Israel finally approves Egypt’s gas deal after nail-biting battle

In an unexpected move, Israeli Prime Minister Benjamin Netanyahu announced on Wednesday Israel’s final approval of a controversial gas export deal with Egypt, months after Israeli hesitation following the initial announcement of the agreement in August.

The US$35 billion deal, set to run through 2040, is an extension of an agreement that has been in place for seven years. Yet its announcement came under markedly different circumstances from those surrounding the original deal.

On the one hand, the deal was unveiled amid Israel’s genocidal war on Gaza, prompting accusations that the Egyptian government was turning a blind eye to the war crimes across its northeastern border — particularly in light of Israel’s repeated suspensions of gas flows to Egypt over the past two years, which triggered sudden bouts of chaos.

On the other hand, the deal came at a moment when Egypt’s energy security was at its most fragile.

When Egypt entered into an energy partnership with Israel seven years ago, it was aware the deal would be unpopular, with officials even denying the government’s role in it. But since the deal was part of a plan to expand Egypt’s economic role to become “a regional energy hub,” it was soon championed by a smiling President Abdel Fattah al-Sisi as a scored “goal” in the long game.

But that has now changed, as Egypt’s domestic production has declined and global gas prices have surged in recent years. Egypt has rapidly shifted from a country aspiring to become a regional energy hub to one struggling to keep pace with its domestic needs, made evident by recurring power outages and the government’s widely unpopular energy rationalization plans.

This, combined with a deep economic crisis and a sharp dip in dollar resources, has severely narrowed Egypt’s options — especially since the price of gas Egypt receives from Israel is significantly lower than that of any alternative it could turn to.

It remains unclear whether Egypt made concessions in exchange for extending the existing agreement, but it has certainly retained its preferential pricing. 

Several international media outlets suggested over the past week that a meeting between Netanyahu and Sisi may be in the works, which would amount to a diplomatic win for the Israeli prime minister who is currently facing growing international isolation.

An informed parliamentary source, however, rules out the possibility of such a meeting taking place in Cairo, citing the political embarrassment it would cause the Egyptian leadership. Instead, the source suggests that the two leaders might meet, in the presence of United States President Donald Trump, either in the US or in Sharm el-Sheikh early 2026.

Despite the apparent weakness of Egypt’s position — leading some to conclude that Cairo is fully subservient to Israeli conditions — a closer reading of the situation points to a more complex picture in which Egypt retains leverage that has enabled it to resist Israeli pressure in recent months, particularly with the US siding with Egypt’s position, driven by American business interests. 

In this sense, the past few months amounted to a nail-biting battle between Egypt and Israel. Each side was aware of both its vulnerabilities and its strengths, and each sought to hold out as long as possible in anticipation of the other giving in, which did ultimately happen with Israel’s announcement of its final approval on Wednesday.

Israel supplies gas to Egypt through two pipelines with a combined capacity of 1 billion cubic feet per day. About 55 percent flows through the offshore East Mediterranean Gas (EMG) pipeline, linking Ashkelon and Arish along the Mediterranean coast, while the remaining 45 percent is delivered via the Arab Gas Pipeline from the Rehab station in northern Jordan — a handover point between the two countries — before heading south toward the Gulf of Aqaba and onward into Egyptian territory, reaching the city of Arish in northeastern Sinai.

In 2018, Egypt signed a $15 billion deal to import natural gas from Israel’s Tamar and Leviathan fields, totaling 64 billion cubic meters split evenly between the two fields, at an annual rate of 3.5 billion cubic feet each. The agreement is set to expire at the end of 2030 or once the full volume has been delivered, with supplies transported via the EMG Arish-Ashkelon pipeline.

The deal was made possible by the settlement of legal disputes between the two sides linked to Egypt’s cutoff of gas supplies to Israel. Israel was awarded $1.7 billion in compensation in the dispute that led Egypt, in 2015, to freeze a preliminary agreement to purchase around 4 billion cubic meters of Israeli gas over a 15-year period.

The new deal, meanwhile, will require additional construction to expand the regional gas infrastructure linking Egypt, Israel and Jordan. This includes three new transmission lines — two within Israel and a third between Egypt and Israel, known as the Ramat Hovav-Nitsana pipeline.

