A worker on the Israeli Tamar platform in front of the Mari-B platform off the coast of Israel. Photo: AFP/Ahikam Seri
A worker on the Israeli Tamar platform in front of the Mari-B platform off the coast of Israel. Photo: AFP/Ahikam Seri

Chevron this week became the first major energy company to enter the Israeli market, a watershed moment for a country long kept at bay by corporations fearful of losing business in the Gulf Arab states.

The US multinational on Monday announced it had bought out Texas-based Noble Energy in a US$5 billion deal with an overall value of $13 billion, including debt.

Noble discovered all of Israel’s major gas holdings in the last 20 years, most notably the Tamar and Leviathan fields in the eastern Mediterranean.

Israeli companies own 60% of the Leviathan field and 75% of the Tamar field, while Chevron will now own the remainder. Noble is also selling its assets in Africa and the United States, but the Israeli fields are the centerpiece of its portfolio.

Chevron celebrated the historic move, announcing that “Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean.”

The deal must still be approved by Israel’s petroleum council, but there is no reason for the council and the Energy Ministry to place obstacles in Chevron’s way. Indeed, Energy Minister Yuval Steinitz was already celebrating.

“The acquisition of Noble Energy by energy giant Chevron is a tremendous expression of confidence in the Israeli energy economy, and in the continued development and export of natural gas from the State of Israel,” he said.

The deal would likely not have come about without the impact of Covid-19.

Noble Energy, like most of the energy sector, has been devastated by the events of 2020, to the tune of a 60% drop in stock value.

The other major stakeholder in the fields, Israeli oil company Delek, was in serious financial trouble recently for similar reasons. It had been trying to refinance $2.2 billion of its $3.4 billion debt, mostly acquired by developing existing fields.

There has been some concern that plummeting prices would force Delek into bankruptcy or require a government bailout.

News of the new deal should help Delek get better terms on its refinancing and increase its stock value, most likely staving off serious financial trouble.

Facilitating regional exports

The Israeli government has long tried to attract large multinational energy companies to invest in its gas fields. In the current climate, with both Noble and Delek financially incapable of developing gas resources further, this goal has been doubly important.

Therefore, the significance of attracting one of the largest corporations in the world – 28th largest and 7th in oil and gas – cannot be overstated.

Aside from Chevron’s ability to develop existing gas fields and find new ones, Israel hopes the corporation’s financial clout and prestige will facilitate imports. Although there is little profit involved in the current market, it is estimated that revenue from imports will return to pre-Covid levels in 2022 and the demand for gas will increase significantly by 2025, bringing in a significant addition to tax revenue.

Israel already has deals in place with Egypt and Greece.

While on the face of it, this is a purely economic deal, it has significant geopolitical implications.

Afraid of the reaction of the Gulf states, large oil companies have long been hesitant to do business with Israel due to the fear of souring relations with the Arab world. In 1945, one of the first actions of the newly formed Arab League was to boycott all goods from the Jews living in Mandatory Palestine.

Five years later, a secondary boycott was added. This meant that the Arab states would boycott any company doing business with Israel. As a result, some major corporations such as McDonald’s, Toyota and Pepsi avoided selling their products in Israel until the 1990s.

The last holdouts were the major oil companies.

Arab boycott ‘buried’

Deeply dependent on ties with the oil-producing Arab states, and with no significant energy resources to develop in Israel, they avoided doing business in the Jewish state.

Chevron is particularly significant in this regard, as its ties to the Arab world run deep. One of the successor companies to Standard Oil, a monopoly broken up by the US government in 1911, California Standard Oil (as it was called at the time) received oil rights in Saudi Arabia and was the first to find large amounts of oil there in 1938.

This discovery was the beginning of Chevron’s cultivation of the largest source of crude oil in the world. In facilitating this process, Chevron played a significant role in increasing the economic and political power of Saudi Arabia.

Although it sold most of its holdings in Saudi Arabia in the 1980s, it has remained a significant presence in the Persian Gulf ever since.

However, in recent years ties between Israel and major Arab oil-producing states have greatly improved. Saudi Arabia and its allies are now far more concerned with Iran than with promoting the Palestinian cause.

A source in Prime Minister Benjamin Netanyahu’s office told Asia Times the deal shows that “the Arab boycott is buried.”

“This is an important foreign policy victory for the country,” the source added.

Professor Brenda Schaffer, an energy expert and fellow at the Atlantic Council, agrees.

“Chevron has many holdings in the Gulf countries. The fact that it could now be the owner of assets in Israel reflects the change that is taking place in the ties between Israel and the Gulf countries, and shows that there is no more boycott,” she said.

Indeed, Chevron would not have made the deal unless it was confident it would not harm relations with the Gulf States.

The deal signifies two long-standing trends, both of which work in Israel’s favor. First, Israel’s significant integration into the global economy. As recently as the 1980s, Israel was kept at arms-length by many countries and corporations for political reasons. Now it is third place in the number of companies traded on NASDAQ.

By getting into bed with an energy conglomerate heavily invested in the Persian Gulf, Israel has broken the final political barrier to its full integration into the international trade and finance systems. Second, it signifies its further integration into the Middle East.

No longer a pariah in the neighborhood, most states in the region now accept an Israeli role in the security and economic framework of the region. Its diplomatic and economic isolation, once taken for granted, seem like relics of the past.