Perhaps the most financially destructive aspect of any military occupation is the appropriation of natural resources. And Israel’s is no exception. Most obviously, this has assumed the form of Israel taking control of (or rendering inaccessible to Palestinians) much of the West Bank and Gaza’s cultivable land and water supplies. In other words, despite the establishment of the Palestinian Authority (PA) in the Nineties, the Palestinian people have never truly had control over their resources and their economy. This, on top of severe restrictions on the movement of people, labour and goods, has taken a very heavy toll on the Palestinian economy.

Less well-known, however, is Israel’s appropriation of the Palestinian Territory’s vast reservoirs of oil and natural gas. On its border with the West Bank, for instance, lies Israel’s largest onshore oil field, which Israel states is located west of the armistice line of 1948 — even though most of it is situated beneath Palestinian territory occupied since 1967.

Yet the site of the most controversial “energy war” between Israel and Palestine is not in the West Bank — but Gaza. In 1999, British Gas Group (BGG) discovered a large gas field (Gaza Marine) at a distance of 17 to 21 nautical miles off the coast of Gaza. This placed it within the bounds of the Oslo II Accord, signed in 1995, which gave the PA maritime jurisdiction over its waters up to 20 nautical miles from the coast. Following the discovery of the gas field, the PA signed a 25-year contract for gas exploration with BGG, and, in 2000, the company drilled two wells in the field, which was estimated to contain 1.4 trillion cubic feet of natural gas — more than enough to satisfy the Palestinian Territory’s energy needs, and generate significant export revenue flows.

It looked like, after much misfortune, the Palestinian people had finally struck gold. On 27 September 2000, after symbolically lighting the flame at the BGG offshore exploration platform, Yasser Arafat, then president of the PA, hailed the discovery as “a gift from God”, one which would “provide a solid foundation for our economy and for establishing an independent state”.

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God, however, had other plans: within two days, the Second Intifada had broken out. And the following year, Ariel Sharon, an ultranationalist, won the elections and used the unrest to block the Gaza Marine development project, claiming the profits risked being channelled to Hamas and other militant groups.

In the following years, little was done to bolster the Palestinian economy. Instead, successive Israeli governments insisted that the gas be piped to a refinery located within their territory, thus giving Israel control over the revenues from the Gaza gas fields. In the early 2000s, even Tony Blair, then prime minister, got involved, convincing the Palestinians to agree to send the proceeds from the natural gas reservoirs to the Federal Reserve Bank in New York to be vetted, to ensure that the money didn’t fall into the hands of armed resistance groups.

But Israel continued to drag its feet — and finally broke off all negotiations following Hamas’s takeover of Gaza in 2007. A crucial turning point came the following year, when Israel launched a military operation in the strip, after which Israel militarised the entire Gazan coastline and effectively brought under its control the Gaza natural gas field, in contravention of international law. From that moment onwards, BGG started dealing directly with the Israeli government. But for several years, largely due to recurrent hostilities between Israel and Hamas, there was hardly any progress on the project.

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This has resulted in accumulated losses to the Palestinians in the billions of dollars. “The occupation continues to prevent Palestinians from developing their energy fields so as to exploit and benefit from such assets,” the United Nations Conference on Trade and Development observed in 2019. “Accordingly, the Palestinian people have been denied the benefits of using this natural resource to finance socioeconomic development and meet their need for energy over this entire period, and counting.”

After Russia’s invasion of Ukraine, however, the project was revived. As Europe started desperately scouring the world for alternatives to Russian gas, Netanyahu saw a perfect opportunity to crown his long-held dream of transforming Israel into a regional energy hub and major energy exporter. This is a fairly recent development. Since its creation in 1948, Israel has been heavily dependent on energy imports from other countries.

In 2009 and 2010, however, Israel discovered two massive natural gas fields off its coast, in its self-declared exclusive economic zone: the Tamar and Leviathan gas fields, with overall estimated reserves of around 30 trillion cubic feet of natural gas. This markedly shifted the regional gas market’s geopolitical dynamics: in a decade, Israel went from net gas importer to exporter — mostly to Egypt and Jordan.

