Iran vs. Israel: Besides A-bomb Fear, Could Israel's Huge Gas Find Trigger Hostility?

A large pocket of offshore natural gas could shift Eastern Mediterranean geopolitics on its head. As the threat of war looms between Israel and Iran, the newly found gas could add extra friction between the two countries.

Last year, Houston-based Noble Energy discovered vast tracts of natural gas off the coast of Israel and Cyprus. It had been exploring for 13 years.

So far, the find has been a bonanza, especially for energy poor Israel. Noble has found 35 trillion cubic feet (tcf) of natural gas. By September, this offshore find could yield as much as 100 million cubic feet of gas a day.

It is a great advantage for Israel, Dilshod Achilov, assistant professor of political science at East Tennessee State University, said in an interview.

Investors have taken notice: the Tel Aviv 100 Index has gained more than 4 percent so far this year. Shares of Noble Energy have nearly doubled over the past year and are trading around their 52-week high of $105.

Meanwhile, the price of a barrel of oil was $105.95 Wednesday as fears of conflict in the Middle East continued.

For the first time since its founding in 1948, Israel could become self-sufficient in energy and even an exporter. Israelis for years joked that God made a mistake leaving them contemporary Israel as a promised land when it was surrounded by oil-rich neighbors like Saudi Arabia.

But now, Israel's government is debating whether or not to set export quotas, Israeli newspaper Haaretz reported. The country of 7 million is also considering setting up a sovereign wealth fund for its citizens.

Iranian President Mahmoud Ahmedinejad in his repeated denunciations of Israel has never mentioned this potential competition. Instead, he's focused on Iran's plans to develop nuclear energy, which Israel fears would lead to atomic weapons to threaten its security.

Possible Pipeline to Greece

Jerusalem expects to have an oversupply of natural gas which Israel could use to forge international agreements within the Mediterranean and with energy giants like China and Russia, Haaretz said. Israel now enjoys excellent relations with both countries.

Prime Minister Benjamin Netanyahu traveled to Cyprus last week to talk about energy. He met with Cyprus's ethnically Greek President. The island nation is planning to build a natural gas treatment plant that would be jointly operated by Noble Energy and Israel's Delek Group.

Last year, Netanyahu flew to Greece for discussions about possible construction of an undersea pipeline. Now that the Athens government has fallen as a result of the euro zone crisis, the status of any tentative deal reached with former Prime Minister George Papandreou remains unclear.

Delek, the Tel Aviv-listed vehicle of Isaac Tshuva, 64, a Libyan-born immigrant to Israel who made his first pile in real estate and later bought New York's Plaza Hotel, is Israel's biggest energy company. Delek has energy investments worldwide. Its prominence has received attention.

The new findings do not only shift the geo-strategic balance in the region, but also send a major strategic blow to Tehran, said East Tennessee's Achilov.

How?

Iran has the world's largest known natural gas reserves, second only to Russia. As of January 2011, the country was said to have 1,046 tcf of gas, the U.S. Energy Information Administration estimated.

Iran now exports just a small fraction of that natural gas to Turkey and Armenia via pipeline. If these countries start importing natural gas from Israel, or decide to get in on the gas play themselves, Iran's natural gas exports could become irrelevant.

Israel enjoys excellent trade ties with both Turkey and Armenia.

Huge Undersea Gas Potential

The U.S. Geological Survey in March 2010 published its assessment of the Levant Basin - the region offshore Israel, Lebanon and Cyprus - and determined there is a 95 percent chance at least 50,000 billion cubic feet of natural gas could yet be discovered. The USGS estimates there could be as many as 227,430 billion cubic feet of natural gas and 483 million barrels of oil offshore.

In bigger context, this may instigate a large-scale regional competition to search for oil and gas in the Eastern Mediterranean as Lebanon, Cyprus, Syria and Turkey, may launch their own search missions, Achilov said. Iran's proxy in Lebanon, Hezbollah, will probably act fast within the Lebanese government to push hard to seek its share of the pie.

Lebanon has technically been at war with Israel since 1948. So in the wake of the Israeli finds, the country could stake a claim to some of the Israel strike. The Israeli gas finds could very well extend into Lebanese territory, but so far Noble Energy has not entered the area for exploration.

Meanwhile, Iran would be shut out of the new gas bonanza. After years of successive sanctions, Tehran hasn't been able to fully develop most of its natural gas resources.

Israel, which imported 40 percent of its energy from Egypt in 2008 and continues to obtain it despite last year's fall of longtime ally President Hosni Mubarak, will become energy independent, East Tennessee's Achilov predicted.

Israel could also sell its new gas to Iran's traditional customers, especially in Asia, like Japan and South Korea, which enjoy excellent relations with the Jewish state.

Still, as with anything in the Middle East, there are wrinkles.

Potential Obstacle to Development

First, history teaches the Eastern Mediterranean is historically earthquake prone. Noble Energy, Delek and other offshore drillers may have to install extra precautions. Israel's very active environmental movement might sue to enjoin drilling on these grounds.

Next, Israel's neighbors in the Levant Basin, Lebanon and the Palestine Authority, might challenge Israel's rights and demand their own share.

Achilov warned that Israel might risk possible conflict with Lebanon.

In terms of energy politics, Israel will probably compete with Iran indirectly. To be more precise, Israel will have to compete with the Hezbollah-dominated Lebanese government, Achilov said.

One reason is that Israel discovered gas close to the Lebanese border, triggering conflict over undersea rights. A possible conflict between Israel or Hezbollah should not be discounted in the near future, the energy expert said.

Indeed, Israel and Hezbollah fought a 34-day war in 2006, which saw Hezbollah's rockets fall into Haifa and other cities as Israel Army units invaded parts of southern Lebanon. The Israel gas search had begun before that conflict.

But in general, Achilov said he is unsure that Iran could respond in any direct fashion to stop Israel from exporting natural gas.

In the end, it all comes back to this: good neighbors promote good business.

Israel could be just the alternative needed for other regional exporters to become more agreeable to Western powers, said William Martel, associate professor of International Security Studies at the Fletcher School of Law and Diplomacy at Tufts University.

Western powers could be more enticed to purchase natural gas and oil from a democratic Israel, Martel said, potentially being the catalyst needed for certain regimes in the region to change their tone, or lose business.

I can only imagine that the competitive pressures will be exacerbated in the region, Martel said.

An energy exporting Israel could actually have a stabilizing effect on the region. That's because customers would buy from a democratic supplier rather than an aggressive or totalitarian regime, the Tufts expert said.

Of course, all bets are off should there be war between Israel and Iran, Martel said.

If this nuclear issue gets resolved, said Martel, [The natural gas in years to come] will increase Israel's regional geo-political footprint.