Israel-Egypt-European Union sign initial gas export agreement

The energy ministers of Israel, Egypt and the European Union signed a memorandum of understanding to export Israeli gas to Europe, at a ceremony in Cairo on Wednesday. The agreement comes as Europe looks for alternative sources of energy to Russia in light of its invasion of Ukraine.

The gas will be transferred from Israel to Egypt via an existing pipeline. Egypt will use its facilities to liquefy the gas for export to ensure a steady stream of natural gas to Europe, while ensuring the energy security of all sides.

“The MOU will allow Israel to export natural gas to Europe for the first time, and that is even more impressive when considering that significant agreements we have signed in the past year, making Israel and its energy and water market a key player in the world.”

The arrangement is meant to continue until at least 2030, and will be gradually reduced until 2050. The sides agreed to work together on carbon capture and the reduction of carbon emissions, as well as to cooperate with the private sector on green energy and energy efficiency initiatives.

In addition, the sides agreed to work on a plan to make gas exports to Europe more efficient. The EU will encourage European companies to take part in searching for and producing natural gas in Israeli and Egyptian economic waters.

Energy Minister Karin Elharrar characterized the signing as a great moment in which little Israel becomes a significant player in the global energy market.

“The MOU will allow Israel to export natural gas to Europe for the first time, and that is even more impressive when considering that significant agreements we have signed in the past year, making Israel and its energy and water market a key player in the world,” Elharrar stated.

European Commission President Ursula von der Leyen, who was present at the signing, tweeted, “With this... agreement we will work on the stable delivery of natural gas to the EU from the East Med region. This will contribute to our EU energy security. And we are building infrastructure fit for renewables – the energy of the future.”

Von der Leyen addressed the important role of EU-Israel energy cooperation in her remarks to Prime Minister Naftali Bennett in Jerusalem on Tuesday.

“The EU was the biggest, most important client of the Russian supplier – for oil, gas and coal,” she said, “But with the beginning of this war and the attempt of Russia to blackmail us through energy, by deliberately cutting off the energy supplies, we decided to cut off and to get rid of the dependency on Russian fossil fuels and to move away from Russia and diversify to trustworthy suppliers.”

Russia provided Europe with about 40% of its natural gas consumption per year – more than 150 billion cubic meters (bcm). Israel cannot take Russia’s place altogether, but Eastern Mediterranean states can provide about 20 bcm annually, most of which would come from Israel. The US promised Europe 15-20 bcm of liquefied natural gas following the Russia sanctions, and Qatar is expected to export 20-30 bcm to the continent.

Talks between the EU and Israel toward a framework agreement for transferring gas officially began in late April.

Energy Ministry Director-General Lior Schillat said last month, “The Europeans and Americans expect that the energy crisis will influence the continent not only in the next couple of years but for the next decade as they try to reduce dependence on Russian gas. Israel, as part of this effort, will have to build infrastructure to send more gas to Egypt and then to Europe. It is a long-term effort.”

Gas exploration and production company Energean brought the Karish reservoir in Israel’s northern waters online earlier this month, which works toward the Energy Ministry’s aim of doubling Israel’s gas export capacity in the coming years.

“Today, the local market uses 12 billion cubic meters and we export another 4 to Egypt and 3 to Jordan,” Schillat said. “We will start with low numbers of additional exports and increase as Israel’s capacity grows.”

China EAEU relations at stake

Western sanctions on Russia over its Ukraine invasion are forcing China to recalibrate ties with the Eurasian Economic Framework (EAEU), an economic union of post-Soviet states, with collaborations under the Belt and Road Initiative now at risk of secondary sanctions.

Beijing and Moscow signed a joint statement on cooperation between the EAEU and belt and road projects in 2015, a year after the union between Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan was established.

China and the EAEU agreed on greater economic coordination in 13 areas, including customs, trade, intellectual property rights, e-commerce and government procurement.

