The Impact of Gas Reserve Discoveries on Energy Security, Economy & External Relations: The Case of Israel’s Tamar and Leviathan Gas Fields

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U

NIVERSITY OF

A

MSTERDAM

MASTER THESIS

The Impact of Gas Reserve Discoveries on

Energy Security, Economy & External

Relations: The Case of Israel’s Tamar and

Leviathan Gas Fields

Submitted in fulfillment of the requirements for the academic degree of Master of Science

in Political Science – Political Economy

Faculty of Social and Behavioral Sciences Department of Political Science

Author:

Dylan Jack BOS 12726036 Supervisor: Dr. Mehdi P. AMINEH Second reader: Dr. Henk W. HOUWELING June 5, 2020

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Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil!

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Abstract

This thesis is about Israel’s energy security and how the discoveries of two major natural gas fields – Tamar and Leviathan – have impacted Israel’s energy security, economy, and external relations with Egypt and Jordan.

By applying the theory of geopolitical economy and through a qualitative in-depth case study, this research brings forward several findings. First, an examination of Israel’s energy scarcity, energy situation, and developed policy reveals that the discoveries of Tamar and Leviathan have dramatically altered Israel’s energy affairs. Not only do the discoveries result in a significant increase in Israel’s energy self-sufficiency, but Israel obtained the opportunity to become a net exporter of gas. Second, by analyzing the interaction between the Likud party, the Labor party, and the two key international gas companies – Noble and Delek – it becomes clear that Israel has formulated concrete objectives concerning how to benefit from the gas in the domestic and the external dimension. Third, with regard to the domestic objectives, the research finds that national energy security has overall been improved, while it points at specific risks in Israel’s reliability of supply and affordability. Concerning the economic effects, although Israel has benefitted from national savings and slightly lower prices, broader positive economic effects have not materialized yet. Fourth, in the external relations with Egypt and Jordan, the analysis reveals that Israel’s expectations of transforming their energy self-sufficiency and export capacity into geopolitical advantages have hitherto failed to materialize. Nevertheless, the export capacity has thus far served as a stepping stone for the intangible benefit of increased regional cooperation through the establishment of the Eastern Mediterranean Gas Forum.

Overall, this research is one of the first attempts to analyze the concrete impact of Israel’s recent resource discoveries on its political and economic affairs, thereby connecting the domestic with the external dimension. It finds that the materialization of potential benefits depends on the context in which political and economic affairs are embedded. Since it is one of the first attempts, many of the discovered effects are still developing. Also, limitations of the research include the inability to empirically validate the findings concerned with the influence of domestic politics, and the limited focus on only Egypt and Jordan.

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Acknowledgements

I would like to thank a number of people for their support, enthusiasm, and inspiration in the process of writing this work. First of all, I would like to thank my parents and brother for their unconditional support in all the things I did and do. Without them, I would not have been able to start, let alone finish, my studies.

Another person who deserves a lot of gratitude is my dear friend Sjoerd. Not only did Sjoerd give me the inspiration for this research topic, but he also proof-read a lot of my work. Without his great intellect and moral support, the process of writing would have been a lot less stable and smooth.

I wish to thank dr. Amit Mor for his enthusiasm and knowledge he was willing to share with me. Without Amit’s deep knowledge of the subject and the hours he invested in discussing Israeli politics and energy affairs the thesis would have been less colorful.

Lastly, I would like to extend my gratitude to dr. Mehdi Amineh. As the teacher in a previous course on energy and geopolitics, dr. Amineh sparked my interest in combining my interest in the Middle East with geopolitics and energy. The result of this inspiration was a process of frequent contact in which dr. Amineh found me overconfident on some days, and unconfident on many others. Thank you for bearing with me and for your expert guidance and mentorship.

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This notion of an island nation is found in Israel’s energy affairs as well (Sachs & Boersma 2015a). Since its foundation, Israel has struggled to meet its demand for energy resources. Although located near the world’s largest reserves of oil and gas, Israel lacked any significant indigenous resources. Fifty years of oil and natural gas (NG) exploration efforts did not result in any significant discoveries to alter the resource scarcity. With the exception of 1967-1982 when Israel occupied the oil-rich Sinai peninsula (Bregman 2003, pp. 181-185), Israel was completely dependent on imports for its energy supply. The Arab neighbors boycotted any direct trade to Israel, making the country totally dependent on imports from overseas. To Israel, the importance of energy is intensified due to its energy-thirsty military that is always on ready alert (Shaffer 2011). Not only lacking energy resources, Israel has freshwater scarcity as well. This countered by extensive desalination practices that require vast amounts of energy sources as well. As becomes clear, Israel’s survival and prosperity heavily rely on scarce resources (Rettig 2016b).

In 1999, two medium-sized offshore gas fields were discovered. The first was Mari-B, located in Israeli waters. After its development was completed, Israel could benefit nine years from a stable but insufficient supply of natural gas. It was depleted in 2012. The second was Gaza-Marine, located offshore of the Gaza Strip. Plans were made to let a British gas consortium develop the field with the aim of supplying both Gaza and Israel. Unfortunately, the Second Intifada erupted, Israel-Palestinian relations dropped to an all-time low, and the plans were canceled. When the British company approached neighboring Egypt to partner in the development, Western allies the United Kingdom and the United States intervened and summoned the termination of the field’s development to prevent Israel’s enemies in Gaza from becoming more energy-secure than Israel itself (Boersma & Sachs 2015b). This event illustrates that the gas affairs in the Eastern Mediterranean are more than regional. They attract the interest of great powers.

Ten years after the Mari-B discovery, two major gas fields were discovered off Israel’s coast in 2009 and 2010, these discoveries were perceived as a holy grail. All of a sudden, its

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energy outlook was completely shifted and Israel got the opportunity to acquire energy self-sufficiency within a reasonable period of time. The two indigenous gas reserves would benefit Israel in a variety of aspects. The treasury would receive significant state revenues which could be used to lower the cost of living in Israel. Public expenditure could be increased to solve the socioeconomic inequality. Moreover, Israel could downscale its high energy import-dependence and maybe even become an energy exporter. The geopolitical benefits would be significant as economic integration between Israel and its neighbors would bring stability and warming to the existing frozen conflicts and ‘cold peace’ with Egypt and Jordan.

