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The Weekly Standard7 Jun ’13
When Israel finally discovered a bonanza of natural gas about five years ago everyone was happy.
But then fierce arguments broke out—and rightly so.
When Israel finally discovered a bonanza of natural gas about five years ago everyone was happy. But then fierce arguments broke out—and rightly so.
Plentiful cheap gas could revolutionize the Israeli economy, but it could also lead to some nasty unintended consequences. The concern was that is Israel could contract a bad case of the Dutch Disease, where, in Holland, a flood of income from oil exports hiked its currency’s value and made its manufactured goods uncompetitive, hurting its economy.
The other concern is that, in Israel, a flow of tax revenues from gas exports could strengthen the control over the economy of a meddlesome and profligate government that impedes Israel’s economic progress.
So when the largest holders of Israeli exploration rights, Noble Energy (U.S.) and its Israeli partner Delek Energy demanded the right to export over 50 percent of Israel’s gas reserves right away, they were vigorously opposed by most independent energy policy experts. It also provoked a public outcry against a politically motivated giveaway of resources vital for Israel’s economic growth.
This latest battle followed another nasty campaign Nobel and Delek (N&D) conducted against an independent commission examining the allocation of benefits from Israel’s energy discoveries. When gas was actually discovered, Israelis learned to their utter consternation that N&D and other explorers had been granted a mind boggling 70 percent share of income from exploiting Israeli natural resources by inept Israeli bureaucrats. It left Israel with nary any income from its resources, once additional tax concessions the explorers received were added. This was rectified by the commission. It set the government take t at about 60 percent—a bit lower than the 70 percent average in OECD countries.
N&D, a near monopoly, has strong political clout (as do all large Israeli businesses-monopolies). So it is not surprising that its demand was recently supported by a government commission made up mostly of regulators and government bureaucrats. The commission held its deliberations in private for a good reason as was just discovered when its protocols were finally disclosed. It turns out that eager to secure a huge windfall of gas export taxes for government (so that they could further extend a sacrosanct failing welfare state) it did not seriously try to determine what realistic reserves Israel possesses or whether they are really sufficient for the country’s own needs over the next few decades. It even pushed for larger gas exports than N & D expected.
The commission did not even raise the question of whether Israel should keep most of its reserves as protection against its strategic energy vulnerability. Israel gets oil from distant and unstable sources; supplies can be interrupted by a determined enemy, as occurred in 1973.
Nor did the commission examine what future economic benefit Israel could derive by replacing expensive and highly polluting oil with cheap and easily available gas. It misleadingly extrapolated gas consumption trends from the present minimal use of gas by an Israel that currently has no proper gas infrastructure, and lacked until now a secure and nearby supply source.
The commission also totally ignored the immense contribution the availability of cheap accessible gas can make to Israel’s economic growth. Cheap gas can enable Israel to cut sharply its competition inhibiting, highly inflated production and living costs that are imposed by the monopolies that dominate its economy. It can make its low productivity economy more efficient and competitive.
With cheap and secure gas supplies, Israel could also develop an innovative petro-chemical industry. Israelis have repeatedly demonstrated their exceptional innovative skills. They could help develop solutions that will minimize the world’s dangerous dependence on oil, which mostly comes from very unstable sources and enables hostile regimes to use their huge oil profits to wage war on the West.
For all these reasons, it seems far more prudent for Israel to strictly limit exports of gas for now and preserve its reserves for the more economical purpose of expanding and improving its economy, especially in manufacture and transportation.
If cash is urgently needed for developing the newly discovered fields, as N&D claims, surely there are other financial sources for such a profitable venture than exporting vitally needed resources for short term gain. Eventually, when Israeli gas will be absorbed by its developing energy market, a better estimation can be made of what its reserves really are and what proportion should be kept before allowing exports.
Export advocates use the U.S. example to support their case. But there is no doubt the U.S. possesses indeed huge reserves that assure it energy independence even if it exports a great share of them. The U.S. also enjoys competitive energy markets that can be relied on to price and allocate resources efficiently. In Israel prices are “negotiated” by the semi-monopolistic gas producers with mostly large monopolistic users, like Israel’s Electric Corp.
Long-term strategic and economic consideration must therefore curb N&D’s rush to benefit from speculative, monopolistic profits. The decision as to whether to export, when and how much must be carefully assessed, for otherwise not only Israel, but the world’s security and economy, could wind up paying a dear price.
The Jerusalem Post30 Jun ’15
Israel’s last elections proved how right David Ben-Gurion was when he said that, in Israel, whoever does not believe in miracles is not a realist.
PJ Media20 Jun ’15
The security challenges facing Israel obscure other deep concerns about the viability of Israel’s economic system.
The Jerusalem Post7 Jun ’14
Unless the laggard Israeli economy is reformed soon, its problems—including its morally debilitating corruption—may threaten its future.
Israel Hayom15 May ’14
What does it say about Israeli society and the system of government when a prime minister is convicted of taking bribes?
Israel Hayom23 Feb ’14
What kind of education should it offer and at what cost?
The Jerusalem Post9 Jan ’14
The productivity of Israeli workers is only two-thirds that of Americans, and their salaries are much lower.