The enhanced coordination meant countries would not have to choose between Russia and China, said a commentary by the China Institute of International studies.

But with Russia now subject to sweeping Western sanctions after invading Ukraine, China’s economic relations with its northern neighbour and other EAEU countries is increasingly tricky.

“Collaboration between EAEU and Belt and Road Initiative is affected because sanctions from America and Europe increased the risk of secondary sanctions for Chinese companies,” said Zhao Long, a researcher at the Shanghai Institute for International studies.

Contractors and investors involved in EAEU and belt and road joint projects could run afoul of restrictions if they seek financing or conduct other business with companies that have been targeted by Western sanctions, he said.

The risk of these secondary sanctions has prompted hundreds of businesses and multilateral institutions to suspend ties with Russia.

The Asian Infrastructure Investment Bank and Bank of China have curtailed Russian access to capital markets, according to a database compiled by Yale University’s School of Management.

Chinese tech giant Huawei has also halted new orders and furloughed some staff in Russia, the database showed.

Oil and gas behemoth Sinopec has suspended talks with Russia for a gas chemical plant worth up to US$500 million, and at least five Chinese companies stopped work on Russia’s Arctic LNG 2 project in northern Siberia at the end of May this year.

“The war in Ukraine is impacting bilateral developments between Russia and China, and the coordination within the Eurasian union,” said Paul Stronski, senior fellow at Carnegie’s Russia and Eurasia Program.

China says ‘no limits’ in cooperation with Russia

“On sanctions, we are seeing Beijing being quite supportive of Moscow in this war, which is surprising given China’s normal approach to condemn separatism and interference in the internal affairs of another country. That is essentially what Russia is doing.”

But beyond diplomatic support and motivation to buy cheap energy, many Chinese companies have been wary of running afoul of US or EU sanctions because both economies are far more important export and trade markets for companies in China, Stronski said.

The impact of sanctions imposed on Russia will be felt across the EAEU because the design of the union ties them to Russia’s own fate, according to Kataryna Wolczuk, an associate fellow at Chatham House’s Russia and Eurasia programme, and Rilka Dragneva, professor at the University of Birmingham’s school of law.

Kazakhstan and Kyrgyzstan, for example, are likely to see negative impacts on their currencies and remittances, while restrictions will affect the trade of key commodities, they wrote on the think-tank’s website last month.

Katarzyna Czerewacz-Filipowicz, an Associate Professor at Bialystok University of Technology’s faculty of engineering management in Poland, said firms like Cargotor, Maersk and Mediterranean Shipping Company have suspended rail freight services through Russia as a sign of solidarity with Ukraine.

“Sanctions have also been applied to Russian railways, and this is probably why the uncertainty about the Belt and Road Initiative arises,” she said. “However, it is worth emphasizing that the sanctions include access to financial markets and transactions in securities. Thus, they do not cover cargo transit contracts via Russia.”

A rail line from the Chinese border through Kazakhstan, Russia, Belarus and into the European Union, which was heavily subsidized by the Chinese side and seen as vital to get goods from China to Europe through the EAEU, is now dead, said Stronski.

“European suppliers now are wary about putting their goods on a train via Russia given the reputational risks, or fears that Russia will hold up these goods,” he said. “Chinese producers have grown wary of using the route, given all the same reasons.”

Increasingly alert to external uncertainty, China is prioritizing risk control and prevention for its belt and road push this year, according to a report released in early March by the National Development and Reform Commission.

And Chinese companies have already begun scaling back international investment under the initiative.

Some 194 belt and road projects valued at US$13.66 billion were announced last year, down from 399 projects valued at US$80.51 billion in 2020, according to a report by financial data provider Refinitiv released in December last year.

As for Russia, international isolation will hasten its pivot to the East by building the friend-shoring alliances, said Zhao at the Shanghai Institute for International studies.

“Members of the EAEU will hasten the free flow of trade, services, capital, labour and the progress of local settlements in the region before 2025,” he said. “They’ll also strengthen security initiatives with their allies in order to broaden the post-Soviet space of influence.”