However, the real market Israel has always eyed is Europe. To this end, several pipeline projects have been considered — including an offshore pipeline from Israel to Turkey, which would then link up with the Baku-Tbilisi-Ceyhan (BTC) pipeline, and the so-called EastMed pipeline, which would connect Israel to mainland Greece via Cyprus and then meet the proposed Poseidon pipeline running across the Ionian Sea to Italy.

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The Russia-Ukraine war gave fresh impetus to all these projects — including the development of the Gaza Marine field. In June, Israel gave preliminary approval to a $1.4 billion project involving the Palestinian Authority, Egypt, Israel and Hamas aimed at developing the Gaza gas reserves. Under the agreement, revenue — estimated to reach $700-800 million a year — would have gone to the PA with an agreed portion used to support Gaza’s economy. The project was hailed as “a rare glimpse of a potential win-win opportunity” for both Gazans and Israelis.

Unsurprisingly, the re-explosion of the Israel-Hamas conflict has put the deal on hold once again — and it’s hard to see how it could be revived soon, given the lack of any political solution to the war on the horizon. Indeed, several commentators have argued that seizing control of the gas field is the real reason behind Israel’s war in Gaza. Seyed Hossein Mousavian, a Middle East Security and Nuclear Policy Specialist at Princeton University, recently wrote that “the ultimate objective is not only to demolish Hamas and/or exclude Palestinians from their homeland, but to confiscate Gaza’s multi-billion-dollar gas resources”.

Frankly, this argument doesn’t hold: as noted, Israel already effectively controlled the Gaza coastline, including the gas field, prior to the conflict. Moreover, the reserves contained in the Gaza Marine field pale in comparison to those of the massive Leviathan and Tamar fields, Israel’s main gas resource. And indeed, it is in the Leviathan field that the Israeli Energy Minister recently granted 12 licences to six companies, including BP and Italy’s Eni. In reality, then, the Gaza Marine field seems rather tangential to Israel’s energy policy and its grand geo-strategic plans.

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And yet, it does remain crucial to the future of Israeli-Palestinian relations. This is why the US is now pushing Israel to revive the deal. “There is an opportunity here to develop the gas fields in offshore Gaza, on behalf of the Palestinians,” Amos Hochstein, Biden’s energy security advisor, said during a visit to Israel last month. Hochstein noted that he was “100%” sure Israel would allow this, adding that “there is no reason for them not to — it is not theirs [the Israelis], the gas belongs to the Palestinian people”.

As desperate as the Biden administration may be to avoid the conflict escalating into an all-out regional war, Hochstein’s words are little more than wishful thinking. For decades, it’s been clear that, as long as a lasting political settlement is out of reach, the gas off Gaza’s coast will remain under the sea and out of Palestinian control. Witness today’s war, and one can only conclude that their desire for development will remain thwarted.

The fact this didn’t happen last year was largely thanks to two crucial agreements secured early in the conflict: the Black Sea Grain Initiative, whereby Russia allowed Ukraine to continue exporting grain via the Black Sea (which is under its control), and a deal that allowed Russian gas to continue flowing to Europe via Ukraine. But the former has just been suspended, and the latter could soon be terminated. The true cost of this war, it seems, is about to greatly increase.

When the grain deal was brokered last July, António Guterres, the secretary-general of the UN, called it a “beacon of hope” — and rightly so. Reaching an agreement of this kind was a remarkable achievement and a big, if rare, victory for international diplomacy. It contributed to significantly lowering grain prices and avoided a collapse in Ukrainian exports (which only declined by around 30%) — effectively preventing a potential global humanitarian disaster. Over the past year, more than 1,000 ships (containing nearly 33 million metric tons of grain and other foodstuffs) left Ukraine from three Ukrainian ports: Odesa, Chornomorsk and Yuzhny/Pivdennyi.

