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Israel’s Emergence as an Energy Power Could Become a Burden
The recent deal struck by Israel to supply Egypt with gas from the Leviathan offshore field—a landmark agreement in the country’s history—has been locally portrayed as an economic and diplomatic victory. Officials highlight the anticipated financial revenues and the potential to enhance regional cooperation, affirming Israel’s position as an emerging energy hub in the Eastern Mediterranean. However, despite some validity in these claims, the agreement also unveils structural vulnerabilities that Israel and other gas-dependent economies can no longer afford to ignore.
Beyond bilateral relations, the agreement with Egypt reflects a broader rearrangement of gas flows in the Eastern Mediterranean following two years of regional conflict. From Egypt’s perspective, purchasing Israeli gas was not merely a commercial choice; it represented a strategic response to declining domestic production, financial constraints, and the limited capacity to import liquefied natural gas. As the Egyptian government grapples with worsening local production and rising demand, Israeli gas provides a crucial lifeline.
From Israel’s viewpoint, its transformation into a primary supplier for Egypt strengthens its regional influence and solidifies its position in a competitive geopolitical and energy market. While mutual reliance in energy may promote stability, it rarely mirrors equality. By committing Egypt to purchase 130 billion cubic meters of gas over nearly two decades, the deal promises Israel stable export revenues. It also deepens Israel’s strategic ties with a key regional power at a time when other suppliers, such as Qatar, are pursuing similar objectives.
However, energy security is not solely gauged by export volumes or diplomatic results. It also hinges on the long-term balance between local supply, growing demand, and institutional capacity to manage future scarcity. Here, the picture appears more worrisome for Israel, as the country’s electricity system is structurally reliant on natural gas, which accounts for over 70% of its power generation. Under current production and export pathways, domestic gas reserves are projected to last only two to three decades. Several official assessments already warn that Israel may face supply constraints by the mid-2030s, precisely when its export commitments will peak.
Once long-term contracts like the one with Egypt are in place, the scope for flexibility diminishes significantly. Future governments might find themselves forced to choose between fulfilling export obligations and ensuring the availability and reliability of domestic energy. In reality, such pressures are likely to intensify.
Electricity demand in Israel is not only growing but is also changing in composition. The electrification of the transport and industrial sectors, coupled with rapid expansion in energy-intensive digital infrastructure, is expected to increase peak loads and reduce the system’s capacity to withstand supply disruptions. Under these conditions, long-term export commitments reduce Israel’s margin for error, increasingly making flexibility dependent on yet-to-be-scaled non-gas alternatives.
Moreover, the gas market is in an early stage of production and is highly concentrated. One major supplier, Chevron, dominates a significant portion of local production while also acting as a primary exporter. This dual role creates inherent tension, as the same entity responsible for ensuring reliable and affordable domestic supply is also incentivized to commit resources for sales abroad.
In such a market structure, any expansion of exports entails consequences that extend beyond volume or reserves. When the dominant supplier in the local market is also the primary exporter, external contracts can affect internal pricing dynamics. As export prices rise, the benchmark for what constitutes a “reasonable” local price adjusts accordingly, even in the absence of explicit indicators. The result is not necessarily an immediate price shock but rather a gradual upward pressure on local gas prices toward export parity, increasing costs across the electricity system and narrowing the scope for effective competition.
Proponents of the agreement argue that regulatory mechanisms will enable the state to adjust export volumes in the event of shortages. However, in practice, these assurances are limited. Once long-term contracts are signed, legal obligations, diplomatic costs, and geopolitical concerns constrict regulators’ maneuverability. Long-term export contracts not only distribute gas but also spread risks across generations of policymakers.
This reality underscores a broader challenge. Israel’s gas reserves are finite while electricity demand is expected to grow steadily due to electrification, population growth, and the expansion of energy-intensive digital infrastructure (especially data centers supporting artificial intelligence operations). In this context, energy security cannot indefinitely rely on gas exports and optimistic assumptions about reserves.
None of these issues diminish the strategic value inherent in collaboration with Egypt. Economic interdependence could indeed serve as a stabilizing force in a volatile region. However, stability rooted in limited resources is inherently temporary unless paired with a long-term, credible transition strategy.
We should not view the gas deal between Israel and Egypt as an end goal but rather as a step in a longer journey. The revenue from exports should be leveraged to accelerate diversification by expanding renewable energy usage, enhancing energy storage and grid flexibility, diversifying generation sources, and reducing structural reliance on a single fuel and supplier. Monetizing current gas assets without investing in a future system amounts to exchanging short-term gains for a long-term vulnerability.
The success of Israel’s gas strategy will not be measured by export revenues or diplomatic headlines but by whether this strategy capitalizes on the moment to build an energy system that remains resilient long after the gas runs out.
