the eastern Mediterranean represent a major strategic development, given these reserves’ size and characteristics, and their long-term impact on politics, the economy, security, and even social dynamics in Israel.
Israel’s vision is based on the notion that energy reserves are more important than the energy resources themselves. Israel wants to avoid at all costs tampering with its current productive economic model, and turning it into a rentier state where work values could be compromised.
It is therefore more likely that Israel would limit itself to producing enough hydrocarbons to cover its needs.
Israel would then seek to invest in improving its scientific and industrial base, and to develop its human resources. The new energy wealth could increase its self-confidence but also aggressiveness, and push it to persist in its aggressive policies, colonialism, and quest for dominance.
However, we must also focus on the discoveries made off the coast of the Gaza Strip (GS) and the economic opportunities they create, as well as in Lebanon’s waters, and not letting Israel block the exploitation of these resources.
Analyzing this issue first requires identifying its three main elements: The energy reserves that have been discovered, net energy imports, and the Gross Domestic Product (GDP) in Israel. With the interconnection among these elements in mind, it is possible to forecast the upcoming strategic shifts.
Here, there is a need to address the idea that discovering energy reserves in a poor country may turn its conditions upside down, unlike the discovery of the same reserves in a developed country. In other words, optimism in Lebanon or Cyprus over their energy discoveries and their impact on their economies, should not be compared to Israeli discoveries, not only because of the size of the discoveries, but also because of the difference in the size and the nature of the economies in question, the benchmark against which the new wealth should be assessed.
It is estimated that Israel has gas reserves sufficient for 150 years, worth about $300 billion. But there are two ways Israel will benefit directly from its new resources:
- Upgrading Israel’s credit rating as a state that now possesses energy reserves.
- Extracting resources both for internal and external consumption, and balancing its energy needs; for instance by ceasing to import gas while exporting gas in quantities equal to other energy resources it imports such as oil, coal, and uranium. This is the minimum amount of additional resources that Israel will have access to, something that requires us to carefully identify Israel’s net energy imports.
In 2011, Israel’s energy imports amounted to $13.6 billion, compared to $4 billion in exports, with a deficit of $9.6 billion according to 2011 figures.
Consequently, if Israel ends or replaces its energy imports with local resources, it will be able to save the equivalent of its current net energy bill.
In light of the above, we conclude that Israeli planners will have access to additional resources worth $9.6 billion annually in 2011 figures, an amount that far exceeds, for example, the annual GDP of the West Bank (WB) and GS– and an amount that could address the social disputes in Israel over the distribution of budget expenditures which usually involve around $1 billion annually, to satisfy security and settlement needs, and curb social protests in Israel.
Israel’s problems may seem to be solved at once with the discovery of new energy reserves. But a careful examination will help one realize that Israeli strategic thinking, which is historically averse to easy money, understands that additional, immediate resources have always been a source of easy revenues.
Therefore, Israel will probably deal with the new resources in question as being easy revenues, which carry serious social threats as a result of artificial welfare coming from rentier wealth extracted from the ground, and not the result of productive or creative effort that maintains social balance.
Most likely, Israeli political culture would not allow anything to tamper with the current productive model of the state, to turn into a rentier arrangement and produce the kind of entitlement culture that undermines work values and promotes clientelism as a solution to social problems. Indeed, Israel has always insisted on solving its social and economic problems through policies that intricately link expansion in spending and living standards to the growth of productivity, and not revenues. These policies would therefore favor a developed model in dealing with natural resources.
However, does Israel have an economic structure that spares it the need to hastily tap into easy money, or is the economic situation in Israel on the brink of collapse? Israel’s GDP, both quantitatively and qualitatively, places it in the rank of first world countries, whether in terms of per capita income, or what makes up its GDP. Israel’s economy is essentially based on manufacturing and hi-tech industries. The main source of national income in Israel is based on productive work, an indication of the competence of human resources and the relative equality of income distribution, in accordance to individual competencies.
The expected savings in energy imports, worth $9.6 billion annually, is 4% of the 2011 GDP, which was $244 billion. Adding this 4% to the normal growth is not sufficient to bring about a strategic shift in the structure of a developed country, with well-established features. Nevertheless, this addition is equivalent to the average annual growth rate in the previous decade, which means that Israel, in one go, would be able to double its annual growth rate.
We conclude this section by making the distinction between a relative shift in the GDP brought about by this new 4%, and the quantitative shift by adding about $10 billion annually, enough to revolutionize certain sectors.
Israeli Exploitation of Energy Discoveries in the Future
Possible Israeli scenarios involving a sensitive topic like this are based on Israel’s work philosophy, which governs in principle how Israel will deal with the available resources, old or new, and which comprehends the social dangers of the rentier model seen in the Third World. Therefore, the rule that Israel never broke is that resources, whatever their source, must go from the source to investment and production first, before becoming revenues.