On July 17,  however, Putin pulled out of the deal. Russia’s move didn’t come out of the blue. As Western sanctions increased, the deal had started coming under growing strain, with the Kremlin claiming that the West wasn’t holding up its end of the bargain, which allowed for more Russian agricultural and fertiliser exports. For this to happen, Russia insisted on reconnecting the Russian Agricultural Bank to the Swift international payment system and, among other things, the unblocking of assets and accounts of those Russian companies involved in food and fertiliser exports.

But the most important demand was the resumption of the Togliatti-Odessa ammonia pipeline, which runs from the Russian city of Togliatti to various Black Sea ports in Ukraine, and which prior to the war exported 2.5 million tonnes of ammonia annually. As part of the negotiations over the Black Sea Grain Initiative, Kyiv and Moscow struck a deal to allow the safe passage of ammonia through the pipeline — but the latter was never reopened by Ukraine. Last September, the UN urged Ukraine to resume its transport, in view of ammonia fertiliser’s crucial role in supporting global agricultural productions, but to no avail.

Then, last month, Russia once again demanded once the reopening of the pipeline as a condition for renewing the Black Sea Grain Initiative. Just a few days later, a section of it located in Ukrainian territory was blown up — according to Russia, by Ukrainian saboteurs, in a deliberate effort to sabotage the grain deal. The governor of Ukraine’s Kharkiv Oblast, however, maintains that it was destroyed by Russian shelling. In any case, the fate of the deal was more or less sealed at that point: when Dmitry Peskov, Putin’s spokesman, announced a month later that “the Black Sea agreements are no longer in effect”, few were surprised. The decision came just a few hours after Ukraine’s strike on the bridge connecting mainland Russia to Crimea, though Moscow denied that there was a connection between the two events.

Predictably, the West has chastised Russia’s decision to pull out of the deal. US Secretary of State Antony Blinken said his country regrets Russia’s “continued weaponisation of food”, while the EU’s foreign policy chief Josep Borrell claimed that Putin is “using hunger as a weapon”. Elsewhere, Poland’s Foreign Minister Zbigniew Rau described it as “nothing less than an act of economic aggression against the states of the Global South, which are most dependent on the Ukrainian grain”, while Italian Prime Minister Giorgia Meloni stated that Russia’s decision is “further proof on who is a friend and who is the enemy of the poorest countries”.

Such strong rhetoric masks a more nuanced picture, however. As Oxfam has claimed, based on data from the UN’s Joint Coordination Centre, less than 3% of the grain from the deal went to the world’s poorest countries, including Ethiopia, Sudan, Somalia, Afghanistan and Yemen. By contrast, approximately 80% of the grain has been shipped to richer countries, mainly EU countries and China. Putin himself, in conversation with the President of South Africa Cyril Ramaphosa, claimed that “the deal’s main goal — to supply grain to countries in need, including those on the African continent — has not been implemented”.

Yet despite Putin’s claims of export challenges, Russia enjoyed record levels of wheat shipments over the past year — so clearly this decision has much more to do with the exacerbation of West-Russia relations than it has to do with strictly economic issues. Likewise, it is fair to assume that Putin’s decision to send free grain to six African countries that have strong ties with Moscow has more to do with strengthening global alliances than actual humanitarian concerns. But with no end to the war in sight, and all sides engaged in increasingly brazen military brinkmanship, is anyone really surprised that a deal that hinged entirely on Russia’s goodwill has come undone?

And the price will be paid by Western countries, too. Now that the Black Sea Grain Initiative has been paused, even greater quantities of Ukrainian grain will be transported overland across Europe through so-called “solidarity routes” set up by the EU. Yet problems had already arisen before the initiative collapsed, as cheap Ukrainian grain, much of which was exported by tax-avoiding shell firms, flooded local markets, where they undercut local produce and angered farmers. In response, in April, the governments of Poland, Bulgaria, Hungary, Romania and Slovakia introduced unilateral bans on Ukrainian grain until an EU deal was agreed that made it possible to reduce pressure on local markets, while at the same time enabling the transit of Ukrainian goods to traditional markets in non-EU countries. With the suspension of the Black Sea Grain Initiative, however, the pressures are likely to increase.

