Shekel surges on hopes for gas production

The Israeli currency reaches new highs; natural gas would allow Israel to import less oil and improve its balance of payments.

Tamar (photo credit: Courtesy)
(photo credit: Courtesy)
The shekel continued its six-month surge Thursday, closing at NIS 3.68 to the dollar in Tel Aviv, its strongest in almost a year. It briefly traded lower on February 8, 2012.
The shekel traded at 3.6938 per dollar as of 5:30 p.m. in Tel Aviv, versus 3.6902 on Wednesday, according to data compiled by Bloomberg.
“The overall story is that the shekel is strengthening in relation to most of the currencies in the nominal basket, not just the dollar,” said Modi Shafrir, chief economist at I.L.S. Brokers in Tel Aviv.
One of the culprits in the strengthening currency is the expectation of Israeli natural gas on the market, he said.
Until now, Israel has had no natural gas of its own, so it had to import it, a problem magnified by the frequent bombings of the gas pipeline from Egypt since the revolution there. As a result, Israel had to spend even more of its shekels on importing oil.
As its own natural gas comes to the market, Shafrir said, Israel will be able to import less oil, improving its balance of payments and further strengthening the shekel. Gas from the Tamar field is expected to hit the market in April.
Though a strong shekel is good for consumers and importers, an overly strong currency could potentially weaken exports because it makes them more expensive for other countries to purchase.
Bank of Israel Governor Stanley Fischer has expressed an aversion to intervening in the currency market by buying dollars to keep the shekel from strengthening too much. But he said he would if the situation became extreme.
“I don’t think the Bank of Israel will intervene until it falls to 3.6,” Shafrir said.
Israel’s foreign-exchange reserves rose $2.511 billion in January to a record $78.417b., the central bank reported Thursday.
The decline in the exchange rate comes despite political circumstances that would usually push it up: uncertainty over the budget and the process of forming a new government coalition, Fischer’s announcement that he would be leaving his post in June and increasingly tense geopolitical developments in Syria and Egypt.
Bloomberg contributed to this report.