Switzerland’s Court of Arbitration ruled this month that Israel must pay $1.1 billion it owes to Iran’s national oil company, the official Iranian news agency IRNA reported on Wednesday.
Israeli officials have refused to respond or comment on the report. This arbitration case has been ongoing for nearly a quarter of a century, over a secret partnership the two countries held during the reign of Mohammad Reza Pahlavi, the last shah, under which Israel bought Iranian oil.
A source familiar with the matter told The Jerusalem Post that if Israel is indeed obligated to pay the debt, it would be a symbolic blow to its morale, and would cause some damage to Israel’s public relations and image in the world. “But practically speaking, it is highly unlikely that there will be any change and that Israel will pay the debt,” the source said.
At the center of the affair is an Israeli corporation called the Eilat-Ashkelon Pipeline Company (EAPC) and its sister company, which exists only on paper, by the name of Trans-Asiatic Oil.
EAPC operates an oil terminal and a storage facility in Eilat, and an oil pipeline leading from there to Ashkelon Port. In Ashkelon, there is a larger storage facility in which petroleum acquired from sources around the world is stored.
Following the Six Day War in 1967, when the relations between Iran and Israel were at their height and included arms trade, intelligence cooperation, and economic ties, the two countries decided to establish joint companies. These companies, which included EAPC and Trans-Asiatic Oil, were registered as legal entities in Canada, Lichtenstein, and Panama.
Simultaneously, the three Israeli oil companies Sonol, Paz, and Delek purchased their oil directly from Iran.
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According to the agreement, the National Iranian Oil Company (NIOC), which was then run by the shah’s administration and is today under the control of the government of the Islamic Republic, sold EAPC oil on credit for three months.
In February 1979, following the Islamic Revolution, then-supreme leader Ayatollah Ruhollah Khomeini decided to halt the flow of oil to Israel – the “Little Satan.” Israel did not pay for the final discharge of oil, which came with a bill for $450 million.
Nothing happened for more than a decade, and EAPC continued to operate under Israeli control. In the early 1990s, Iran filed a lawsuit over the debt, also claiming that Israel had seized control of the joint companies and turned them into its own national entities.
The Iranians filed a series of legal suits in the states in which the partnership companies were registered, and also in commercial arbitration courts in France and Switzerland. Israel and EAPC were represented in the arbitrations, which were held under a veil of secrecy, by the lawyers Elhanan Landau (who was subsequently replaced by Zvi Nixon) and Haim Zadok (who was replaced by Dori Klagsbald).
Israel’s tactic was foot-dragging: raising preliminary technical arguments, on which the courts and the arbitrators had no authority to deliberate.
Alternatively, the Israeli representatives claimed that the NIOC had breached its commitments by stopping to sell oil to Israel and that the company and had operated unilaterally.
Israel countered with its own suits.
A few years ago, the three gas companies, Sonol, Paz, and Delek, lost one of the arbitration cases, and were ordered to pay about $100 million.
Additionally, Israel was ordered to cover the legal expenses, which it paid.
Though it is doubtful that the government of Israel will pay the huge debt, it is not clear from the Iranian report whether this is the final sum in question or whether it will rack up interest and indexation, and eventually swell to billions of dollars.
If Israel does not pay, Iran reserves the right to try to sue the government of Israel in international courts and freeze its foreign bank accounts and assets, including property such as embassies. But this would be a complicated legal process, and it is doubtful that Iran – whose own status in the international community is at a low point – would try such a move.
In any case, EAPC – which is run under a 49-year franchise of the Israeli government that will expire in 2017 – will not be harmed from this move and will continue to operate in its current form.
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