Overview
In December, Israel and Egypt formally announced a long-awaited $35 billion natural gas deal that will see Jerusalem export over 130 billion cubic meters (bcm) of natural gas from its Leviathan field to Cairo via pipeline until 2040. Both parties, as well as the US, have high hopes for the agreement—albeit divergent ones. The US and Israel hope that the massive deal will increase Egypt’s energy dependence on Israel, resuming Israel’s regional integration with Arab powers and undoing some of the isolation brought on by two years of war in Gaza. Egypt, on the other hand, has emphasized that the agreement has no “political dimensions or understandings whatsoever,” and is looking forward to cheaper, more reliable energy imports to stave off public unrest and enable Egypt’s development into the Eastern Mediterranean’s primary gas exporting hub. For the global economy and regional energy market, the deal is likely a welcome harbinger of stability—but not the transformation that some have hoped.
Details of the Deal
The landmark gas deal—the largest in Israel’s history—replaces an existing supply agreement, set to expire in the early 2030s. The first phase of the deal is expected to begin in the first half of this year and will see Israel sell Egypt 20 bcm of gas at a rate of 2 bcm per year. The second and larger phase will increase sales to 110 bcm at 12 bcm per year after a planned expansion of Israel’s Leviathan gas field that will boost Israel’s gas production by 30%. The gas will primarily be transported to Egypt via the offshore Arish-Ashkelon pipeline, as well as by the planned Nitzana pipeline, an onshore connector approved in 2023 and expected online by 2028.
The deal was preliminarily confirmed in August, and the details announced in December largely align with early agreements. Israel delayed the final step—granting an export license—for four months amid what has arguably been a nadir for post-1979 bilateral relations. In recent months, Jerusalem and Cairo have been at odds over Egyptian military presence in the Sinai Peninsula, which Israel argues violates the terms of their 1979 peace agreement. The two remain misaligned on Gaza, including on the reopening of the Rafah corridor, which Israel at the time insisted only be open toward Egypt, and Israel has disputed the fairness of the gas deal’s commercial terms, although the final text is unchanged from the fall. Moreover, Egypt has not accredited Israel’s newly appointed ambassador, leaving its embassy leaderless for over a year. The agreement was reportedly pushed over the finish line by US diplomatic pressure, which has applied diplomatic pressure to Jerusalem in public and private over the past several months, such as the public rebuke of US Secretary of Energy Chris Wright’s cancellation of an October trip to Jerusalem.
Israel, Egypt and the US Seek Interdependence, Leverage and Diversification
Israel, Egypt and the US’ motivations to cement the $35 billion gas deal are myriad. For Israel—newly diplomatically isolated following two years of war in Gaza—an agreement that brings major economic benefits and fosters mutual desire for stable relations is a valuable step towards regional integration. Fostering Egyptian dependence is also an effort to reduce risks of an open break from the 1979 peace agreement (not a serious risk at present, but one keenly felt in Jerusalem amid a perceived military build-up in the Sinai). The 15-year agreement will also provide durable demand for exploration of Israel’s gas fields. Last year, Israel’s domestic production was estimated for the first time to be insufficient to meet domestic demand by 2050, necessitating further investment for exploration.
For Egypt, with its own gas fields stagnating and domestic demand soaring, the need for a stable and affordable supply of natural gas is paramount. Egypt is already heavily reliant on Israeli gas (over 60% of its gas imports, and 20% of its overall consumption, comes from Israel), and shortfalls already wrought havoc for President el-Sisi. In the summers of 2023 and 2024, planned stoppages for maintenance and the shutdown of Leviathan due to peaking Iran-Israel tensions caused blackouts so severe that over a hundred Egyptians died of heat stroke, and protests broke out in major cities. Cairo plugged the gap with maritime LNG imports, mostly from Qatar, but at an unsustainable price. Much of el-Sisi’s public legitimacy hinges on his unfulfilled pledge to end the country’s electricity crisis, and a stable supply agreement from Israel is a significant boon.
