Oil spill fallout

Israel’s worst-ever environmental disaster has focused public scrutiny on the mysterious Eilat-Ashkelon Pipeline Company.

By YOSSI MELMAN
Members of a clean-up team work at the site of the EAPC oil spill at the Evrona desert reserve in the Arava. (photo credit: REUTERS/BAZ RATNER)
Members of a clean-up team work at the site of the EAPC oil spill at the Evrona desert reserve in the Arava.
(photo credit: REUTERS/BAZ RATNER)
TO BE FAIR , the greatest environmental disaster in the history of Israel – the oil spill in the Arava Desert in early December – has no direct connection to the convoluted structure of the of the Eilat-Ashkelon Pipeline Company (EAPC)company, its owners or its mysterious past.
In fact, a senior official acquainted with the incident told The Jerusalem Report that the disaster occurred simply as a result of a technical glitch – the pipe burst during maintenance work, dumping five million liters of oil into the pristine desert.
However, ecologists said this unfortunate “technical glitch,” resulting in the massive oil spill that flooded the Evrona nature reserve with crude oil, could take years to clean up. It would also leave the company with a massive bill to pay for the damage.
Although EAPC is obliged to operate in accordance with Environmental Protection Ministry regulations, it is one of the most secret companies in Israel, operating under a special legal framework since 1968. This gives EAPC immunity from public oversight from the government, the state comptroller, the Knesset and the media – journalists must battle severe censor - ship restrictions to cover any aspect of the company.
All this strengthens the feeling that the company has something to hide. As former US Supreme Court Justice and American Zionist leader Louis Brandeis once said, “sunlight is the best disinfectant.”
The company’s name, Eilat-Ashkelon Pipeline Company, seems to tie it solely to Israel. But, in fact EAPC is part of a legal entity known as Trans Asiatic Oil, a partnership between the Israeli government and the National Iranian Oil Company.
Following Iran’s recognition of Israel during the reign of Shah Mohammad Reza Shah Pahlavi in 1951, the two states developed special, clandestine cooperation. The cooperation involved Iranian assistance in the secret emigration of Jews from Iraq, organized by the Mossad; Israeli-Iranian cooperation on matters of intelligence – Mossad, the Israel Security Agency (Shin Bet) and the IDF helped train and run the Iranian army and Savak (the notorious Iranian security service); in exchange, Savak supplied Mossad with documentation and other assistance enabling it to launch covert operations in Iraq, as well as aid to the Kurdish rebellion; and agreements be - tween the two countries that covered military cooperation and the supply of Iranian oil to Israel. ( See "Backdoor Battle" The Jerusalem Report, July 29,2013 ) Until the mid-1950s, Israel was supplied with oil from the Soviet Union, Kuwait (then under British control) and international oil companies, but in 1955-6, these sources dried up and Israel was forced to look elsewhere. It turned to the shah and his aides and asked them to become Israel’s main oil suppler. The Iranians were hesitant, fearing this would harm their relations with the Arab states but, in the aftermath of the 1956 Sinai Campaign, which revealed Israel as a strong military power, they changed their minds.
During the months that Israel controlled the Sinai Peninsula following the 1956 military operation, it “expropriated” pumps and pipelines from Italian and Belgian firms operating oil fields in Ras Sudr. With the help of this equipment, a pipeline was built north from Eilat. Most of the funding for this project came from the bankers of the Rothschild family, the major shareholder of the initiative, called Tri-Continental.
At the demand of the Iranians – in order to hide their involvement in the sale of oil to Israel and in the partnership – a secret company was formed and registered in 1959 in the tax refuge of Lichtenstein under the name Pimerco, with Iran holding a 10 percent stake.
THE OIL was transferred from Iran to Eilat in tankers and channeled through the small pipeline, measuring 12 inches (40 cm.) in diameter to Beersheba.
Following the 1967 Six Day War and the closure of the Suez Canal, Israel convinced the shah (who was codenamed “landlord” in Israeli documents) to exploit the new situation and establish an expanded joint venture.
Thus Trans-Asiatic Oil (TAO) was born, a company under equal and joint ownership of the Israeli government and the National Iranian Oil Company (NIOC). The Israeli government gave the company an exclusive franchise to transport and store the oil. The main fear of Iranian supporters of the venture was that if the cooperation were to be exposed, the Arab countries would use it to bash Tehran. Therefore, to maintain secrecy, at the Iranians' request, the company and its entities were registered in Switzerland, Canada and Panama to hide the Israeli side of the partnership. The owners of TAO, as they appear in the Israeli Registrar of Companies, were called the Eilat Corporation and Sea Marco, both registered in Panama.
After the shah agreed in principle, the next obstacle was to secure funding for the joint venture, which was estimated to cost $85 million – a huge sum in those days.
The Rothschilds refused to fund the initiative, claiming it would not be profitable.