A decade has passed. It is time to analyze which expectations have materialized into reality and how these materializations have affected Israel. This study is one of the first assessments of the concrete impact the gas bonanza – a sudden increase in wealth or luck – has realized in Israel since the discoveries of the Tamar and Leviathan fields in 2009 and 2010.

1.1.1 Objectives

The main objective of this research is to study the impact of Israel’s 2009 and 2010 natural gas discoveries on Israel’s national energy security, its economy, and its external relations Egypt and Jordan as of 2020.

To achieve this overall objective, this research has identified a number of additional objectives. The first objective is to understand the significance of the discoveries by looking at Israel’s energy situation and the implemented policy since 2009. Also, the research aspires to understand who the key actors are in Israel’s energy affairs and how these actors interact with each other. The second objective is to reveal how the significance of the natural gas discoveries in combination with socio-political background issues has resulted in contrasting or similar visions of Israel’s main political parties on how to benefit from the discoveries. In addition, the research is interested in how private actors have attempted to influence the political debate in their favor. Thirdly, to understand how the discoveries have impacted the domestic dimension in Israel, the research aspires to understand the concrete effect on the country’s national energy security and the economy. Hence, measurement is required of a number of energy security indicators, like availability and reliability, as well as on economic indicators, such as affordability of electricity, national savings, the trade balance, and Israel’s monetary situation. The final objective is to learn how the external relations of Israel are affected by the discoveries of natural gas and the eventual exports of redundant volumes. To achieve this objective, the research inspects the developments in the bilateral relations between Egypt, and Israel-Jordan. These two countries are selected for two reasons. Firstly, Egypt and Jordan are the only

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two Arab countries with which Israel signed a peace treaty and thus established official diplomatic relations. Secondly, as of 2020, Egypt and Jordan receive Israeli gas through pipelines. The impact of the gas should be most tangible in the relations with these two neighbors. In addition to exclusively studying the bilateral impact in the relations with Egypt and Jordan, the research puts the findings in a regional geopolitical context as well. Although the Palestinian Territories are fully dependent on Israeli gas, they are deliberately not examined in this research due to a lack of available information and political sensitivity of the topic.

The timeframe of the research is 2009-2020. As the major fields Tamar and Leviathan were discovered in respectively 2009 and 2010 it is suitable to start the research here. A second reason is that all Israeli government coalitions in this period were led by Likud party leader prime minister Netanyahu, which indicates a political consistency that serves the research. The studied period ends in January 2020. The Leviathan field was connected to the Israeli grid at the end of 2019, while the first volumes of export left Israel in the first days of January 2020. Therefore, the political and macroeconomic shocks as a result of the global Covid-19 pandemic fall outside the scope of the thesis.

1.1.2 Relevance

The relevance of this work is present in at least three ways. First of all, sufficient, affordable, and sustainable supplies of energy is a vital condition for economic activity and thus for the prosperity of people. With the global energy demand on the rise, the depletion of fossil fuel reserves, and the incapability of substitute supply technologies to catch up enough, studies on energy security contribute to insights that might assist policymakers across the globe in their quests for energy sufficiency (Amineh & Yang 2018). Second, although Israel is only a small country with around nine million inhabitants, studying the country’s energy security is still very relevant. Israel is a key player in one of the world’s most complex, inflammatory, and longest-lasting conflicts: the Arab-Israeli Conflict. The recent discoveries and potential transboundary energy trade may foster regional rapprochement, whereas it also might spark new hostilities. Third, the study contributes to the scientific debates on energy studies, International Relations, and International Political Economy. Thus far, little research has been done on Israel’s energy affairs. Therefore, an integrated analysis of how the discovery of gas impacts Israel’s security, economy, and geopolitical position vis-à-vis its neighbors enhances the understanding of the role of energy sources in politics and economics.

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1.2 Literature review

This section provides an introduction to Israel’s energy affairs as a case for research. In doing so, it serves as an analysis of the existing academic literature on this topic. The review starts with an overview of Israel’s characterization as an isolated island in a hostile environment, after which it zooms in on the nation’s energy situation. Subsequently, it examines the potential impact of the discovered reserves on national security and beyond. Following this brief review, the last section considers the revealed research gaps and explains how this thesis will contribute to filling these gaps.

Israel’s energy affairs are an interesting case to investigate. Founded only in 1948, Israel is the only official Jewish state in the world. Its history is characterized by insecurity due to an ongoing conflict between Israel and the Palestinians plus the Arab neighbors. Since 1948, Israel fought four inter-state wars (1948, 1956, 1967, and 1973) and engaged numerous smaller armed conflicts with domestic and foreign adversaries (Bregman 2003). The Israeli-Palestinian Conflict has resulted in three major security risks for Israel. Firstly, the Palestinian Territories – the Gaza Strip and the West Bank of the Jordan River – are to some extent occupied and administered by Israeli forces, while also partially autonomously governed by the Palestinian Authority. Consequently, Israel attempts to continuously prevent Palestinian uprisings against Israeli occupation and Israel’s very existence, which forces Israel to be on constant ready alert (Bregman 2003). Secondly, many Palestinians have sought refuge in countries like Lebanon, Jordan, Egypt, and Syria. These four neighbors all share a history of war and conflict with Israel. Today, the relations vary between hostile (Lebanon and Syria) and cold or somewhat cooperative (Egypt and Jordan) (Cleveland & Bunton 2013, pp. 322-344, 439-486). Israel signed peace agreements with the latter two (Stein 2011; Beaumont 1997). Thirdly, the existence of a Jewish state, the oppression of Palestinians, and the support of the United States and other Western allies for Israel have all resulted in various degrees of anti-Israeli sentiment in the region (Walt & Mearsheimer 2006). Iran poses Israel’s largest military threat, as Iran has made statements about the objective of eliminating the Jewish state (Parsi 2005; Menashri 2006; Bahgat 2018). What becomes clear is that Israel finds itself in a precarious situation in which conflict might spark at any moment.