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Negotiations toward the new deal were spurred by Egypt’s worsening economic crisis. Russia’s war on Ukraine pushed the national economy to the brink of bankruptcy, leaving the treasury to weather the combined effects of a foreign investor exit that drained $20 billion from the debt market, an $8 billion plunge in annual tourism inflows, and a surge in global inflation.

Despite accessing around $50 billion in liquidity via loans and sales, foreign currency was still in short supply and the government began to accumulate billions in arrears to foreign oil companies. These, in turn, limited production, exploration and development and as Zohr began to dry up too, domestic production of natural gas declined sharply.

The government faced an unplanned energy deficit. Electricity outages left doctors struggling to treat patients in overheated hospital wards in Aswan, tourists sweltering in hotel rooms at North Coast resorts, and factories producing high-value fertilizer exports forced to shut their doors. For the state, this was a colossal failure and a return to square one — a challenge to its origin myth as the more competent alternative to the ousted Muslim Brotherhood government that had presided over rolling cuts in 2012. As public fury boiled at the state’s failure to keep the lights and air conditioning units on for two consecutive summers, officials expressed concern to Mada Masr on several occasions about the degree of social pressure.

Plans to bolster Egypt’s natural gas resources over the coming years were sketched out, including via the East Mediterranean Gas Forum, where regional actors including Israel had agreed that Egypt could take a leading share in developing the gas reserves at Gaza Marine. At the same time, Egypt was, in the summer of 2023, returning to talks with Israel to expand its 2018 purchase agreement.

Just months after the purchase talks began, the Qassam Brigades launched Al-Aqsa Flood, unleashing a war that would reshape the region.

The trajectory of the relationship between Egypt and Israel, which had been steadily warming since 2015, quietly began to cool off as the Occupation military first bombed, then invaded the border region. Economic and diplomatic ties persisted, but the high hopes Egypt had pinned to energy partnership endured a series of blows.

Following Hamas’s initial attack, Israel shut down the Tamar field and the EMG pipeline. Even though Tamar is the smaller of the two Israeli fields exporting to both Egypt and Jordan, it was enough for gas-poor Egypt to feel the impact, leading the government to lengthen periodic power cuts nationwide. To downplay the extent its dependence on Israel at a moment when rare protests in solidarity with Palestinians were already filling central city squares, the government fudged its explanation about the causes of the cuts to avoid stoking further outrage.

The fields and EMG pipeline would later reopen. But as Israel escalated its aggression on multiple fronts, squaring up to Hezbollah in Lebanon and to Iran, its officials grew concerned about the exposure of its infrastructure to potential attacks. When Israel waged a 12-day-war in June, it battened down its mammoth Leviathan field, cutting supply to Egypt again just as the country neared its peak energy demand season. The government was once again forced to roll out an energy rationalization plan.

Therefore, when the deal was announced in August, officials in Egypt — behind closed doors at least — felt it would ultimately have a positive impact on the current account. And while they knew that Egyptians would be angered to discover their government had redoubled its dependency on Israel even as it was, at that very moment, starving Palestinians to the northeast, this felt less important than preventing the power cuts, according to several sources.

Former head of the Electricity Utility and Consumer Protection Regulatory Agency Hafez al-Salmawy tells Mada Masr that Cairo considered the matter a lose-lose situation, anticipating public backlash either way: “whether we agreed with Israel, or we didn't and the electricity went off.” A former Petroleum Ministry official makes a similar argument, acknowledging the "embarrassment" that came with the new deal’s announcement over the summer but arguing that it was justified given the unmatched pricing of Israeli gas.

Salmawy, the former ministry official, a government source in the Cabinet and a fourth source from the Egyptian General Petroleum Corporation all describe the $7.5-$8 price point per British thermal unit in the August agreement as a “winning deal,” with the Cabinet source noting that it is nearly unchanged compared to the original 2018 agreement.

In public, meanwhile, the government commented only to contain the backlash after the news broke indirectly through a disclosure to the Tel Aviv Stock Exchange. Prime Minister Mostafa Madbuly took on the task during the televised press segment of the weekly Cabinet meeting. “There was a lot of controversy and extreme confusion about what was announced about the extension of the agreement with NewMed Energy, the partner in Leviathan, the Israeli gas field,” he said. “All we have agreed to is an extension of the timeline of that agreement until 2040.”