So where will the new additional annual $10 billion go? Most likely, Israel will only extract enough to cover its energy needs, whether for domestic consumption or exports to cover its imports of other energy resources. Reasons for this include avoiding the quick depletion of its natural resources, but also its limited capacity to absorb new capital, as Israel is saturated with capital.
Our evidence for the above is that gross capital formation, i.e., additions to fixed assets, was $43 billion in 2011 or 17% of the 2011 GDP. Thus, with this saturation in capital, Israel will have no choice but to seek to upgrade its scientific and manufacturing base, by:
- Increasing allocations for research and development (R&D) from the available resources.
- Modernizing equipments to keep up with the latest technologies, even if their life expectancy has not expired.
Subsequently, Israel will need to bring in more qualified human resources, and stop and reverse the brain drain, etc. On the other hand, the additional resources will allow Israel to use more technology, and procure cutting edge tech from abroad, which will raise productivity without the need for additional human resources.
Therefore, it is expected that the additional resources available will be earmarked for developing human resources, modernization, and increasing productivity as a strategic policy and a priority that precedes other considerations, including security. In Israel’s thinking, maintaining and increasing its technological superiority is the source of real security that leads to all other forms of security and superiority.
Israel will have a greater ability to be equitable in distributing its resources to settlement and security needs, on the one hand, and various types of social demands, on the other. In this context, Israel does not have much more to add at the level of settlements and security, as it has always spared no effort to meet the needs of these two domains.
It is not expected that the Israeli ruling class would resort to mass bribery, by switching to a “social entitlement” state, which is different from the social welfare state. The latter would support vulnerable segments but through tightly controlled programs, so that it does not descent into an entitlement state that may benefit non-deserving segments with social welfare programs.
Allocating more funds to developing human resources, modernization and raising productivity and its share of the gross domestic income will probably accelerate Israel’s shift from a social support state, in the sense of social empowerment, to a welfare state as a result of rising income in parallel with rising productivity. Furthermore, the improved quality of life in Israel will make it a more attractive place to live in, which may help reduce emigration and increase migration into Israel, and improve the net demographic balance between the two.
However, the talk about refusing the policy of social bribery contrasts with what has been really happening since the creation of the state of Israel with the ultra-Orthodox Jews (Haredim), who are usually given special privileges. Yet one can assume that Israel would not increase the level of ‘bribery’ given to them, or extend it to encompass other segments. Indeed, many influential Israeli factions are seeking to create a near-consensus in Israel to block further entitlements to the Haredim, arguing that these entitlement as well as their exemption from military service leads to large waste in human and financial resources, and also creates a parasitic social phenomenon that undermines the work values that are at the heart of the social compact in Israel.
There is a structural outcome of all the above, namely, that the rising qualification of the Israeli workforce will push it towards the top of the labor ladder, and will create a growing need for non-technical labor that can only be brought in from abroad, including from the WB and GS.
No doubt, improved economic conditions in Israel, now and in the future, will render it less in need of foreign financial aid, and better equipped to cope with external economic pressure, if these were to be put, or if there were to be questions about whether Israel finances settlement in the WB with foreign aid funds.
Certainly, access to new, significant, and long-lasting resources will have a positive impact on Israel’s overall strength, and subsequently, on the balance of power at home and beyond. This may be reflected into further belligerence, occupation-enabling practices, and attempts to impose Israeli hegemony in the region.
As for the Palestinians, the Mediterranean natural gas ‘fever’ highlights the issue of the gas reserves off the coast of Gaza, the exploration and extraction of which Israel has blocked, as it would cover the relatively costly Palestinian energy bill accrued from energy imports. This gains even greater importance in light of the persistent financial crisis of the Palestinian National Authority.
Finally, there are other secondary effects of the energy discoveries in the Mediterranean, for example those involving Turkey and Greece. However, it would be unwise to overstate the benefits of these on countries other than Israel, or mistakenly believe that they are sufficient to establish political alliances to protect supposed joint economic interests, which are no doubt being overhyped.
- Despite the economic importance of the energy discoveries in Israel, as something one can take for granted, it is also important to follow this issue up, not just from an economic and technical viewpoint, but also as a development with far-reaching strategic effects.
- Israel is a rich country that has now acquired new resources, and yet, it continues to receive foreign aid in the billions of dollars. Therefore, it is necessary to call for an end to that aid not only because Israel does not need it, but because it is a racist occupation power, built upon the usurpation of the rights of the Palestinian people.
- The question of the gas reserves in Gaza’s waters should be raised urgently, since there is an economic interdependence of various parties, and this requires official demarcation under international law – something that Israel rejects under the pretext of security, to perpetuate its looting.
NOTE: All data on the Israeli economy, GDP, imports and exports are taken from the official Israeli Statistical Abstract of 2012, from various sections.
Al-Zaytouna Centre thanks Dr. Hussein Abu al-Naml for authoring the original text on which this Assessment was based.