A similar picture emerges when zooming in on energy affairs. The Middle East is one of the most resource-rich regions in the world, holding massive oil and gas reserves (Amineh 2007). However, Israel is located in an area deprived of any significant natural resources. The nation finds itself surrounded by oil- and gas-rich Arab neighbors who have been largely unwilling to supply Israel with vital energy resources (Demir 2010). As a result, Israel has been

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described as an energy island, fully dependent on energy imports from suppliers far away. This economic dependence has been associated with political dependence as well (Bahbah 1982; Bahgat 2005; Bahgat 2010; Bahgat 2011).

Israel started an exploration quest in the hope of finding indigenous resources to reduce foreign dependence. These exploration activities proved largely unsuccessful with the exception of the discoveries of the Mari-B and Gaza Marine gas fields in 1999. The Gaza Marine field was not developed (Broersma & Sachs 2015b). Mari-B was and from 2003 onwards, Israel produced relatively small amounts of domestic gas. Since 2008, Israel imported natural gas (NG) from Egypt via a pipeline (Das 2020). Thus, Israel’s NG story started in the early 2000s and the country’s reliance on NG as a source of energy started to increase (Bahgat 2011). Then in 2009 and 2010, two major gas reserves were discovered, completely altering Israel’s energy outlook.

These two gas fields – Tamar and Leviathan – were welcomed as an energy bonanza, a sudden event with a high potential of increasing wealth. Until then, Israel’s energy affairs had fallen outside the scope of most researchers, with Bahgat (2005; 2010; 2011; 2014) as one of the exceptions. As one of the few, Bahgat extensively wrote about Israel’s energy situation and the various measures it took to deal with its scarcity, such as a possible partnership with Iraq after the fall of Sadam Hussein (Bahgat 2005), or developing large-scale renewable energy infrastructure (Bahgat 2014). With the recent bonanza, Bahgat and others started to speculate about the many possible benefits these two gas fields would bring (Bahgat 2011; Shaffer 2011).

As stated above, the dependence of Israel on foreign partners to secure its energy supply was seen as a major geopolitical weakness. Unsurprisingly, various scholars argued how the prospects of reduced external dependence and the possibility of becoming a gas export would improve Israel’s geopolitical situation, and thus its national security (Shaffer 2013; Christou & Adamides 2013). More specifically, the possibility of exporting gas could positively affect the relations between Israel and Europe, as Europe is in need of diversifying its gas supply lines to reduce an over-reliance on Russia (Cohen & DeCorla- Souza 2011; Ruble 2017). Also, with Israel’s neighbor Jordan in a similar situation of resource scarcity, Israel could be able to exploit the possibility of exporting gas to Jordan to stimulate economic and political convergence between the two (Abu Hamed & Bressler 2019). Lastly, whereas Israel imported Egyptian gas between 2008-2012, some years later Israel would have the possibility to supply Egypt with Israeli gas. Egypt is one of the largest energy-demanding markets in the region. An Egyptian dependence on Israel’s gas supplies could foster the relations between these two historical

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adversaries (Shaffer 2013; Das 2020). Recently in January 2020, the first volumes of Israeli exports have started to flow to the Jordanian and Egyptian markets (Das 2020).

The examination of the available literature indicates a strong relationship between energy security and national security in Israeli society. With a history of conflict and a vital, energy-dependent military, Israel’s energy affairs have been dominated by national security-thinking (Rettig 2016a). The role of security-discourse in Israel’s energy affairs has been researched in a number of articles from a critical-theory perspective. In Israel, security-driven argumentation is used to convince policymakers to make certain decisions, such as stimulating cleaner transportation (Cohen & Naor 2013) or promoting renewable energy (Fischhendler & Nathan 2014; Fishhendler et al. 2015). The discovered natural gas reserves have been subject to national debate as well, specifically with regard to the question about whether and how much to export. Security-driven discourse used by governmental and market actors played a key role in this debate (Fischhendler 2018).

Whereas the discovered gas reserves have been expected to significantly alter Israel’s national security through geopolitical advantages in multiple articles, few studies have looked beyond the security interest and focused on additional dimensions. One of the advantages of introducing NG as a major source of energy concerns positive environmental benefits. Gas is cleaner than coal and oil. At the same time, the discovery and development of the gas have arguably replaced Israel’s renewable energy transition ambitions. With the associated short-term national security benefits, the gas hinders the development of serious renewable alternatives because climate change has not yet been perceived as a security threat (Michaels & Tal 2015; Abu Hamed & Bressler 2019). A second advantage associated with exploiting domestic resources is the economic impact. Surprisingly little research has been done in this field. To the best of the author’s knowledge, only one article took explicitly this perspective. Palatnik et al. (2019) investigate the link between the prospect of large-scale energy exports and the exchange rate of Israel’s shekel. They point at the threat of Dutch Disease, which refers to the harmful economic effects of a sudden increase of concentrated exports which appreciates the currency, thus weakening the economic competitiveness. They find that Israel demonstrates the first symptoms. However, the article is an econometric exercise, while it fails to integrate essential political context which might affect the prospects or perceptions of Israeli exports to Egypt and Jordan.

All in all, few scholarly articles go beyond a narrow state-centered focus on Israel’s energy security affairs. One noteworthy exception is Cohen (2018), who conducted a concise study of the various implications of the gas discoveries in the realms of domestic politics,

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international politics, security, and the economy. In doing so, Cohen refers to both state- and market actors and finds that Israel’s political complexities require a specific rather than a general policy model to maximally benefit from the gas. Hence, he implicitly warns scholars to conduct a careful and in-depth analysis of Israel’s political and economic context.

Gaps in the literature

The previous paragraphs discussed the main findings of scholarly work in the field related to the topic of this research. Also, they highlight the gaps in the literature. Three important gaps are identified that this thesis aspires to fill.

First of all, while the academic attention for energy security in Israel has overall been sparse, the work that has been done is rather speculative and forecasting. The speculative nature of previous scholarly work is reasonable because the fields were only discovered a decade ago. However, what is currently lacking in the debate is an integrated assessment of the concrete impact of the domestic gas reserves on Israel’s energy security, economy, and external relations. Furthermore, as the review reveals, much literature focuses on national security, whereas Israel’s official energy policy mentions affordability- and sustainability objectives as well. Hence, a study on how the gas affected Israel’s balance between the security of supply, affordability, and sustainability adds to the debate.

