Copyright OilPrice
What’s unfolding now is a real test of whether Israel and Egypt can run a joint energy project under political pressure. The $35-billion Leviathan-to-Egypt gas deal looked settled six months ago. This week, the pipeline, which would move that gas across Sinai, finally got technical clearance. On paper, that should have been the green light. In practice, everything else is stuck, and there are three pressure points: Egypt’s ability to pay, Israel’s internal gridlock, and Washington’s shift in posture. Let’s start with Egypt. Cairo’s finances are breaking again. Foreign-currency reserves are thin, LNG exports have collapsed since last year, and arrears to international operators are piling up. The government is still short on feedstock for its own power plants. It can’t promise timely payments for new Israeli gas without hard-currency guarantees. Even IMF and Gulf injections are being absorbed by domestic subsidy needs. Until Egypt stabilizes, Chevron and NewMed won’t commit real capital to Phase 2 of Leviathan. Inside Israel, the politics are no better. The energy ministry wants to hold back more gas for domestic power and winter storage. The security establishment wants tighter control over anything that crosses into Sinai. Cabinet discipline is weak. Every decision on export quotas or new infrastructure is now conditional on “post-Gaza review.” That phrase alone is enough to freeze private investment. (So, imagine how the Gaza reconstruction will go when… What’s unfolding now is a real test of whether Israel and Egypt can run a joint energy project under political pressure. The $35-billion Leviathan-to-Egypt gas deal looked settled six months ago. This week, the pipeline, which would move that gas across Sinai, finally got technical clearance. On paper, that should have been the green light. In practice, everything else is stuck, and there are three pressure points: Egypt’s ability to pay, Israel’s internal gridlock, and Washington’s shift in posture. Let’s start with Egypt. Cairo’s finances are breaking again. Foreign-currency reserves are thin, LNG exports have collapsed since last year, and arrears to international operators are piling up. The government is still short on feedstock for its own power plants. It can’t promise timely payments for new Israeli gas without hard-currency guarantees. Even IMF and Gulf injections are being absorbed by domestic subsidy needs. Until Egypt stabilizes, Chevron and NewMed won’t commit real capital to Phase 2 of Leviathan. Inside Israel, the politics are no better. The energy ministry wants to hold back more gas for domestic power and winter storage. The security establishment wants tighter control over anything that crosses into Sinai. Cabinet discipline is weak. Every decision on export quotas or new infrastructure is now conditional on “post-Gaza review.” That phrase alone is enough to freeze private investment. (So, imagine how the Gaza reconstruction will go when all the materials for a rebuild will have to run through Egypt, with Israeli inspections?) Then the U.S. layer. Washington used to treat East Med gas as a showcase for regional cooperation, but there seems to have been a bit of a change of heart lately. The White House is unwilling to spend political capital defending Israeli export deals while Gaza is still hot. At the same time, Washington sees Egypt’s LNG system as the only viable route to get East Med product to global buyers. The result is paralysis for now. No one in DC will sign off, but no one wants the project to collapse, either. Chevron has slowed procurement. Engineering teams are still on contract, but bid packages for the onshore line and compression units have been postponed. Internally, they’re assuming at least a one-year slip on first gas. NewMed is pushing for a firm decision by early 2026, but without political cover, financing can’t close. Technically, the route is ready. It runs from Egypt’s Dor to Al-Arish through the existing EMG corridor, with a new spur across northern Sinai. Environmental permits are routine; it’s the political approvals that are not forthcoming. Egypt hasn’t issued the import license, and Israel hasn’t finalized its gas-balance forecast to justify export volumes. For Egypt, this gas is survival fuel. Without it, the LNG trains at Idku and Damietta can’t reach full throughput, and Cairo loses one of its few hard-currency sources. For Israel, it’s leverage and proof of normalcy. It needs evidence that energy trade can continue even under conflict conditions. Both sides need it, but neither can move first without U.S. backing. The best-case timeline here is for the U.S. to quietly re-engage once the ceasefire looks solid, followed by Egypt securing a payments guarantee, and Israel signing off on the export quota by late next year. In the worst case, we’ll see another year of … drifting, during which time both Cairo’s finances and investor confidence deteriorate. So, the deal is still alive, but only technically. The engineering is basically done, but the politics still has plenty of legs. The next twelve months will decide whether the East Med gas story can still hang on, or whether this $35 billion framework will become stranded for good.