The Israeli representatives were finally able to secure funding from Germany’s Deutsche Bank. The chairman of Deutsche Bank, Hermann Josef Abs, who acceded to the Israeli-Iranian request, had a Nazi past – he had been responsible for bank’s foreign dealings from 1938 onward and, following World War II, was imprisoned for a few months by the Allies. Abs’s past did not seem to bother the Israeli representatives, nor did it stop them from maintaining tight and friendly contact with him.
IN ISRAEL, TAO operated as though it were a foreign company. It acquired the pipeline to Beersheba from the Rothschild family and laid a larger pipeline, with a diameter of 42 inches (just over a meter), alongside it from Eilat to Ashkelon, where it also built terminals for loading and unloading the oil.
Construction of the terminals was completed in 1969.
The Israeli government granted the company an exclusive concession for 49 years (due to expire in 2017), enabling the flow of oil and its storage. The closing of the Suez Canal made it difficult to supply oil to Europe from the Persian Gulf as tankers were forced to circumvent practically the whole of Africa. The idea behind establishment of the company was to shorten the sailing routes and supply time and thus, of course, earn more money.
The tankers loaded oil in Iranian ports and sailed to Eilat, where they unloaded the cargo at a custom-built terminal. The oil was then transported via the pipeline to Ashkelon. Most of it was loaded onto tankers bound for Europe, and a small percentage was used for local energy needs. NIOC sold the oil to TAO under the market price.
In its heyday, TAO was an economic empire with a turnover of billions of dollars.
It established a subsidiary, EAPC, which owned the two pipelines, and a storage container farm to store the oil in Ashkelon and Eilat. It purchased or leased a fleet of 160 tankers. Its goal was to reach a transport average of 50 million tons per year – a target that was not achieved.
But after 10 years of prosperity came the crisis. The shah’s rule began to weaken and about two months before the Iranian revolution broke out in 1978, NIOC stopped selling to TAO, paralyzing it. One of Ayatollah Ruhollah Khomeini’s first acts when he came to power was to sever relations with Israel.
During the first years, the Israeli managers of TAO tried to conduct secret talks with representatives of NIOC to dismantle the partnership voluntarily and in an orderly manner. But the Iranians broke off contact and refused to hear from Israel.
TAO sold the oil tankers, mostly at a loss, dismissed dozens of employees and closed operations and offices abroad. What saved it from bankruptcy was the 1979 peace treaty with Egypt, in the context of which Egypt promised to sell Israel oil as a substitute for the loss of the oil wells in Sinai. The Egyptian oil, on average about 1.5 million tons annually, was transported by tanker to Eilat, and from there was pumped via the pipeline to Ashkelon and then to refineries in Haifa and Ashdod.
Today, Israel’s oil is supplied by brokers from various sources including Azerbaijan, Mexico, the Gulf Emirates and even Iran, as the US government revealed three years ago, when it added to its backlist a Singapore-based tanker company owned by the Israeli brothers Sammy and Yuli Ofer.
The company’s tankers, the US learned, had been loading oil at Bandar Abbas port, thereby breaching American sanctions against Iran.
Surprisingly enough, the man who rushed to defend the Ofer brothers was the same person who would lead Israel’s international efforts against the Iranian nuclear program and who pushed for crushing international sanctions against the Islamic Republic – then Mossad chief Meir Dagan.
In 1985, the Iranians suddenly began to show a renewed interest in TAO. Via attorneys in Europe, they demanded the compa - ny pay its debts to their national oil company. The direct debt of TAO was estimated then to be $400 million – a sum that has since inflated to an estimated $4 billion.
When the Iranian claims were made, attorney Elhanan Landau, who in the past had served as the legal adviser of the Finance Ministry and was very familiar with the subject, was appointed to handle the case for Israel, representing EAPC. After his death, he was replaced by his partner, Zvi Nixon, who continues to serve as the company’s legal adviser.
The line of action decided upon was that the responsibility for the situation lay with NIOC, because it had unilaterally stopped honoring its commitments to TAO and EAPC; ceased taking an interest in the company; and caused it severe damage.
Over the years, litigation and arbitration were carried out in Switzerland, in the International Chamber of Commerce in Paris, as well as in another European state, apparently the Netherlands.
The approach Israel has adopted since the start of the discussions on the various issues is one of deliberate foot-dragging, fearing that it would have to pay hundreds, if not billions, of dollars. Representing Iran in the arbitrations are its legal advisers who operate in Europe, including its legal adviser at the International Court of Justice in The Hague.
Lawyers from Switzerland have been conducting the arbitration.
There have been developments in the case of late as the arbitrators ruled that the Iranian claims carried certain weight, and that Israel must compensate Iran for some tens of millions of dollars. Not exactly the billions Iran demanded. Still, Israel appealed the ruling, claiming that there was no legal basis to force it to pay the sums at this time. The arbitration and legal procedures will continue – to the joy of Israel. The longer the better.
■ Yossi Melman is an Israeli security commentator and co-author of ‘Spies Against Armageddon.’ He blogs at www.israelspy.com and tweets at yossi_melman