Economic fallout

By
February 5, 2011 23:40

Because intelligence agencies failed to foresee eruption of regional ferment, we were caught unprepared, and not only in military and diplomatic spheres.

3 minute read.



Egyptian anti-riot police clash with protesters.

Cairo protests 521. (photo credit: Associated Press)

Prediction is very difficult, someone once said, especially if it’s about the future. And there’s really no telling now precisely which long-range results will be produced by Egypt’s current turmoil.

One thing is for sure, however: Israel needs to prepare for a wide range of scenarios, including those of the worst-case variety. It’s time for some urgent catching up. Because our intelligence agencies failed to foresee the eruption of regional ferment, and most especially the Egyptian upheaval and its possible strategic fallout, we were caught unprepared, and not only in the military and diplomatic spheres.

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Our economy will also be significantly affected by what transpires south of the border in the coming months and years. The need to institute new security measures on a newly unstable border, for a start, will certainly require greater defense expenditures. But any injury to the peace with Egypt would trigger an economic tidal wave. This could be a destabilizing factor of critical proportions, and not merely because of the psychological insecurity that would be injected into our economy.

Foreign investors may get cold feet, as might the international currency speculators who have been causing the shekel to artificially appreciate in value. De-escalating their assault on our currency may do more to restore to realistic values than all the energetic Bank of Israel efforts thus far. Yet such theoretical benefits would be more than offset by the all-too-real deterioration in our security.

This is all the more so in our globalized circumstances, where distress in one country soon affects others. Indeed the Arab world’s woes, so instrumental in prompting the spontaneous wave of protests, were significantly exacerbated by the worldwide recession that began in 2008. IMF chief Dominique Strauss-Kahn had been warning about the potential impact well before the current spate of rioting.

WHEN MEASURED on the scales of international commerce, the Egyptian market, as such, is a featherweight. Hence the few primary outside victims of Egypt’s unrest will be firms doing direct business with the country. Even in next-door Israel their number isn’t high, and it has been falling due to the frigid nature of the peace with Cairo. Israeli exports to Egypt are marginal in scope, netting between just $100 million-200m. annually.

Egypt’s greatest importance to the global economy is via the Suez Canal, but it’s likely that, whichever forces emerge triumphant from the mayhem, Cairo would not have the remotest interest in cutting off the crucial waterway, which is an income-engine for the country.

And yet revenue considerations might not prevail in all cases. Egypt’s natural gas exports to Israel also enrich its coffers, yet nobody can be absolutely confident that a future regime wouldn’t opt to discontinue them.

During 2010, Israel imported 2.1 billion cubic meters of Egyptian gas, contributing quite handsomely to the Egyptian Treasury. This year forecasts were that the 3b.cu.m. mark would be passed, and that we would eventually reach 8b.cu.m annually, as new gas-fueled power-stations are constructed here.

New, substantial gas import contracts were signed and other deals are near completion and pending. Uncertainty in this sphere is another factor that cannot be easily downplayed, even if Egypt’s new leadership should exude effusive affability. Odds are that the intuitive inclination here will lead to greater reliance on local gas discoveries, as in the Tamar Field off Haifa.

For Israeli consumers that news could be both good and bad. It would boost state revenues and enhance our collective welfare. Concomitantly, however, decreased competition for and increased taxation of local energy providers would result in higher electricity and gas bills for both households and industry.

WHETHER OR not Egyptian gas supplies are threatened, there’s an imperative need now to cushion our economy against potential future shock.

This primarily means speeding up resolution of all remaining financial snarls – including tax wrangles – holding up local gas production. The aim should be to pump Tamar gas into our pipelines within the coming couple of years.

Instead of fantasying about Norwegian-like gas bounties, it’s time to begin exploiting the probably more modest resources discovered here.

Expecting Israeli self-sufficiency in the energy sphere may be unrealistic, but any moves in that direction at this juncture – when we can no longer complacently depend on Cairo’s goodwill – will help shield Israel against more undesirable consequences accruing from Egypt’s game-changing domestic cataclysm. Idly observing from the sidelines is no option.


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