The second gap in the literature is the absence of including private actors in the study of Israel’s energy affairs. It has become clear that much of Israel’s energy security is perceived through the lens of national security. Much of the research, therefore, has a state-centric approach. However, Israel’s gas fields are discovered, developed, and operated by private businesses. While a number of critical approaches examined the use of discourse by various actors (including market actors), the concrete interests of these actors remained unclear. As a result, a more integrated study of how and why societal actors interact with the government adds to the debate and understanding of energy security in societies.

The third gap refers to the absence of an assessment of the concrete export deals with Jordan and Egypt, how these agreements fit into existing relations and how much weight should be attached to the established energy cooperation. The majority of the research has speculated about how the gas trade would strengthen Israel’s geopolitical position, but few studies reflect on the reality that has materialized.

This research aspires to contribute to the filling of these gaps by conducting an integrated assessment of the concrete impact of the Tamar and Leviathan gas field discoveries on Israel’s domestic and external dimensions. This will be one of the first works to do so. In

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addition, the research will explicitly study the interaction of state and market actors. Furthermore, in the domestic dimension, the effects on Israel’s energy security and the economy will be examined. The gas relations with Egpyt and Jordan will be placed in the context to obtain a realistic perspective of how the discoveries have affected the regional geopolitics of Israel. Filling these gaps contributes to the understanding of energy security and the role of new resource discoveries in general, and, more specifically, to the role energy can play in a regional context plagued by instability.

1.3 Research questions

The objectives of section 1.1, as well as the revealed academic gaps in the previous section, result in the following main research question:

How have the discoveries of the Tamar and Leviathan gas fields impacted Israel’s energy security, economy, and the geopolitical situation of Israel in its relations with Egypt and Jordan since 2009?

To find an answer to this main question, the research answers five research-sub questions, each of which covers a chapter. Consult section 1.7 for the complete organization of the thesis. The four sub-questions are:

Chapter 2: What is the current energy situation in Israel, how did it develop between

2000-2020, what policies have been implemented, and who are the relevant actors in the Israeli energy affairs?

Chapter 3: How have Israel’s main political parties envisioned the benefits of natural gas in

the domestic and external dimension, and how have these visions interacted with the influence of the private gas companies?

Chapter 4: How have the natural gas discoveries impacted Israel’s security of supply,

economy, and sustainability?

Chapter 5: How have the natural gas discoveries resulted in geoeconomic leverage and

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1.4 Theoretical framework

In order to study the impact of natural resource discoveries on a society and its external relations, the academic field of geopolitics provides a proper start for a theoretical framework. Geopolitics is concerned with the relation between politics – or international relations – and geography, or the specific geographical conditions affecting the political dynamics, such as climate, water, or natural resources. With regard to natural resources, geopolitics studies the link between the uneven spatial distribution of nature’s endowments across the globe (Amineh & Yang 2018, p. 24).

This research relies on the theory of geopolitical economy, which is one of the streams within critical geopolitical theories and developed by Amineh and Yang (2014; 2017; 2018). Critical geopolitics evolved as a response to the dominant realist and liberal schools of geopolitics and International Relations (IR). Realist approaches focus on relative power relations between nation-states in their search for resources to increase their wealth and military power. These approaches emphasize state-centrism, security in their analysis of developments in the global balance of power (Amineh & Houweling 2005). Liberal approaches emphasize absolute gains in which economic interaction between societies replaced military interaction. These approaches look at how economic forces caused by global capitalism shape developments in the global system. As Amineh and Yang write (2017, pp. 29-30), critical geopolitics evolved from the need to incorporate a broader scope of concepts to study while remaining interested in the connection with geography. Since the 1970s, three streams of critical geopolitics can be identified. The first emphasized the role of culture as a structural factor, including religious, and ethnic factors. The second stream has been concerned with the influence of discourse in geopolitics. Certain ideas, narratives and concepts are embedded in social context out of which geopolitical power evolves. A good example is Said’s (1978) work on postcolonialism. The third stream integrates the study of political economy with critical geopolitics, including the actual mechanisms of the political and economic system (Mercille 2008; Amineh & Yang 2017, pp. 29-30).

The theory of GPE explains how two logics of power explain the relations and policies of societies to one another: the territorial logic of power (or geopolitical logic) and the capitalist logic of power (or geoeconomic logic). Amineh and Yang (2014; 2017; 2018) rely on the works of Harvey (1985) and Mercille (2008; Mercille & Jones 2009) in their conceptualization of geopolitical economy. The geopolitical logic of power refers to the power projection of states beyond their territory to enhance their relative position to solve with their security- and economic challenges (Mercille 2008). The geoeconomic logic of power refers to the tendency

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of business actors – following the logic of capitalism – to engage in cross-border activity to access new resources and to invest surpluses of capital there where the prospected return is the highest to acquire additional wealth. These two logics interact. Sometimes, state- and market actors are aligned. In other times market actors may pressure the state to follow a different course to achieve capitalist objectives in the short-run, whereas agents of the state focus on long-term aims, or vice versa (Amineh & Yang 2018, p. 26; Mercille 2008, pp. 578-581).

Unit of analysis

For the execution of this research, the unit of analysis is the state-society complex, as opposed to the nation-state in classical geopolitics. The state-society complex comprises the network of relations between actors in a given society. These actors refer to different groups, such as state actors (e.g. a ministry) and societal actors, such as market actors (e.g. an oil company) and civil society (e.g. a non-governmental organization concerned with reducing socioeconomic inequality). To analyze the effects of the geopolitical and geoeconomic logics, the state-society complex enables scholars to incorporate state actors with market actors.

