Israel, U.S. Sign Oil Agreement

Israel and the United States, after more than a year of complex negotiations, signed a 20-point memorandum of agreement last Friday bearing American assurances that Israel will have a steady supply of oil over the next 14 years, although at top U.S. prices.

In a ceremony in the White House, President Carter said the agreement resulted from the promise he made in March 1979 in Israel while negotiating the Egyptian-Israel treaty that “peace with Egypt would not lessen Israel’s oil security.”

In giving up the oilfields in Sinai for the treaty, Carter said, Israel had made “a bold, generous and courageous decision in this troubled time” and “Israel has taken a courageous step for peace in that whole area by giving up its oil.”

ISRAEL CAN COUNT ON U.S. OIL

The President said the agreement entails “assurance” Israel “could count on us and depend on us if Israel couldn’t get oil itself.” Speaking “on behalf of American people,” the President said “we’re very proud to have this agreement” and that it represents both “a very sound investment” for the United States and Israel.

Israeli Energy Minister Yitzhak Modai, who led the negotiations for Israel, said that “this most important event” was “due to the leadership of Prime Minister Begin and President Sodar.”

Modai said the agreement marks “completion of the promise” made by President Carter in 1979. “You, Mr. President and the U.S. Congress understood the big risk undertaken by Israel to give up its oil sufficiency.” He said that nobody can foresee developments over the next 14 years, “but we are happy to have a document so clear, so detailed and which relates to such a vital and delicate an issue. “Carter praised Modai for being “a very effective negotiator.” The agreement itself was signed by Modai and Secretary of State Edmund Muskie.

NATURE OF AGREEMENT

The agreement provides for three ways in which it could be activated. “The first occurs when Israel simply cannot obtain enough oil to meet its needs, no matter what price or terms it offers,” a “fact sheet” said. “In this case, the U.S. would provide Israel, directly or indirectly, a sufficient quantity of oil to make up the shortfall.”

Should Israel be able to “physically obtain oil but only by paying an excessive average price and by buying under very insecure arrangements,” a formula could be invoked that provides the U.S. would take into account Israel’s need “to pay an average price for its oil greater than the average cost of the most expensive 20 percent of crude oil imported into the U.S. and has to buy at least 60 percent of its oil through short-term, indirect purchases.”

In the third instance, “a special emergency activation of the commitment” takes place “when Israel loses one of its main sources of supply despite its efforts to maintain that source.”

Some key language in the agreement, as outlined in the fact sheet, notes the U.S. would make oil “available for purchase by Israel if Israel could not find enough on its own – through normal procedures — to meet its domestic requirements.”

“If the memorandum of agreement is activated,” another section says, “the U.S. would first try to find foreign oil for Israel. If that proves inadequate, the U.S. would provide domestic oil. There would be no subsidy involved.” In addition, “whenever the U.S. provides oil to Israel, Israel would have the obligation to continue to look for oil on the world market and if it finds some, the U.S. obligation would be reduced accordingly.”

INITIAL PERIOD IS FOR FIVE YEARS

The arrangements apply for an initial period of five years and additional periods of three years for the duration of the agreement – to 1994 — unless extended. “Either party could suspend the implementing arrangements at the expiry of any period,” the fact sheet says. “This would in no way effect, however, the continued validity of the memorandum of agreement.”

“Israel’s oil consumption is currently about 160,000 barrels a day, less than one percent of the U.S. consumption,” the fact sheet points out. Since the initial U.S. oil supply commitment was made in 1975 – at the time of the first Sinai agreement with Egypt and the U.S. — “Israel has been able to obtain sufficient oil through its own efforts without recourse to the U.S. even during periods of tight oil market conditions,” the fact sheet notes.

“Israel is currently meeting all its oil needs and it is expected that it will continue to be able to do so, but under emergency circumstances Israel could turn to the U.S. under the memorandum of agreement and these implementing arrangements.”

Israel is understood to be obtaining on a daily average some 60,000 barrels from Mexico, 40,000 from Egypt — much of it as a result of Israel’s discovery and development of the Alma oil fields which it has given to Egypt – and the remainder in the expensive “spot market” in Rotterdam, Holland.