Israel says peace treaty at risk after Egypt scraps gas deal

CAIRO/JERUSALEM - The Associated Press

Flames rise from an Egyptian pipeline distribution station after an attack in the Sinai peninsula in this file photo. REUTERS

Israel's energy minister is urging Egypt to reverse its decision to stop supplying Israel with natural gas.

Uzi Landau says the canceled deal will not only exacerbate power shortages this summer but also disrupt an already shaky peace treaty between the two countries.

Egypt's national gas company announced the decision late Sunday, saying Israel had not paid its bills.

Israel gets about 40 percent of its natural gas from Egypt. In the past year, saboteurs have repeatedly blown up the pipeline, disrupting the supply to Israel.

Landau says the gas deal was a cornerstone of Israel's peace treaty with Egypt. He expects electricity shortages this summer, partly due to the lack of Egyptian gas.

Israel is ramping up production on offshore oil fields to make up for the shortage.

The head of the Egyptian Natural Gas Holding Company says it has terminated its contract to ship gas to Israel because of violations of contractual obligations, a decision Israel said overshadows the peace agreement between the two countries.

The 2005 natural gas deal has become a symbol of tensions between Israel and Egypt since the uprising. For many Egyptians, it typifies the close relations the regime of deposed President Hosni Mubarak forged with Israel and how his associates benefited greatly from such business deals.

Critics charge that Israel got the gas at below-market prices and that Mubarak cronies skimmed millions of dollars off the proceeds, costing Egypt millions of dollars in lost revenue.

Egyptian militants have blown up the gas pipeline to Israel 14 times since the uprising more than a year ago.

Israel insists it is paying a fair price for the gas.

Decision 'not political'

Mohamed Shoeb, the head of the Egyptian Natural Gas Holding Company, said Sunday the decision to cancel the deal was not political.

"This has nothing to do with anything outside of the commercial relations," Shoeb told The Associated Press.

He said Israel has not paid for its gas in four months. Israeli Foreign Ministry spokesman Yigal Palmor denied that.

Shoeb told Egyptian TV that the decision to cancel the contract was made Thursday because "each side has rights and we are representing our rights." 

On Sunday, Israel Finance Minister Yuval Steinitz said the unilateral Egyptian announcement was of "great concern" politically and economically.

"This is a dangerous precedent that overshadows the peace agreements and the peaceful atmosphere between Israel and Egypt," he said in a statement. Israel and Egypt signed a peace treaty in 1979, but relations have never been warm.

The Israeli side said the decision was "unlawful and in bad faith," accusing the Egyptian side of failing to supply the gas quantities it is owed.

Israel insists it is paying a fair price for the gas. Israel's electricity company has been warning of possible power shortages this summer, partly because of the unreliability of the natural gas supply from Egypt.

For the long term, Israel is developing its own natural gas fields off its Mediterranean coast and is expected to be self-sufficient in natural gas in a few years.