There are two theoretical ideal types of these complexes which are no polar opposites but assess the relative differentiation between the state and society. In order words, the ideal types assess the degree to which societal actors enjoy autonomy from the state class. The first type is the liberal state-society in which the governing group acts separated from the society. The state class is not powerful enough to shape the capitalist and political forces in society and abroad. The second type is the centralized state-society in which the governing class has relatively more power than the societal actors. Market actors cannot act independently from the state. The government controls most of the key economic sectors, including energy. This prevents the rising of an independent business class (Amineh & Yang 2014, pp. 498-499; Amineh & Yang 2018, p. 12). In these two ideal, types different actors clash following the geopolitical and geoeconomic logic. To sustain and accelerate society’s economic growth, the state requires economic activity and taxation. To profit from business activity, market actors constantly search for opportunities to invest their capital and to access required resources. As a result, state and societal actors pressure one another to project power outside the complex to access the resources and to accumulate wealth and power. The activity of societal actors pressuring the state to expand their activities beyond state borders is called ‘lateral pressure’. Thus, inter-state-society complex interaction happens which together forms the global political and economic system (Mercille 2008, p. 577; Amineh & Yang 2014, p. 501; Amineh & Yang 2018 pp. 22-26).

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Industrialization, resource scarcity, and energy security

The concepts of sequential industrialization, resource scarcity, and energy security serve as the last steps in the construction of this theoretical framework. Throughout modern history, societies advanced through the process of industrialization. The process of industrialization has enabled societies to start and maintain higher levels of economic growth and welfare. The United Kingdom was the first to industrialize and it became the hegemon in the global system. In a reaction, other states followed suit in a competition for global power: sequential industrialization. The process of industrialization requires vast amounts of energy which can be produced through the combustion of hydrocarbon sources such as wood, coal, oil, and natural gas. The world’s energy consumption has almost exclusively relied on these finite, unevenly distributed resources for the production of energy. As a result, these resources become scarce and industrializing powers without sufficient domestic resources start to compete for access and control of these vital energy resources beyond their territory. The control of hydrocarbon resources is economic welfare are thus inherently linked (Amineh & Houweling 2007b; Amineh & Yang 2018, pp. 13-17). As becomes clear, resource scarcity partially determines the external policy of states through the geoeconomic and geopolitical logics in combination with the finite nature and unequal geographical allocation of fossil resources.

To explain this influential factor in external policy, Amineh and Houweling (2007b) developed the resource scarcity model. Three factors interactively determine a society’s resource scarcity: demand-induced, supply-induced, and structural scarcity. Demand-induced scarcity results from growing global consumption as a result of industrialization. The drivers for this type are i) population growth, ii) growth of GDP per capita, and iii) technological change. Supply-induced scarcity is generated by the decrease in global reserves due to the finite nature of the resources and the high prices and low economies of scale of substitute sources (e.g. wind and solar). The third type, structural-induced scarcity, is brought about when deliberate actions of actors impose terminations of supply (Amineh & Yang 2014, p. 509). In general, this model explains the logic of resource-scarce states looking outward for vital energy sources to sustain their process of industrialization.

The objective state-societies wish to achieve through this logic on both the short- and long-term is energy security. In this research, energy security is defined as “availability of energy in various forms, in sufficient quantities and at reasonable/affordable prices at all times, without unacceptable or irreversible impact on the environment” (Yergin 1988 and UNDP 2004 in Amineh & Yang 2018, p. 14).

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The last step in the construction of this theoretical framework is to explain why it is applicable to a situation in which a state is suddenly endowed with an oversupply of resources. A natural gas ‘bonanza’ – a sudden fortune or increase in wealth – follows the previously explained logic the other way around. The discovery of natural resources affects the resource-scarcity because the supply-side is (partially) relieved, depending on the size of the discoveries. Following the geoeconomic and geopolitical logics, the endowed state finds itself in the position to benefit economically from the discovered resources because the relative price of substitute suddenly rises. Also, when a state was dependent on the inflow of sources from overseas, the external policy of this state changes as well. Moreover, when the bonanza is significant enough to result in (temporary) oversupply, the state finds itself in the position to supply foreign resource-scarce markets. This alters the external policy outlook of a state even more.

As the GPE-based theoretical framework has been constructed, the next section makes it operational for the selected case study.

1.5 Operationalization & hypotheses

The first concept that requires operationalization is the state-society complex. This is executed through the identification of the most relevant actors in Israel’s energy affairs. With a market-oriented economy and a parliamentary democracy, Israel is closer to the liberal ideal-type state than to the centralized authoritarian state. This means that societal actors – such as businesses – are able to act relatively autonomous from the state. Consequently, this research identifies several state actors, as well as a number of societal-, or market actors. The most important state actors are the Ministry of Energy (MEN) and the prime minister’s office (PMO). A third state actor is the Israeli Electric Company (IEC), which is a state-owned enterprise that purchases most of the natural gas from the Tamar and Leviathan field developers and produces most of Israel’s electricity. In addition to these state actors, the research examines the influence of domestic politics through two major political parties: the Likud Party, the party that has been leading Israel’s coalitions throughout the decade under study; and the Labor party, Israel’s major opposition party in parliament.

The two main societal actors are two international oil companies (IOCs), the American Noble Energy, and the Israeli Delek Drilling. These two IOCs are the majority-shareholders in the joint ventures that operate the Tamar and Leviathan fields.

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By analyzing the interaction between these actors, the theory of GPE enables researchers to study the influence of social forces on the implemented energy policy and how this impacts the domestic and external dimensions.

The second concept to be operationalized is the resource-scarcity model. To reveal the significance of the natural gas findings, the research applies this model to the discovery of the Tamar and Leviathan fields in chapter 2. In combination with the study of social forces in chapter 3, it becomes clear what the gas-related political-economic objectives in the domestic and external dimensions have been.

The domestic dimension (chapter 4) is operationalized in three steps. First, in chapter 2, the resource-scarcity model is applied and the developed energy policy is analyzed by looking at documents, statements, and the input of experts. Then, in chapter 3, the analysis of the interaction of social forces result in concrete objectives for the domestic dimension. Lastly, the assessment of the extent of the realization of these objectives takes place in chapter 4. Here, the chapter analyses the impact on three aspects: national energy security, economic benefits, and the environment. National energy security is operationalized by measuring concrete indicators that follow from the policy and politics in chapters 2 and 3, such as availability of supply, import dependence, diversification, and long-term security. These indicators are derived from an IEA paper (see below) Economic benefits are operationalized by measuring the affordability of energy, the effect on national savings, on Israel’s current account, and its monetary situation. The monetary situation is about the concept of Dutch Disease (see below). Lastly, the environmental impact is briefly assessed by measuring emissions of harmful elements. In this work, environmental considerations are part and parcel of the broader concept of ‘energy security.’