At the moment, the future of the deal remains unclear. Putin left the door open to reviving it, saying that Russia will comply “as soon as the Russian part (of the deal) is completed”. However, the fact that Russia has launched several attacks on critical grain export infrastructure in the Odesa region suggests that a resumption of the deal appears unlikely anytime soon.

And it appears a similar story of obstruction seems to be playing out with Russian gas exports. Despite the war, Russian gas has continued to flow through Ukraine into Europe — softening the blow of the EU’s intention of decoupling from Russian energy while allowing Ukraine to raise much-needed cash in the form of transit fees. In a recent interview with the Financial Times, however, German Galushchenko, Ukraine’s energy minister, said that Kyiv is unlikely to renew the gas transit deal when Ukraine’s supply contract with Gazprom expires in 2024.

In practice, this would mean the closure of one of the last arteries still carrying Russian gas to Europe, a move which would severely weaken many energy-dependent EU countries. Recent analysis by Columbia University’s Center on Global Energy Policy suggests that deliveries to EU countries “could drop to between 10 and 16 billion cubic meters (45 to 73% of current levels)”, according to a June analysis by Columbia University’s Center on Global Energy Policy, leaving Europe with a shortfall that cannot currently be replaced with greater liquefied natural gas imports from the US and Qatar.

Moreover, the loss of even a small percentage of supply has the potential to raise prices across the continent, given the tightness of global gas markets. In Germany, for instance, the economy minister has hinted that the country will be forced to significantly wind down its industrial activities if the gas agreement isn’t extended at the end of the year. For a country — and indeed a continent — already struggling with creeping deindustrialisation, the consequences could be devastating.

This is especially worrying if we consider that, barring the same higher-than-average temperatures as last year, this winter Europe will have a natural gas deficit of at least 60 billion cubic meters. In other words, it’s not inconceivable that another gas crisis is around the corner — and it might be even worse than last year’s. As the Ukraine war drags on, even the few safeguards put in place are coming undone. Instead of being diluted by diplomacy, the repercussions of this conflict have merely evolved.

“We’re protecting Germany, we’re protecting France, we’re protecting all of these countries,” said the President. “And then numerous of the countries go out and make a pipeline deal with Russia where they’re paying billions of dollars into the coffers of Russia.”

He’s wrong. While it’s true that Berlin has given its support to the building of NordStream II, a pipeline that will bring Russian gas directly to Europe via the Baltic Sea, Merkel insists the project is a private venture and is not funded by her taxpayers. Gazprom is the sole shareholder in NordStream II AG, and the Russian energy concern is paying half the cost of the pipeline. The remaining half is being covered by five western energy firms: ENGIE, OMV, Royal Dutch Shell, Wintershall and Uniper.

Nonetheless, the 1,200 kilometre, $11 billion billion pipeline that will connect Ust-Luga near St Petersburg with Lubmin near Greifswald in Germany is creating bad blood between Germany and various other European countries.

Shadowing NordStream I, which came on stream in 2011, NordStream II would effectively double the amount of gas Germany takes from Russia (currently about 40% of total German consumption). About a third of this would be re-exported across northern Europe. Since there is a parallel SouthStream project from southern Russia to Turkey, which would interconnect with the gas hub at Baumgarten in Austria, the total amount of gas transiting Ukraine would fall from 90 billion cubic meters to between 10-15 bcm.

Unlike Poland, Ukraine and various other nations, Merkel is happy that construction is underway, insisting it is an economic proposal, not a political one – one that will bring cheaper energy to Germany.  Finland and Sweden have also approved the project – albeit with some concerns voiced by Sweden’s intelligence service about the proximity of the Kallhamn harbour Gazprom wishes to use for pipelaying vessels to a major naval base at Karlskrona.

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But Denmark is holding out, since the work might damage valuable fauna within Denmark’s exclusive maritime zone. This is not insurmountable, since the main pipe-laying contractor Allseas says the route can be changed, at roughly 5% additional cost.

Geopolitically, though, the new pipeline is highly contentious and it also infringes the EU Third Energy package, which does not allow a monopoly supplier to also own the pipelines and gas distribution networks.