But Netanyahu’s declaration that he was suspending the deal, just days after it was announced, disrupted all the hopes pinned on it.

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At first, the deal was celebrated in Israel as a victory at last in the “PR war” that Trump had previously said Israel was “absolutely losing.” Energy Minister Eli Cohen greeted the $35 billion agreement as “the largest gas deal in history” and important “security, political and economic” news. The minister quickly gave his approval in the ensuing weeks to the blueprint for a $2.5 billion plan for the expansion of the Leviathan field and later to a $650 million deal for a new pipeline to deliver an additional 600 million cubic feet of gas per day to Egypt and raise the infrastructural ceiling that limits the volume of gas deliveries at present. Upon closing the October infrastructure deals, Cohen again celebrated the effects both for “the Israeli economy” and for Israel’s “political standing.”

That calculus quickly shifted when Netanyahu announced the suspension of the deal, due to a range of factors that appeared to push his government toward hesitation in finalizing it — some tied to Israel’s own internal considerations.

In September, Netanyahu debuted a new narrative about the national economy. Taking to the press podium at a Finance Ministry conference in September, Netanyahu lamented Israel’s declining trade relations — a trend he put down to demographic change in Europe and hostile digital environments like TikTok, rather than to popular anger against the killing of Palestinians. “Israel is in a sort of isolation,” he said, stating that the country would “increasingly need to adapt to an economy with autarkic characteristics.”

In reality, the economic sanctions Israel has faced for its conduct toward Palestinians have been few — a deal cancellation or two, a handful of moderate amendments to the volume and types of arms sales, and proposed but never-implemented trade sanctions from the European Union and the United Kingdom. But even these were described by Netanyahu as “limitations and all sorts of sanctions on Israel.” And though he avowed himself “a believer in the free market,” he regretfully concluded that Israel had no choice but to become, for the present, “a super-Sparta.”

The position Netanyahu articulated ran in sync with the longstanding posture of right-wing officials, including Ultra Zionist Finance Minister Belazel Smotrich himself, his general accountant who oversees the national budget, and officials at the Israeli electricity network, all of whom have lobbied against exporting natural gas, arguing that it could compromise — in 20 years’ time — Israel’s own access to the fuel that powers a majority of its domestic consumption. These officials have branded the specter of future gas scarcity a new flavor of "national security" concern for the country, fearing it could push up prices for Israel’s domestic consumers as the country lags behind on its own renewables targets and in light of domestic energy consumption increases. As a result, the Israeli Finance Ministry is proposing an increase to the mandatory reserve volumes of natural gas in the budget for the coming year beginning January — effectively an export ceiling that would require an alteration to the deal announced in August. 

Israel’s wars also put plans to expand the Ashkelon-Ashdod pipeline to boost export capacity to Egypt on ice, an opportunity cost lamented not only in Egypt, but in Israel’s own energy market. Israeli Natural Gas Trade Association figures complained that delays to infrastructure and other energy projects due to the war have cost Israel around 5.5 billion shekels ($1.6 billion) in export revenue, beseeching their officials to remedy the situation.

These factors dampened the once-enthusiastic talk of the gas deal’s “diplomatic aspect,” as one researcher at Israel’s Institute for National Security Studies described it. When Netanyahu hailed the 2018 deal, he said it provided economic ballast to bilateral security and diplomatic ties, saying it would “strengthen [Israel’s] security, economy and regional relations.” Figures from the gas association  expressed the same sentiment in even plainer language, stressing that Israel’s gas export deals to Egypt and Jordan acted as “the central anchor for [Israel’s] cooperation with these countries since the Peace Accords.” 

American University in Cairo Political Economics Professor Amro Adly explains that beyond the immediate financial benefits to Israel, the 2018 natural gas partnership also lent credibility to Israel among actors interested in its energy sector, signaling that it was serious about prioritizing economic projects over regional conflict. Foreign interest in Israel’s market surged after 2018, with US energy giant Chevron announcing its entry to the Israeli market with glee as it acquired stakes in both Tamar and Leviathan, anticipating “low-capital, cash-generating” prospects from its new East Mediterranean presence. Emirati firm Mubadala quickly joined the party, entering Israel’s energy market just one year after the countries normalized diplomatic ties.