The external dimension (chapter 5) is about the impact of the gas (exports) on Israel’s foreign relations. To operationalize this, this research has selected Egypt and Jordan as two case studies. It explicitly chooses to exclude the Palestinian Authorities (PA) from this research for a lack of information and political sensitivity. The PA disregarded, Egypt and Jordan are the only to Arab counterparts that directly import Israeli gas. The impact on external relations is operationalized as follows. First, chapters 2 and 3 combined result in explicit foreign policy objectives of Israel. However, not only domestic politics influence Israel’s external relations. The research recognizes the influence of Israel’s key ally, the United States, as an independent variable that has influenced the policy of Israel.

After this is worked out, the research assesses the acquisition of geoeconomic leverage and geopolitical benefits. Geoeconomic leverage refers to obtaining economic leverage through

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dependence relations over another state which can influence the external actions of that state. This geoeconomic leverage is measured by combining the results of three indicators (see below). In turn, the geopolitical benefits are operationalized by analyzing to what extent the eventual geoeconomic leverage has translated into the fulfillment of Israel’s geopolitical objectives. To concretize this, the research looks at the bilateral diplomatic relations between Israel and its two Arab exporting partners by referring to official statements and official meetings, such as intergovernmental ministerial meetings.

The author considers it important to emphasize that the discussion of the influence of domestic politics and the interaction between Likud and the government policymakers, Labor, and the private gas companies adds real value to the debate. Domestic politics have been largely neglected in the existing scholarship on the topic thus far. Chapter 3 is therefore a first attempt to link the domestic politics to energy policy in Israel. However, because thorough empirically-verifiable research on this important aspect has proved to be beyond the capacity of this research, it is only a descriptive, preliminary, simplified analysis of the author’s findings. Future research should expand this operationalization.

Other theoretical concepts used in the operationalization

This research has derived three sets of indicators to measure the impact that is subject to assessment in chapters 4 and 5.

Short-term energy security

To measure the impact on Israel’s national energy security in chapter 4, this research relies on a 2011 paper of the International Energy Agency (2011) which provides short-term energy security indicators per used energy resource. This research selects a number of indicators from this MOSES paper and applies them in chapter 4. Short-term energy security is divided into ‘availability’ and ‘reliability.’ The availability indicator is [a] the availability of national reserves. The indicators for reliability are [b] import dependence, [c] diversification of suppliers, [d] diversification of sources, [e] strategic reserves and back-up systems, and [f] political stability. With regard to the NG-specific reliability, the indicators are [g] the number of entry points, and [h] proportion of offshore production. The remaining indicators that fall outside the research are ‘daily sent-out capacity from the natural gas storage’ and ‘natural gas intensity.’ The former indicator is excluded for it proved to be beyond the capacity of the author to retrieve the required data. The latter indicator is excluded for the natural gas intensity (gas

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consumption as a percentage of GDP) would not add value because the country’s reliance on gas will be covered in chapter 2 (for more information, see IEA 2011, pp. 25-28).

Resource curse, Dutch Disease, and Sovereign Wealth Fund

To analyze the economic benefits of the natural gas in chapter 4, this research examines the preliminary effects of the so-called ‘Dutch Disease’. ‘Dutch Disease’ is a specific type of the ‘resource curse’.

The following sentences explain the mechanism of the resource curse. When the costs of international transportation are low – opposite to the early Industrial Age – exporting natural resources is relatively inexpensive. As global demand for the raw material rises, exports increase, resulting in upward pressure on the wages in the exporting sector. Hence, labor forces are attracted to the exporting sector, causing a decrease in production, investment, and innovation in the non-exporting sectors. This results in pressure to import those previously home-produced goods. Also, a growth in exports results in currency appreciation, automatically decreasing the competitiveness of other exporting industries at home. This causes a negative effect on domestic innovation and entrepreneurship, thereby further harming the health of the economy (Palatnik, Tavor & Voldman 2019, Sachs & Warner 1995, Kurtz & Brooks 2011).

With regard to NG, the famous example is the ‘Dutch Disease’, referring to how the discovery of the Groningen gas fields and the resulting export revenues led to a sharp appreciation of the Dutch currency which harmed domestic manufacturing and damaged the competitiveness of other export-oriented sectors (Palatnik, Tavor & Voldman 2019). Also, the inflow of state revenue can increase short-term government expenditure which might result in disproportionate inflation and decreased efficiency and innovation (Brahmbhatt, Canuto & Vostroknutova 2010).

As a result, chapter 4 will look at two elements. On the one hand, it examines whether there are already signs of currency appreciation. On the other, it investigates whether Israel has plans in place to deal with the inflow of gas-related revenues in a sustainable manner to prevent excessive government spending. Such a plan is often a Sovereign Wealth Fund (SWF), which refers to a fund in which the inflow of revenues are prevented from entering the economy directly, and are instead invested abroad to mitigate the risks mentioned above (Palatnik, Tavor & Voldman 2019)

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Geoeconomic leverage

In the operationalization of the external dimension, this research is interested in measuring the obtained geoeconomic leverage. By relying on Mahdi (2019), the research looks at the following indicators to assess Israel’s leverage over Egypt and Jordan: demand vulnerability, supply vulnerability, and attached political weight. Together, these indicators assess the strength of the dependence of Egypt and Jordan on Israel’s gas exports. Throughout history, there have been examples of how economies are negatively affected by the exploitation of natural resources, a concept called ‘the resource curse’ This has led to the much-debated concept of the ‘resource curse’. Whereas in the early decades of the Industrial Age countries such as the UK and Germany witnessed tremendous growth because of their indigenous resources, Venezuela and the Congo have faced economic disasters while being major natural resource exporters.