Most obviously, NordStream II cuts out existing gas transit nations such as Poland, Slovakia and Ukraine, which earn roughly €1 billion a year in transit fees for Kiev alone. The Baltic States don’t like it either as gas could be used as a geopolitical tool, as was the case with Ukraine in 2006 and between 2008-09 when the Russians cut off the supply over unpaid bills.

Chancellor Merkel has reassured President Poroshenko of Ukraine that Russia will not suddenly shut down the gas passing through Ukraine, and Putin has also declared that is not his intention. But who would trust him?

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The US, meanwhile, opposes the pipeline because it wants Europe to wean itself off its dependence on Russian gas. Though since it is also doing its best to inhibit development of Iranian gas fields, the opposition may be connected with a desire to sell Europe a lot of US shale-derived LNG – which would also correct what the Trump administration sees as an EU-US trade imbalance. At present, most of this US gas goes to Asia where prices are higher, but who can tell what may happen in future.

Naturally, the Trump administration denies that its objections to NordStream are venal, pointing out the Obama administration’s similar reservations. Besides, there is a global LNG market so Europe, whose LNG terminals are only working at 25% capacity, could just as easily take LNG from Algeria, Australia or Qatar – as one can see at Milford Haven – in the event that the much cheaper piped-gas supply from Russia was interrupted.

Germany continues to robustly defend the pipeline, saying that it will reduce its own dependence on coal (Merkel is also committed to eliminating nuclear). It also claims it would be a more reliable reverse flow re-supplier for Eastern European countries worried about Russian energy blackmail, and that it would be no bad thing for the Ukrainian economy to wean itself off passive dependence on gas transit fees.

There are also hard, unignorable, facts about future European gas supplies. The Dutch fields around Groningen are producing less and less (12 billion cubic meters by 2022) and by 2030 will be exhausted. Last year, the Netherlands became a gas importer for the first time in its history. Norway is not an endless resource either.

Berlin refuses to make the connection between a gas deal and wider western security of the kind that informed Trump’s crude attacks at the pre-summit breakfast. Germans believe that engaging with Russia is better than constantly provoking it – a view supported by vast swathes of German big business. It is worth pointing out here, though, that former German chancellor Gerhard Schroeder[1. ‘Schroederisation’ is now a verb to describe the corruption of one country’s former leaders by those of another. Like Blair he is also a ‘clacquer‘ for autocrats. He was in the front row at Putin’s recent inauguration, several rows ahead of fellow Putin enthusiast, the bloated Hollywood tough guy Steven Seagal. Many Germans find his cosy relationship with Putin quite nauseating.] (also chairman of Rosneft) is head of the NordStream II shareholders committee. He is as tainted in Germany as his friend Tony Blair is in Britain by his over-eager involvement in big money making.

As for Putin, sketching his pipelines like advancing tank columns, he has found another area which he can use exacerbate divisions within the West, between Germany and its eastern neighbours, and between Berlin and the Trump administration.

There is a further consequence. This week a high-level EU delegation, led by Jean Claude Juncker and Donald Tusk, is in Beijing to explore European level-playing-field access to the Chinese economy. While there are significant disagreements, both sides intend to protect and reform the WTO in order to preserve a globalised world trading order that has been good for both sides. Both implicitly view this as a riposte to the Trump administration’s imposition of escalatory tariffs.

They are also likely to reaffirm their commitment to an Iranian nuclear deal that the US is bent on subverting. The latest sign of this has been US Secretary of State Mike Pompeo’s refusal to issue waivers to European companies which work in or with Iran, such as the car maker Peugeot and oil giant Total.

Little shards of ice are forming in European hearts as they contemplate six more years of the Trump administration. Now that Trump has publicly ranked them as ‘foes’ equivalent to Beijing and Moscow, they will be looking for strategic alternatives.

While a few may turn towards Putin and his visions of a vast Eurasian bloc (this seems to appeal to Hungary’s leader Viktor Orban), many more will be looking much further East towards China.

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