The Jerusalem Post11 Jul ’13
As he completes an exceptionally difficult 8-year tour of duty during a worldwide financial crisis, Stanley Fischer has achieved a unique status.
The Weekly Standard22 Apr ’13
The economic future of Israel now rests in the hands Netanyahu, Lapid and Bennet. Will they succeed in fulfilling the most difficult and complex mission of liberating Israel’s economy?
Israel Hayom2 Jan ’13
The Israeli government could eradicate poverty by breaking the monopolies and spurring competition.
The Jerusalem Post7 Dec ’12
Our socialist and statist heritage bred our inefficient system. But foreign aid and remittances were serious enablers. The struggle against political and economic concentration could finally permit Israelis to overcome this destructive heritage.
Israel Hayom8 Nov ’12
The time to prepare the reforms is now, so that after the Israeli elections, the prime minister can immediately devote his time to moving them forward.
The Financial Times21 Jun ’12
Israel Hayom6 Jun ’12
To grapple with the impending crisis, Israel’s government must improve the nation’s competitiveness.
The Jerusalem Post7 May ’12
The Wall Street Journal3 May ’12
Reform-minded Prime Minister Benjamin Netanyahu is stymied by bureaucrats and monopoly tycoons.
Middle East Quarterly30 Mar ’12
As the high hopes for a brave new Middle East fade rapidly, Western policymakers must recognize that promoting market economics and its inevitable cultural changes are far more critical to the region’s well-being than encouraging free elections or resolving the Arab-Israeli conflict.
The Jerusalem Post17 Feb ’12
The choice is between an efficient, growth-inducing market economy or a welfare state, meaning a huge government that actually harms the poor and inhibits prosperity.
The Jerusalem Post25 Oct ’11
Aversion toward the rich has had strong roots in Zionism since its early leaders embraced Marxist practices.
Is capitalism in crisis? Of course.
The Jerusalem Post10 Aug ’11
The tent-dwellers’ revolt calls for the enforcement of ‘the will of the people’ (like all autocrats). It refuses to rely on Democracy.
The Jerusalem Post9 Aug ’11
David Lewis, the exceptional entrepreneur and philanthropist, and head of the Isrotel Group dies at 87
The Jerusalem Post20 Jul ’11
Although MKs appear concerned over rising costs, it was they who allowed this injustice to occur in the first place.
The Jerusalem Post28 Jun ’11
Who is to blame for the shameful situation in which millions of Israeli workers – who earn about half what American workers earn – have to pay double for goods?
The New Republic19 May ’11
A Middle East peace strategy that could actually work.
The Jerusalem Post15 Mar ’11
Israel needs to slash its state budget by as much as possible if it wants a chance at fighting waste and corruption.
The Jerusalem Post9 Mar ’11
Too little attention has been paid to how Egypt’s socialist past and welfare-state present shaped the current rebellion.
The Jerusalem Post7 Feb ’11
The Herzliya Conference has become an important international event, but one central issue is absent: Israel’s debilitating economic concentration.
The Jerusalem Post22 Jan ’11
It’s highly unlikely that government can ever learn to make long-term plans and execute them efficiently.
The Jerusalem Post23 Dec ’10
How can one dare compare narrow-minded religion with the all-embracing faith of universality and equality that is socialism?
The Jerusalem Post1 Dec ’10
Many of the social and economic troubles we are experiencing are due to the public’s lack of understanding of the need for economic literacy.
The Jerusalem Post17 Oct ’10
The PM’s courageous decision to tackle economic concentration was misrepresented by several of our media publications—owned of course by tycoons.
The Wall Street Journal8 Oct ’10
Economic concentration hurts the country’s viability and the chances for peace.
The Jerusalem Post4 Oct ’10
A damaging ethos of ‘welfarism’ and distributive politics has come to dominate not only academia but our cultural, military and even our business elites.
The Jerusalem Post19 Aug ’10
The reformers must know the importance of the reform’s success both for Israel and for their careers, and what damage they will incur if it fails.
The Jerusalem Post13 Jul ’10
Kagan’s admiration for Justice Aharon Barak’s philosophy may have revealed her own predilection for radical judicial activism.
The Jerusalem Post30 May ’10
We must dismantle the oligarch-owned monopolies that impoverish the Israeli consumer and choke our economy.
The Wall Street Journal18 May ’10
The OECD’s invitation to Israel is a “seal of approval” but the country still needs more reforms.
The Jerusalem Post10 Feb ’10
The world’s astonishment at Israel’s response to the Haiti disaster is insulting. What we saw there was Israel’s true face.
The Jerusalem Post10 Jan ’10
Individual initiative and freedom are essential for creativity—in hi-tech as in all other spheres.
The Jerusalem Post14 Oct ’09
As far as Rose Friedman was concerned, public kudos did not matter that much. She persisted in being a rose, no matter what.
The Jerusalem Post22 Sep ’09
Lasting peace must grow from the bottom up, from an “economic peace process” that proves what advantages peace has to offer on a daily basis. It cannot come from signing peace agreements with radical and corrupt entities propped up by corrupting Western handouts.
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