With this operationalization in place, this research is able to state the following hypotheses. The first is concerned with the domestic dimension, while the second applies to the external dimension:

H1: The discoveries of Tamar and Leviathan have resulted in a positive impact on Israel’s

domestic dimension, thereby improving the national energy security and producing positive economic effects.

H1-0: The discoveries of Tamar and Leviathan have not resulted in a positive impact on Israel’s

domestic energy dimension, thereby not improving the national energy security and not producing positive economic effects.

H2: The discoveries of Tamar and Leviathan have resulted in a positive impact on Israel’s

geopolitical position in its external relations with Egypt and Jordan as a result of obtained geoeconomic leverage through the export of natural gas.

H2-0: The discoveries of Tamar and Leviathan have not resulted in a positive impact on Israel’s

geopolitical position in its external relations with Egypt and Jordan as a result of obtained geoeconomic leverage through the export of natural gas.

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Delineation of the research

This research studies the period between January 2009 and January 2020 as described above. To illustrate change or continuities, many graphs and tables display information from before 2009 (e.g. from 2001 onwards). This is a deliberate choice to enable the reader to compare. Furthermore, the research explicitly identifies a selection of relevant actors as well as policy documents, while it acknowledges that there is more complexity in reality. Only the key ministries, the two most prominent political parties, the two key international oil & gas companies, and the two direct energy partners Egypt and Jordan are included. Lastly, the research includes the influence of the United States as an independent variable on Israel’s external policy, while in reality there are more actors that all interact with one another. Again, this is a deliberate choice to achieve consistency and conciseness in the analysis.

1.6 Research methodology & data

The argumentation in this research is based on a qualitative analysis of an in-depth single case study. Qualitative methods are best suitable to study a complex set of interactions between social actors. In-depth studies are able to generate new theoretical propositions, thereby effectively expanding the understanding of particular cases, as well as of the broader cases (Lamont 2015, p. 78-86). This study relies on several types of sources like relevant policy documents, quantitative data, expert reports, peer-reviewed academic literature, and a series of semi-structured interviews with experts from the field personally conducted by the author. Because the author does not speak Hebrew the research relies on content written and spoken in English. The author acknowledges this as a limitation but is confident that sufficient sources were available in English.

Throughout the argumentation, the research relies on descriptive statistical data available through the International Energy Agency (IEA), the World Bank, the Organization for Economic Cooperation and Development (OECD), and the Israeli Central Bureau for Statistics (CBS). In addition, the author conducted several personal interviews with experts. The findings derived from these semi-structured interviews are used in most of the chapters. The people interviewed were from three academic energy experts (Dr. Rettig, dr. Fischhendler, and dr. Parag), two former Israeli senior state officials (former Special Energy Envoy dr. Adam and former Senior International Advisor to the Minister of Energy Mr. Weil), one independent energy consultant (Dr. Mor), and one independent political and financial analyst (Mr. Butter). The transcripts of all the conducted interviews can be found in the appendices of this research.

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For the application of the resource-scarcity model in chapter 2, descriptive statistical data is used from the IEA, the World Bank, the OECD, and the CBS. To analyze the official energy policy, four key documents are examined: The 2012 Recommendations Of The Inter-Ministerial Committee To Examine The Government's Policy Regarding Natural Gas In Israel, The 2016 Natural Gas Framework, and the 2015 Energy Economy Objectives for the Year 2030 (EEO). The chapter’s findings are substantiated with primary documents such as annual reports (Noble Energy 2010, 2014, 2019; Delek Drilling 2019) and governmental or business statements, interviews with experts, and peer-reviewed journal articles.

The third chapter relies on official statements, press releases, the findings from the interviews, and annual reports (see above) of Noble and Delek. The chapter’s argumentation is substantiated with peer-reviewed literature, and newspaper articles.

The findings in chapter 4 are the result of analyses of data from the previously mentioned databases, substantiated with data from the Israeli Electricity Authority. The indicators of national energy security are extracted from the 2011 MOSES paper of the IEA. Additional statements and data are derived from Noble’s and Delek’s 2010, 2014, 2018, and 2019 annual reports.

Chapter 5 relies on data from the already-used databases, added by data from two papers from the Tony Blair Institute for Global Change and the Organization of Economic Complexity database (OEC). Furthermore, the interview with David Butter and the personal communication with former Israeli Ambassador to Jordan serve as important primary sources. Again, information from a variety of newspaper articles and peer-reviewed journal articles are sought after as well.

Overall, the argumentation and findings are substantiated by a range of peer-reviewed articles and newspaper sources. The newspaper articles are mostly found in Israeli news outlets, with Haaretz, the Jerusalem Post, the Times of Israel, and Globes as the most consulted ones.

Measurements

Energy studies involves a variety of units of measurements. This research uses aligned units of measurement as much as possible. For measuring volumes of gas, all units are converted to billion cubic meters (bcm). One exception is figure 4.2 where the unit of measurement for gas is million British Thermal Unit (MMBTU). This is the official unit to express consumer prices of gas in Israel. Converting to bcm would be confusing. Electricity is measured in either gigawatt hours (GWh) or kilowatt hours (kWh). 1,000,000 kWh is 1 GWh. With regard to

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currencies, all currencies are either United States Dollars (US$) or Israeli New Shekel (ILS). When converted, the research always mentions the used exchange rate.

1.7 Organization of the thesis

This research contains six chapters, of which four chapters form the analytic core. Each of these analytical chapters answers one of the research sub-questions and follows the structure of an introduction, several analytical sections, and a conclusion. The preceding sections formed chapter 1 and served as an introduction to the research by outlining the relevance, objectives, previous literature, research questions, used theory, and methodology.

The second chapter applies the resource-scarcity model to reveal the significance of the Tamar and Leviathan reserve discoveries as well as the recent developments in Israel’s energy situation. Also, it gives a factual analysis of Israel’s energy policy and identifies the key actors in Israel’s energy affairs.