But the trend began to reverse after 2023. With Israel showing no interest in concluding peace negotiations, killing leading Hamas negotiators in Tehran and Beirut and injuring Iran’s ambassador to Lebanon, companies such as British Petroleum and Abu Dhabi National Oil Company backed out of Israel’s energy market, citing “the external environment.” Rumblings stirred among previously anti-Iranian policy researchers in the West and the Gulf that Israel might pose a greater threat to economic stability than Iran.

In addition, some Israeli official institutions have grown concerned about the deal’s potential impact on the price at which the Israeli Electricity Authority obtains gas. As a result, Israel has escalated a long-standing concern over Chevron’s dominant presence in its energy sector, with the Israeli Electricity Corporation refusing to renew a purchase deal with the consortium managing Tamar unless the purchase price is reduced. 

Cohen has also refused to grant the export license that Chevron and other Leviathan partners will need to make their investment in the field’s expansion — a prerequisite for the deal to proceed. Cohen issued a statement in late October expressing Israel’s “refusal to approve the gas export agreement to Egypt until Israeli interests are secured and a fair price for the Israeli market is agreed upon,” noting “significant American pressure” for the license. As a result of the disagreement, Cohen said that US Energy Secretary Chris Wright had cancelled a scheduled visit. The two reconvened in Greece a week later, however, with the head of Chevron visiting Netanyahu himself in tandem.

Cohen also pointed to ongoing efforts “to address the diplomatic issues between Israel and Egypt.” How these political issues relate to the deal was left unspoken. Threats were published in Israeli daily Israel Hayoum citing “diplomatic sources” who claimed that Netanyahu himself had ordered the deal frozen until further notice, an intervention explained in the newspaper as a response to putative “Egyptian violations regarding the peace agreement.” The accusation, oft repeated, relates to the Egyptian Armed Forces’ intensified troop deployments in Sinai. But a security source who spoke with Mada Masr notes that while both Egypt and Israel have made alterations to the degree and location of troop deployments specified in the Peace Treaty over the past two years, these have all been conducted under the treaty’s mutual coordination mechanism, saying “Israel is completely aware of all the troop movements in Sinai.” The smear has also been debunked by Israeli commentators, who view the threat as an attempt to extract political gains for Israel — such as the displacement of Palestinians from Gaza onto Egyptian soil — by using the gas deal to exert pressure.

Egypt has consistently voiced that its assent to displacement remains off limits, with Sisi himself coming out on countless occasions to say that the displacement of Palestinians into Egypt is a threat to Egyptian national security. Madbuly also stated in unambiguous terms during his August presser that the gas deal “will not affect Egypt’s political decisions,” explicitly mentioning displacement.

There are other political demands on the table, such as the Israeli Occupation’s aim to oust Hamas and install a government of its choosing, with one Israeli national security think-tank researcher stating that Egypt should “contribute to establishing an alternative to Hamas for Palestinian rule in Gaza and facilitating its reconstruction,” in exchange for Israel’s “support” for Egypt to lead the extraction of natural resources from Gaza Marine. 

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Despite Israeli pressure and the weakness of Egypt’s negotiating position due to its immediate needs, this vulnerability may prove temporary, shaped by a range of evolving factors.

On one front, Egypt is working on the recovery of its own fossil fuels production. Officials speaking to Mada Masr over the past year have gestured to a pending project to connect Cypriot gas fields to Egypt’s liquefaction facilities as a way to lessen dependence on Israeli gas. 

They have voiced the same hope while pointing to the temporary regasification facility leases, with recent reports even claiming that discussions are underway to build permanent regasification facilities.

Following leaks suggesting Netanyahu’s wish to freeze the deal, Egyptian Petroleum Minister Karim Badawy stepped up his visits and meetings with Cypriot counterparts to move forward with linking the fields to Egypt — an effort that an informed source describes as a signal to Israel that Egypt’s options are not limited.