 

Why Biden is visiting Saudi Arabia remains a mystery?

Despite Israeli media reports that US President Joe Biden’s planned visit to Israel and the Middle East had been rescheduled to July 14, there has been no confirmation from Washington. 

Biden didn’t mention Israel but said that he hasn’t decided yet if he’ll travel to Saudi Arabia next month. 

Speaking to reporters before Air Force One departed from Los Angeles, Biden also addressed a question about whether there are commitments he is waiting for from the Saudis or about negotiations on peace talks, before announcing his trip.

“No,” said Biden. “The commitments from the Saudis don’t relate to anything having to do with energy. It happens to be a larger meeting taking place in Saudi Arabia. That’s the reason I’m going. And it has to do with national security for them – for Israelis,” he continued. “It has to do with much larger issues than having to do with the energy prices.”

What will he try to achieve in this visit?

The United States is in a years-long process of downsizing its involvement in the Middle East, said Natan Sachs, Director of the Center for Middle East Policy at Brookings.

“It still has a large military presence and still expends resources on the region, but it is looking to partner more extensively with countries in the region on security matters. This trip would be part of that effort, with the Biden administration visibly joining in an Arab-Israeli partnership for defense, especially against Iranian and Iranian-backed unmanned platforms,” he said. “It’s a significant shift in the Biden posture and another sign of a dramatically different Middle East.”

Michael Koplow, Chief Policy Officer at the Israel Policy Forum, said Biden’s visit is about US-Saudi ties first and foremost, “and I don’t expect any big American initiatives with respect to Israel or to Israeli-Palestinian issues.”

“He is trying to avoid the mistake that President Obama made in skipping Israel on his first visit to the region, and thus the Israel component seems to me more of a box-checking exercise,” Koplow said.

“The reference to Israeli security is likely about the Saudi-Egyptian agreement on transferring the islands of Tiran and Sanafir from Egypt to Saudi Arabia, which requires Israeli approval, and is viewed as another step toward Israeli-Saudi normalization and toward a broader regional security architecture in which Israel is integrated. Assuming that the JCPOA is not resurrected – increasingly the likely scenario – the US wants greater agreement and cooperation on dealing with Iran going forward, and this is a piece of that puzzle.”

Mark Dubowitz, Chief Executive at the Foundation for Defense of Democracies think tank, said that Biden should be trying to achieve closer coordination with Israel on a pressure campaign against Iran, expanding efforts toward greater Saudi-Israeli normalization, “and sending a clear message to the Palestinian leadership that they can be part of the expanding process of normalization or it will pass them by.”

“The major obstacle to Saudi-Israeli normalization is in Washington not in Riyadh or Jerusalem,” Dubowitz said. 

“Biden has the opportunity to repair the damage in the US-Saudi relationship and to lay out a plan for greater regional military and intelligence integration against Iran and greater political and commercial integration between Israel and the Arab world. He has the opportunity to be remembered as the president who brought the most important Muslim country into the Abraham Accords.”

According to reports in Israeli media, Biden’s visit is expected to also include a visit to east Jerusalem. The plans follow Assistant Secretary of State for Near Eastern Affairs Barbara Leaf’s visit to Israel and the West Bank, and as the State Department signaled on Twitter that it upgraded its Jerusalem office to the Palestinians, and changed its name to the “US Office of Palestinian Affairs in Jerusalem.”

“The separation of the Palestinian unit from the embassy is a partial step, well short of reopening the consulate general in Jerusalem, which Biden and Blinken both promised the Palestinians,” said Sachs.

“It’s a measure meant to blunt some of the worst criticism from the Left about going forward with the regional rapprochement without any major push on the Palestinian front.”

According to Koplow, “Biden wants to signal that he is continuing to repair relations with the Palestinians despite US moves falling short of Palestinian expectations.

