Before the 1967 Six-Day War, Israel’s dependence on foreign oil put it in a precarious national security situation. It found itself in the unenviable position of being the Eastern Mediterranean’s largest consumer of petroleum while having to import about 99 percent of its total oil demand at a time when it was the target of ongoing shipping blockades. A few years earlier, Israel had imported about two-thirds of its oil from Iran, then an ally of the Jewish state, but, when Israeli intelligence learned about the fomenting of revolution against the Shah, Israel took action to reduce its reliance upon Iranian oil. Nonetheless, by the time the Iranian revolution began in January 1978 and Ayatollah Khomeini cut off all supplies to Israel, it was still getting about 40 percent of its oil from Iran.
After it defeated the attacking Egyptian Army in the Six-Day War, however, Israel was able to meet most of its oil supply needs from the oil fields it had captured in the Sinai Peninsula. After over a decade of great effort and the dedication of significant materiel to develop the Alma oilfields, Israel began producing oil in early 1978, yielding daily outputs of between 32,000 to 40,000 barrels (about 1.4 to 1.7 million gallons). A report prepared for the Israeli government in 1979 by James Wilson, the former chief geologist of the Shell Oil Company, estimated that Alma’s reserve potential was 330 million to 2 billion barrels, and most experts agreed that these reserves would be sufficient to meet 100 percent of Israel’s oil needs, make it energy independent by 1990, and even yield a surplus for export.
Pursuant to its 1979 peace treaty with Egypt, however, Israel agreed to give up the Alma oil field on the Gulf of Suez to Egypt, and Egypt agreed that “Israel shall be fully entitled to make bids for Egyptian-origin oil not needed for Egyptian domestic oil consumption.” At a November 1979 ceremony at El Tor on the Sinai coast, transfer documents were executed by Dr. Elozar Barak, director general of Israel’s national oil corporation, and Dr. Mahmoud Ayouti, an official of the Egyptian oil company, after which Israel lowered its national flag. A large sign on the local canteen wall served as a fitting epitaph to Israel’s 12 years there: “The story is over.”
Exhibited here is an original 1975 press photograph of Israel’s return of its last oil fields in Sinai to Egypt, which is captioned as follows:
ABU RUDEIS, OCCUPIED [sic] SINAI – Israel’s Star of David flag comes down at the Abu Rudeis oil fields in the Sinai Desert Sunday as Israeli and United Nations troops, right, stand at attention with Israeli tanks in the background. The oil fields, Israel’s last production source, were turned over to the U.N. forces who will return them to Egypt on Monday under the September 1 truce accord. Israel captured the oil fields in the 1967 Mid East War.
The New York Times characterized giving up the Alma fields – accurately, for once – as “marking Israel’s return to utter dependence on foreign sources of oil.” Yitzchak Modai, then Israel’s energy minister, said that he was “sick over what could not be a heavier national sacrifice,” but noted that “it represents Israel’s attitude and Israel’s large investment in the peace process with Egypt.”
Exhibited here is a rare flyer protesting Israel’s giving up the Sinai oil fields to Egypt:
TODAY you travel with our oil from the “Alma” oilfield.
The “Alma” oilfield provides a third of our needs, and within a year, it will be sufficient to provide for all our needs – for the economy, transportation, security, economy, and services.
TOMORROW the “Alma” oilfield will pass to the Egyptians.
The sustenance of your life, our lives, and of the entire nation will be in the hands of foreigners.
TOMORROW, Egyptians, Americans, and Muscovites will determine IF we will receive any oil at all, WHEN, how much, and at what price.
THEY will determine if we live or die.
THEY will determine how we will live.
THEY will determine if we can defend ourselves or if we will be abandoned.
THERE IS STILL TIME to avoid a holocaust.
AT THIS VERY TIME the decision is in our hands.
Raise your voice against transferring the oilfields to Egypt.
Prevent a holocaust!