Chapter 3 supplements the findings in chapter 2 as it is concerned with analyzing how Israel’s key political parties and the private gas companies articulated their interest with regard to the gas. By looking at the contrasts and similarities in the party visions on the gas benefits, it becomes clear how domestic politics has influenced Israel’s energy policy. In addition, it examines how private energy actors have attempted to influence the course of that policy. In doing so, the chapter ends with a set of concrete objectives in the domestic and the external dimension.

The fourth chapter takes the objectives in the domestic domain as the starting point and assesses the impact of the natural gas discoveries by measuring to what extent the set objectives have been realized. In this chapter, the effects on Israel’s national energy security, its economy, and the environment and public health are examined.

Chapter 5 takes the remaining objectives in the external dimension as its starting point. It investigates to what extent Israel has been able to acquire geoeconomic leverage over its two export markets Egypt and Jordan. Also, the chapter looks into how Israel has benefitted in terms of geopolitical gains. In doing so, this chapter enables the research to conclude to what extent Israel’s external relations have been impacted by the gas thus far.

The final chapter is the conclusion of this research. It gives an overview of the research’s main findings, rejects or accepts the hypotheses, answers the main research question, indicates the strengths and relevance of the work, and opens the door for further research by pointing at the shortcomings of this research.

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Chapter 2 – Resource scarcity, energy policy & actors

2.1 Introduction

The discovery of the Tamar and Leviathan gas fields in 2009 and 2010 transformed Israel’s energy outlook. This chapter introduces the case of Israel by providing an overview of the developments in Israel´s energy situation, of the implemented policies and of the relevant actors. It covers the time period of 2000-2020, which allows for a proper before-after picture.

This chapter answers the following research sub-question: What is the current energy situation in Israel, how did it develop between 2000-2020, what policies have been implemented, and who are the relevant actors in the Israeli energy affairs? Chapter 2 is divided into four sections. After a brief introduction of the discoveries, the chapter applies the resource-scarcity model to demonstrate Israel’s energy situation development and how the gas discoveries relate to Israel’s scarcity. The subsequent section analyses Israel’s energy situation by looking at a number of key indicators. The third section reveals Israel’s energy policy choices and objectives, while the final section identifies the relevant actors in the country’s energy affairs. The chapter ends with concluding remarks.

2.2 The discoveries of Tamar and Leviathan

Tamar and Leviathan constitute a revolutionary development in Israel’s gas- and broader energy outlook. Israel’s tangible NG history started in 2003 with the extraction of the Mari-B field. Between 2003 and until its depletion in 2012, this field supplied Israel with 45 bcm. In January, 2009, the Tamar gas field was discovered offshore the city of Haifa at a depth of 1,650 meters (see map 3). Tamar field contains approximately 281 bcm. In June of 2010, also West of Haifa and at a similar depth level, the Leviathan field was discovered. Leviathan contains approximately 605 bcm. The development and production of both fields are executed by two license-holding joint ventures of international oil companies (IOCs). In 2012 and 2013, the Karish and Tanin gas fields were discovered. Since their volumes are considerably smaller and the development remains awaited, these fields fall outside the scope of this research (see figure 2.1) (Energean 2020). Obviously, with a combined volume of twenty times larger than the earlier Mari-B field, the Tamar and Leviathan discoveries have drastically transformed Israel’s energy outlook.

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Figure 2. 1 – Main proven gas reserves in 2017 in billion cubic meters (bcm)

Source: Figure created by author, data derived Mor (2020b) and the Israeli Ministry of Energy (2017) in Cohen (2018, p. 140). Note: The research focuses on the two largest fields, Leviathan and Tamar

2.3 The resource scarcity model and Israel’s energy situation

The discoveries of the two gas fields have altered Israel´s energy resource scarcity and thereby its energy situation. To obtain a factual understanding of Israel’s energy situation development and how the discoveries have caused a number of preliminary effects, this section applies the resource-scarcity model as developed by Amineh and Houweling (2007a; 2007b). Hence, the next paragraphs examine Israel’s demand- and supply-induced scarcity, as well as structural scarcity.

Israel’s scarcity is demand-induced from two levels. At the global level, increasing demand for energy of rapidly industrializing economies such as China, India, Brazil, and Turkey pressures these nations to go out and gain control of precious energy sources. Hence, global aggregated demand rises which increases the scarcity of energy resources (Amineh & Houweling 2007b, pp. 374-375). On the domestic level, three factors contribute to Israel’s demand-induced scarcity: [1] growth of GDP and GDP per capita, [2], growth of population, and [3] recent environmental factors. With regard to the first indicator, Israel’s export-oriented economy (29% of GDP comes from exports) has shown significant growth over the past two decades. The GDP per capita increased from 20,306 US$ in 2001, to 30,693 US$ in 2010, and to 41,715 US$ in 2018. Israel’s total GDP increased with 83% between 2001-2018 (World Bank 2020c; 2020d; 2020e). This growth is explained by the take-off of industrialization, privatization, and inflows of foreign investment in the same period (Maman & Rosenhek 2017,

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The Impact of Gas Reserve Discoveries on Energy Security, Economy & External Relations: The Case of Israel’s Tamar and Leviathan Gas Fields

U

A

The Impact of Gas Reserve Discoveries on

Energy Security, Economy & External

Relations: The Case of Israel’s Tamar and

Leviathan Gas Fields

Abstract

Acknowledgements

Table of contents

List of Figures

List of Tables

List of Abbreviations

Timeline

Maps

Chapter 1 – Introduction & Research design

Chapter 2 – Resource scarcity, energy policy & actors

The Impact of Gas Reserve Discoveries on Energy Security, Economy &amp; External Relations: The Case of Israel’s Tamar and Leviathan Gas Fields

U

A

The Impact of Gas Reserve Discoveries on

Energy Security, Economy & External

Relations: The Case of Israel’s Tamar and

Leviathan Gas Fields

Abstract

Acknowledgements

Table of contents

List of Figures

List of Tables

List of Abbreviations

Timeline

Maps

Chapter 1 – Introduction & Research design

Chapter 2 – Resource scarcity, energy policy & actors

The Impact of Gas Reserve Discoveries on Energy Security, Economy & External Relations: The Case of Israel’s Tamar and Leviathan Gas Fields