Equally high hopes are also staked on the completion of the Dabaa Nuclear Plant and its potential to significantly reduce national dependence on natural gas, according to the sources.

At the same time, it is difficult to predict how the global gas market will evolve over the coming years. There are indications that gas prices may decline next year due to rising US production, a trend expected to continue.

An end to the Russia-Ukraine war and Russia’s return to global gas markets could also drive prices down, despite US-backed European efforts to maintain policies aimed at avoiding Russian gas as much as possible even after the war ends.

But until one or all of these eventualities coalesce — something Salmawy anticipates will not happen until at least 2028 — Israeli gas remains the cheapest option. Until then, he says, “we will be dependent on Israeli gas, with all the consequences that entails."

This was Israel’s bet. But it’s a risky one. While Egypt is effectively hostage to Israeli gas for the time being, its ability to absorb the high cost of alternative gas sources for a few years — which it had already started doing — means it could eventually free itself from that dependence. That would entail the loss of one of Israel’s key levers over the energy sector of the region’s largest country in the long run —  a major geopolitical loss.

Beyond this lie the expected economic losses. Directly, the Israeli state stands to collect around $18 billion in projected tax revenues from the deal. More importantly, however, Israel has no alternative outlet for its gas reserves.

Some sources told Mada Masr that, should agreements be reached between Israel on one side and Syria and Lebanon on the other, the two countries could serve as outlets for some Israeli gas. Yet the size of those markets is limited compared to Egypt’s, and neither country has the infrastructure needed to export any surplus gas, unlike Egypt.

Egypt is fully aware of this reality in its negotiations. In recent months, it has pushed back against Israel’s stated desire to raise gas prices. This was evident in the maneuvers Egypt undertook this year, turning to liquefied natural gas imports from other sources and leasing several regasification vessels to demonstrate its readiness to seek out alternative energy supplies, according to Salamawy and both parliamentary and government sources.

The government hasn’t revealed the price tag on its temporary regasification infrastructure, but LNG imports have already cost the government $5 billion this year, with a new US-bankrolled $4 billion deal in the works. The short-term liquid natural gas supplies are worth up to $15 per British thermal unit, prices that “are ruining Egypt,” as the former Egyptian General Petroleum Corporation official puts it.

For this reason, and although its position is temporarily weak, Egypt has managed to hold firm in the negotiations, relying on these leverage points, particularly with the US backing its position for its own interests.

Egyptian officials have remained tight-lipped about Israel’s refusal to grant the export license. Appearing on Al-Nahar television station in early November, Justice Party candidate Mohamed Fouad, now a newly elected MP, distanced Egypt from the equation, saying, “the company that holds the concession [in the gas field], Chevron, needs to sort things out and get an approval, which is why there is significant interference from the US administration, definitely to promote the interests of [Chevron] in this matter.”

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Trump began his second administration by unveiling his mission to “unleash American energy.” The strategy is primarily to find export destinations for vast reserves of American natural gas: to boost the US economy and to break European dependence and spending on Russian gas inflows. It also entails a resurgent emphasis on the production and consumption of natural gas globally as a “transition fuel,” an apocryphal “clean alternative” to oil and a rival to the rising Chinese dominance in the renewables sphere that has stirred concern in American policy circles.

It's in this vein that Chevron’s business in the region — including concluding a sale to Egypt that would justify Chevron’s expanding production at Leviathan — were high on the agenda for the new US administration that assumed power at the outset of this year. 

According to two informed sources, Washington’s policy priorities quickly translated into stern messages for Israel. While US Ambassador Mike Huckabee received a warm welcome upon resuming his post in Jerusalem earlier this year, the Egyptian Cabinet source told Mada Masr that Huckabee was quick to warn Israeli officials that “any steps that would harm American companies are not acceptable,” naming Chevron in particular. An Egyptian security source familiar with economic affairs said the US exerted significant pressure to finalize the deal over the summer.

It appears that the combination of Egyptian persistence and American pressure finally paid off, bringing the deal to completion after months of stalling. Yet despite Egypt’s apparent victory in shaping the agreement to its liking, this doesn’t necessarily constitute a true triumph. As a result of this win, Egypt’s energy security is now effectively dependent on Israel, at least for the time being.