Those who are loyal to Eretz Yisrael
After the October 1973 Yom Kippur War, negotiations for a ceasefire and disengagement between Israel and Egypt commenced in earnest under the auspices of the United States led by Secretary of State Henry Kissinger, who wasted no time in accepting the Egyptian position and demanding Israel’s unilateral withdrawal from Sinai. Israel’s refusal to commit suicide infuriated President Ford, who sent a terse March 21, 1975, letter to Prime Minister Yitzchak Rabin complaining that Israel had compromised American national interests and announcing a “reassessment” of the American relationship with Israel:
Secretary Kissinger has just reported on the imminent suspension of his mission whose objective was to achieve an interim second-stage agreement between Egypt and Israel.
I am writing to convey my deep disappointment over the position taken by Israel during the course of the negotiations. You know from our conversations, as well as my conversations with the Foreign Minister, the importance I have attached to the success of the efforts of the United States to achieve constructive results, as well as the framework that seemed reasonable to me. Secretary Kissinger’s mission, which your government strongly encouraged, involved the vital interests of the United States in the area. The failure to achieve an agreement is bound to have far-reaching effects in the area and on our relations.
I have directed an immediate reassessment of U.S. policy in the area, including our relations with Israel, with a view to assuring that the overall interests of America in the Middle East and globally will be protected.
You will be informed of our decisions.
In all fairness, Ford’s motive in threatening to upend the existing “special relationship” paradigm that had been the cornerstone of U.S.-Israel relations was less from an anti-Israel animus than from what he perceived to be an opportunity to lure Egypt, now under the rule of Anwar Sadat, away from the Soviet Union, upon which it largely relied for military support. In any event, in the face of the strong support of 76 U.S. Senators, who wrote a powerful letter to Ford the very next day determinedly opposing any change in the special relationship that the U.S. had maintained with the Jewish state since its birth, coupled with the broad support of the American public, forced Ford to back off, although the hostility of his administration to Israel remained.
The Ford administration continued to insist upon Israel making unilateral concessions to Egypt but, faced with a strong pro-Israel Congress, it reluctantly accepted that Israel would have to be compensated for abandoning the Sinai and its oil fields. As such, and to facilitate Israel’s agreement to surrender its oil lifeline, the Ford administration entered into a five-year September 1, 1975, American-Israel Memorandum of Understanding which included a promise to assist Israel in acquiring needed oil, along with an American assurance that special attention would be given to Israel’s oil needs in U.S. foreign assistance programs. These American commitments finally convinced Rabin to sign the Sinai Accord.
An additional condition of the accord was Egypt’s agreement to sell Israel two million tons of Sinai oil which, during the first year of the deal, would be sold at the official Egyptian government price (which ran about two-thirds of the way between the OPEC price and the much higher price paid on the European spot market, the source of much of Israel’s oil). Negotiations were scheduled to determine the price that Israel would pay after the first year.
When the issue of extending the five-year Agreement came up four years later, Prime Minister Begin was well aware that Israel had to import its oil at high non-market prices because of the (reasonable) fear by middlemen oil suppliers of retaliation against them by their Arab suppliers, particularly in the wake of the OPEC oil embargo in late 1973 through January 1974, which shook the world’s economies. As such, he held firm that there would be no agreement with Egypt that involved withdrawing from Sinai unless the United States committed to meet Israel’s oil needs that it would be unable to meet on the open international market.
Pursuant to a March 26, 1979, Memorandum of Agreement signed by Defense Minister Moshe Dayan for Israel and Secretary of State Cyrus Vance for the United States as a supplemented the Camp David Agreements:
It is the intention of the parties that prices paid by Israel for oil provided by the United States hereunder shall be comparable to world market prices current at the time of transfer, and that in any event the United States will be reimbursed by Israel for the costs incurred by the United States in providing oil to Israel hereunder.
Israel will make its own independent arrangements for oil supply to meet its requirements through normal procedures. In the event Israel is unable to secure its needs in this way, the United States Government, upon notification of this fact by the Government of Israel, will act as follows for five years, at the end of which period either side can terminate this agreement on one-year’s notice.
The agreement also required the U.S. to help arrange for the transport of oil to Israel if the Jewish state could not secure sufficient oil tankers on the open market. (The use of tankers was Israel’s only way to import oil because its Arab neighbors would never permit it to share any international oil pipelines.)