Egypt also aspires to assert itself as the primary natural gas exporting hub for the Eastern Mediterranean. Egypt is well-positioned to establish itself as the primary pathway to unlock the region’s LNG export potential—the country boasts the only LNG export infrastructure in the Eastern Mediterranean, and interest in other pathways for Israeli gas to reach the European continent (namely Cypriot pipelines) slowed amid a pivot to Asia and uncertainty around European demand. Foreign sales would bring in desperately needed foreign currency reserves amid severe inflation for the Egyptian pound, allowing Cairo to begin addressing arrears to international gas companies and mitigate balance-of-payments risks.
Potential new supply for European demand constitutes part of the US’ interest in the success of the gas deal. Increased Egyptian re-exports would reduce lingering European dependence on Russian LNG, easing the continent’s efforts to fully phase out Russian LNG by the end of this year. The second half of US interest lies in Israeli integration and regional stability. Like Israel, the US is interested in easing Jerusalem’s diplomatic isolation and resuming the momentum for the Abraham Accords that was halted by the October 7 attack and subsequent conflict. On a less ambitious level, Washington values harmony—or at least a lack of overt tension—among its Middle Eastern partners, and it hopes that a 15-year LNG deal with significant upsides for both parties will act as a check on future fissures.
What the Deal Means for the Region and the World
The new deal is not all upsides. Heightened energy reliance on Israel—even in the name of long-term exporting success—is politically precarious for President el-Sisi, who has repeatedly condemned Israeli actions over the last two years and whose voters feel strongly about solidarity with the Palestinians. The deal is less than politically popular in Israel, too, where the public feels that Prime Minister Netanyahu gave too much away for too little (namely, only a 14% price increase from the previous contract). And while Israel does gain significant leverage over Egypt, there is a limit to how much can actually be used without undermining Israeli credibility as an exporter (in a moment when the country needs to maintain a friendly investment environment) or risking widespread unrest on its own borders. Moreover, the arrangement builds Israeli dependence on Egyptian demand, especially as recent Israeli gas output predictions look less robust, necessitating strong investor demand and export support from Egypt. Disruption in Egypt could also have knock-on effects in Europe and its efforts to wean itself off Russian LNG.
There are still flashpoints in the bilateral relationship that could cause disruptions, and the gas deal does little to address enmity on these fronts. Israel and Egypt remain fundamentally at odds over the political horizon for Palestinians; Egypt and other Arab partners continue to demand progress on Gaza reconstruction and self-governance, and there are significant misalignments with Israel over the exact contours of postwar Gaza (especially as Prime Minister Netanyahu, up for reelection in October, contends with the desires of his far-right governing coalition). Perceived violations of the 1979 treaty could also come into play—Egypt considers Israeli control of the Philadelphi Corridor, which it seized in May 2024 and has signaled its intent to control indefinitely, a violation of the Camp David Accords. For its part, Jerusalem has accused Cairo of violating the agreement with its expanded military presence in the Sinai Peninsula (which Egypt claims is for self-defense). No Egyptian and Israeli leaders have met since 2016, despite high hopes in Washington for a joint summit to announce the deal.
The deal’s most significant benefit to the parties, as well as the regional economy, is probably its most modest: a step toward regional integration for Israel in the form of a long-term, shared economic interest. Expanding economic interdependence is seen by all parties and regional observers as an incentive for future stability in trade and diplomatic relations, a broad net positive for the regional economy. Regional stability has for several years been the strategic watchword for major Arab economies, and building shared interests between two countries that have for decades shared only a “cold peace” is a step towards that goal. To that end, a stable supply for Egypt will mitigate risks of public unrest over electricity disruptions and financial instability (as LNG sales provide a critical avenue for non-pound payments). For Israel, long-term demand will bolster needed gas exploration, safeguarding its domestic energy supply.