“The Israeli-Palestinian conflict is still relatively low on his list of priorities, and that is unlikely to change in the near future, but Biden wants to demonstrate that he is not ignoring Palestinian concerns and is taking a different tack than president Trump did,” he said. “It’s more about the optics of a new US approach than it is about a big substantive shift or a shift in priorities.”

Dubowitz said that Biden should “avoid walking into the same trap on the Palestinian issue, which normally entails State Department efforts like the recent changes to its Jerusalem office to reward the Palestinian leadership without making reciprocal demands or holding them accountable.”

“Biden should be telling Palestinian Authority President Mahmoud Abbas, “You can join normalization efforts and lead your people into greater prosperity and security or you can continue to obstruct, incite and deflect,” said Dubowitz. “That will guarantee only more misery and violence, the collapse of the PA and the rise of Hamas on the West Bank.”

Understanding significance of TRACECA

Established in May 1993 in Brussels, Transport Corridor Europe Caucasus Asia (TRACECA) is an international transport program involving the European Union and 12 member states of the Eastern European, Caucasus, and Central Asian region. 

The program aims at strengthen economic relations, trade, and transport in the regions of the Black Sea basin, South Caucasus and Central Asia.

At the conference, it was agreed to implement a program of a European Union funded technical assistance to develop a transport corridor on a west-east axis from Europe, across the Black Sea, through the Caucasus and the Caspian Sea to Central Asia.

TRACECA members include Armenia, Azerbaijan, Bulgaria, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Romania, Tajikistan, Turkey, Turkmenistan, Ukraine, and Uzbekistan. All are signatories to the multilateral agreement, and only Turkmenistan has yet to ratify the agreement.

According to the portal of Iran’s Transport and Urban Development Ministry, the country is eying expansion of TRACECA. The issue was brought up during a meeting between Head of Iran Road Maintenance and Transportation Organization (RMTO) Dariush Amani and TRACECA Secretary General Asset Assavbayev.

According to Amani, the meeting focused on the development of international road transport cooperation with TRACECA member countries and increasing the volume of transit through this corridor.

Amani noted that following the policies of the government, RMTO is implementing new strategies to actively and effectively participate in international forums, regional treaties and join international conventions on transportation.

Various steps have been taken in this regard, including joining the transport of perishable goods (ATP) and the International Carriage of Dangerous Goods by Road (ADR) treaties, participating in the electronic version of the International Carriage of Goods by Road (e-CMR) convention, as well as the successful implementation of the project (E-TIR), the official said.

Amani stated that there are great areas for cooperation between the member states of the TRACECA agreement with the Islamic Republic of Iran, and added, “We are therefore interested in making the best use of the various projects and courses offered or held each year under the framework of the said agreement at the secretariat or in other member states.”

The RMTO head has also called on the Assavbayev to take the necessary measures to eliminate or reduce significant tariff barriers and unconventional tolls imposed by some TRACECA member countries on the international road fleet crossing those countries in order to realize the goals envisioned for the corridor.

According to Amani, during the meeting Assavbayev stated that the Islamic Republic of Iran is an active member of TRACECA and the main link between Central Asia and Europe.

“The main purpose of these talks is to develop cooperation and implement TRACECA programs through the Islamic Republic of Iran; In this regard, the main concern is to reduce transportation costs and increase cross-border traffic in order to optimize trade activities,” he said.

United States starts playing regime change mantra in Bangladesh

Jamie Raskin, Member of US House of Representatives, has urged his colleagues to join him in standing with the people of Bangladesh, especially those bravest and most vulnerable. He also urged the Bangladesh government to take immediate action to respect the civil rights and safety of all the people of Bangladesh.

Democratic Party member Jamie Raskin made the call in a session of the US congress on June 07, 2022. His statement has been taken from the congressional record published in the US congress website.

Jamie Raskin is a member of Democratic Party and elected from Maryland. He is also a member of the Tom Lantos Human Rights Commission.