One daunting problem, however, was the Export Administration Act of 1979 which, to preserve the domestic oil reserve, prohibited the export of Alaskan oil. As such, the Agreement contained a provision that:
The United States Administration undertakes to seek promptly additional statutory authorization that may be necessary for full implementation of this agreement.
Accordingly, and to make the American agreement with Israel legally viable, Congress fashioned an exception to the oil ban that authorized the president to export Alaskan oil to nations that, as of the June 25, 1979, legislation, were already parties to a bilateral oil supply agreement. Although the exception applied to all eligible countries, the only actual beneficiary of the exception was Israel – which had entered into its bilateral agreement with the U.S. only three days earlier. (The exception was later extended to several other countries.)
When Israel handed the Sinai to Egypt, it not only surrendered its crucial oil supply, but also lost control of its shipping lanes to and from Eilat; ceded its strategic position in Sinai and gave up 170 military installations, eight airfields, a navy base, and army bases, including vital electronic early-warning stations that provided information on Egyptian movements on the Suez Canal and near the Gulf of Suez and the Gulf of Eilat; and returned land to a lifelong sworn enemy that had used that very territory to launch attacks against it. It also relinquished 1,000 miles of the roads it had built at a cost of $17 billion; uprooted 16 civilian settlements and more than 7,000 citizens who had settled in the Sinai from their villages, homes and businesses; expended $4.8 billion in transferring its military forces; and created an emotional crisis for many Israelis, not the least of which were the residents of Yamit, who – to the everlasting shame of Israel’s leaders – had to be forcibly removed from their home by Jewish soldiers.
With the loss of the Alma oil fields – which Egypt has renamed the Shuab Ali fields – Israel’s energy costs in the first year after the agreement increased by about one-third to about $2 billion, even though Israel had adopted policies to reduce oil consumption. Moreover, Israel had incurred enormous costs in developing the Sinai oilfields, the benefit of which accrued to Egypt, and Israel’s oil yield had barely begun to offset its investment, but Egypt refused to compensate Israel because, it claimed, the development had taken place on Egyptian land in the first place. In addition, Egypt reportedly paid a paltry $143 million to Israel for the $7 billion in infrastructure development it had invested in the Sinai since 1967.
The U.S.-Israel agreement was set to expire after 15 years on September 25, 1994, when the Clinton administration extended the agreement for 10 years, and it was extended for another 10 years by President George W. Bush in 2004. During the following 10 years, Israel withdrew from Gaza, and the “Arab Spring” posed additional potential challenges to Israel’s security from Egypt and to its ability to obtain oil. Moreover, Iran exponentially increased its threats to destroy the Jewish state and, more significantly, it expanded its military and commenced operations closer to Israel, making American support under the agreement all the more important.
Yet, when it came up for renewal again in 2014, President Obama decided to express his animosity against the Jewish state – and, in particular, against Prime Minister Netanyahu – in yet another way by letting the Agreement lapse. Obama’s action made Israel weaker and increased the risk that it could sustain existential damages in the event of another boycott or other anti-Israel oil action.
Today, Israel, which has negligible supplies of crude oil, imports 99 percent of its gas, mostly from former Soviet nations via a pipeline passing through Georgia and Turkey and connecting the Caspian Sea with the Mediterranean. However, it has developed offshore discoveries of more natural gas than it can use, including Leviathan, Israel’s largest natural gas field. Moreover, thanks to President Trump, the United Arab Emirates has made a recent investment for purchase of an Israeli natural gas field.
At the end of the day, it cannot be disputed that Israel paid a high price indeed for its agreement to return the Sinai to Egypt. Perhaps the greatest statement of the risks Israel took for peace, and of the asymmetrical imbalance between Israel’s great sacrifices and Egypt’s minimal concessions, was a declaration by Anwar Sadat: “Poor Menachem, he has his problems . . . After all, I got back . . . the Sinai and the Alma oil fields, and what has Menachem got? A piece of paper.”