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October 15, 2014 4:47 pm

After Operation Protective Edge, Natural Gas Renews Confidence in Israeli Economic Performance

avatar by Ben Cohen

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Israel's "Leviathan" natural gas field. Photo: Twitter

Six weeks after the end of Operation Protective Edge, a bruising conflict which saw Israel attempt to eliminate the missile threat from Hamas-ruled Gaza for the third time in six years, the Jewish state’s economy is showing mixed signs of recovery.

“Israeli Global Equities demonstrated resilience during Israel’s Operation Protective Edge in Gaza,” observed the Q3 2014 review of BlueStar Indexes, a New York-based financial firm that specializes in Israeli capital markets. “As a result of the conflict, though, tourism and consumer spending declined in Q3 compared to the previous year.”

Simultaneously, the plunge in global food and energy prices contributed to a price drop in Israel of 0.3 percent during the month of September, Bloomberg reported. “The move to deflation may provide further support for bets that the Bank of Israel will reduce its benchmark interest rate, already at a record low of 0.25 percent. In minutes of last month’s monetary policy committee meeting, the bank said action should be taken to bring inflation back to the government’s target band of 1 percent to 3 percent,” the Bloomberg report added.

Daniel Hewitt, a senior emerging-markets economist at Barclays Plc, told Bloomberg: “Inflation is very low, growth is not great. They are going to go to something close to zero, but maybe not reach zero.”

The BlueStar Indexes report noted that the Bank of Israel lowered its policy interest rate twice during the third quarter. “That and the expectation that the Federal Reserve will increase U.S. interest rates in mid-to-late 2015 contributed to a sharp depreciation of the Shekel against the Dollar,” the report said. “This should be supportive of export growth going forward, a recent problem for the Israeli economy.”

Amidst domestic and global financial uncertainty, Israel is increasingly looking to natural gas exports as a means of boosting its economic performance. As Bloomberg reported separately, by the the end of the year, “Israel may have binding agreements to sell billions of dollars of gas to Egypt, Jordan and the Palestinian Authority. Preliminary talks are taking place with customers in Turkey, even though President Recep Tayyip Erdogan is among Israel’s fiercest critics. Gas may even help improve relationships in the Gaza Strip. ‘There are now extraordinary opportunities for Israel based on energy policy, both economically and diplomatically,’ said Israeli Foreign Ministry spokesman Emmanuel Nachshon. ‘This is a real game-changer of common interests and benefits for many actors in the region. It could also bring about better relations with Turkey, and with other regional actors with whom Israel is not yet in close contact.'”

The Tamar gas field was discovered off Israel’s Mediterranean coast in 2009 and the Leviathan field a year later. Together, they hold an estimated 29 trillion cubic feet.

Partners in the Leviathan field, including Houston-based Noble Energy Inc. (NBL), the Israeli units of Delek Group Ltd. and Ratio Oil Exploration 1992 LP, signed a preliminary deal on September 3 to sell about $15 billion of gas to Jordan’s National Electric Power Co. over 15 years. That followed supply deals earlier this year with Jordan’s Arab Potash Co. and the West Bank-based Palestine Power Generation Co. In February, Australian energy giant Woodside Petroleum Ltd purchased a 30 percent stake in the Leviathan field for $1.25 billion.

Some Middle East analysts are skeptical of the claim made by the Israeli Foreign Ministry’s Nachshon, that “natural gas can serve the role for this region that coal served for the EU,” pointing out that political and ideological considerations often trump decisions based purely on trading interests. Still, there is little doubt that natural gas exports will both lift the Israeli economy and cement relations with the two of Israel’s neighbors, Egypt and Jordan, with whom it shares common strategic goals.

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