Earlier, on December 10, 2021, the Human Rights Day, the US imposed sanctions on Bangladesh’s Rapid Action Battalion (RAB) and its current and former seven officials on charges of violating human rights.

Before that, in August 2021, a discussion of the Tom Lantos Human Rights Commission expressed concerns on the situation of forced disappearances in Bangladesh.

On June 07, 2022 while speaking in a session presided over by House of Representatives speaker Nancy Pelosi, Jamie Raskin said, “I rise today in solidarity with the people of Bangladesh. I want to voice my support for human rights defenders, members of minority groups, and civil society in Bangladesh at this moment when the Bangladeshi government is persisting in threatening the basic human rights and civil liberties of its people.”

He also said the Bangladeshi government, led by Sheikh Hasina of the Awami League, has earned widespread criticism for its deteriorating human rights record, and for its failure to protect the most vulnerable people living in Bangladesh – indigenous people, women, religious minorities, activists, and refugees.

On International Human Rights Day last year, the US Department of the Treasury announced sanctions on the Rapid Action Battalion, citing how their actions undermine the rule of law and respect for human rights and fundamental freedoms.

The United Nations reported that since the sanctions against the RAB officials were announced in December, the Bangladesh government has responded by launching a retaliatory campaign of intimidation and harassment.

The homes of at least 10 relatives of people forcibly disappeared are reported to have been raided at night, and some relatives were forced to sign statements saying that their loved ones had not in fact been forcibly disappeared.

US Congress member further said Amnesty International tracks human rights abuses in Bangladesh and has noted their acceleration during the pandemic. Under the draconian Digital Security Act of 2018, Bangladeshi journalists and other human rights defenders are routinely persecuted for reporting on corruption or criticizing any of the government’s policies.

He also said Covid-19 policies against public gatherings have been used to prevent political meetings, and to quell public protests against the government. Violence against women and indigenous activists has also intensified during the pandemic.

The Bangladeshi government employs a joint task force composed of members of police, military, and border guards called the Rapid Action Battalion, and it has consistently failed to address the excesses of these and other security forces.

The Rapid Action Battalion and other Bangladeshi law enforcement entities are alleged to be responsible for more than 600 disappearances since 2009 and nearly 600 extrajudicial killings since 2018. These incidents reportedly target opposition party members, journalists, and human rights activists.

 

Pakistan: Federal Budget Hoping Against Hope

Certainly concerted efforts have been made to mend relationship with International Monetary Fund (IMF) while preparing Federal Budget for the next financial year.  Intentions may be good but a lot will depend on the commitment and plans to meet the targets. 

Keeping in view the fragile nature of the coalition government, diversity in the mind set of party leaders and high commodity prices, there is many a slip between the cup and the lip.

The Government of Pakistan, in Federal Budget FY23 has set a GDP growth target at 5% and inflation at 11.5%. Many analysts say that the GoP will have to make extra efforts to achieve these targets, mainly because the central bank has already raised policy rate by 675bps another 100bps is anticipated in the name of tightening of monetary and fiscal policies.

Inflation target will also likely be missed as global commodity prices are likely to remain on upward trajectory. The inflation and Petroleum Development Levy (PDL) collection target are at odds. The PDL collection target has been set at Rs750 billion for FY23. There is hardly a realization that higher PDL collection will result in CPI outages, conversely efforts to contain CPI may result in shortfall in PDL collection.

Other than the aggressive PDL collection targets, which will likely be missed, the GoP has done well to protect masses from further inflationary pressures. Personal income taxes have also been relaxed which will improve purchasing power of the masses and help in face saving of the coalition government.

The tax collection target is a slightly lower than Rs7.3 trillion which was initially being reported in the press, but still represents a 17%YoY jump from estimated collections in FY22. Efforts have been made to make taxation more equitable, with new revenue measures targeting large landowners and the big corporates and retailers. However, little effort has been made to bring agriculture sector in the tax net.

The budget projects a uniform increase in all major taxation heads, including direct taxation, sales taxes, custom duties and FED but the most notable increase comes from the projected Rs750 billion collection of PDL. Given the soaring crude oil prices in international market, analysts see a likely shortfall in collection under this head which will need to be compensated elsewhere.

Similarly, target of GIDC for FY23 is set at Rs200 billion which is also less likely to be achieved. It may be recalled that the GoP had collected a paltry amount of Rs14 billion under this head during 9MFY22. Out of the incremental tax collection targeted for FY23, the new tax measures are estimated to bring in up to Rs375 billion whereas the remaining amount will be generated through growth in Nominal GDP.

The total outlay envisaged in the budget FY23 is Rs9.5 trillion; out of which current expenditures are targeted at Rs8.7 trillion, while the development expenditures are estimated at Rs808 billion. Of that, the Interest payments are estimated at Rs3.95 trillion, up 29%YoY. This constitutes a whopping 45% of current expenses and 42% of the overall expenses.

The defense expenditures are estimated at Rs1.5 trillion – up 11%YoY, which constitutes 18% of current expenses and 16% of overall expenditures.

Federal Pension expense is estimated at Rs530 billion - up 0.7% YoY as against revised estimates of Rs525 billion for FY22. Furthermore, government plans to setup a pension fund which is likely to fund pension expenditures going forward.

Subsidy disbursements are slated to shrink to Rs699 billion for FY23 from Rs1.5 trillion for FY22. To recall, GoP announced a generous package of subsidies on the consumption of fuel and electricity during 2HFY22 which resulted in the slippages under this head.

Analysts expect the total debt servicing cost to exceed the budgeted target of Rs3.1 trillion as the budget document estimates hefty contribution from external sources for budgetary funding. They expect heavier reliance on local sources for budgetary borrowings where the cost of debt will be higher, thus pushing the overall debt financing number even higher.

This article was first published in Eurasia Review

United States the biggest beneficiary of Russia-Ukraine conflict

The ongoing energy disruptions in the wake of the hostilities in the Ukraine have had a dramatic impact on export of LNG from the United States.

In the newly released edition of the Natural Gas Monthly, published by the Energy Information Agency (EIA), part of the US Department of Energy, the changing dynamics of the US export trades are described in detail.

In the publication, the EIA notes, “During the first four months of 2022, the United States exported 74% of its liquefied natural gas (LNG) to Europe, as compared to an average of 34% a year ago.”  It adds, “In 2020 and 2021, Asia had been the main destination for US LNG exports, accounting for almost half of the total exports.” Overall, US LNG exports saw an 18% increase as compared to 2021.

Exports have averaged 11.5 billion cubic feet per day (Bcf/d) during the first four months of 2022, aided by the opening of new export facilities. The increase in US LNG exports was driven by additional export capacity at Sabine Pass (Train 6) and at nearby Calcasieu Pass, with a facility that came online in early March. The Sabine Pass terminal loaded nearly 110 LNG cargoes during Q1 2022. Venture Global’s Calcasieu terminal, Louisiana began exporting in March, when five cargoes were loaded - four to Europe and one to Japan.  

The move towards European destinations had already begun before the late February invasion of Ukraine, with the huge inventory drawdowns underway in advance of the winter season. The EIA said, “The United States became the largest LNG supplier to the European Union and the United Kingdom in 2021. They said that LNG imports from the United States to the EU and the UK more than tripled during January to April, 2022, as compared to 2021, averaging 7.3 Bcf/d.”

The EIA pointed out, “During the first four months of 2022, US LNG exports to Asia declined by 51% to 2.3 Bcf/d as compared to 4.6 Bcf/d in 2021.”

Its analysts also alluded to a drop-off in moves to China due to the extremely high Asian LNG prices and pandemic-related lockdowns. China received only six LNG cargoes from the United States in January–April 2022 or just 0.2 Bcf/d as compared to 1.2 Bcf/d in 2021. Japan and South Korea also saw declines.