Salon.com [16 January 2009]
Israel's current air and ground assault on the Gaza Strip has left about 1,000 Palestinians dead, including 400 women and children. Several thousand people have been wounded and dozens of buildings have been destroyed. An estimated 90,000 Gazans have abandoned their homes. Israel's campaign in Gaza, which began more than two weeks ago, has been denounced by the Red Cross, multiple Arab and European countries, and agencies from the United Nations. Demonstrations in Pakistan and elsewhere have been held to denounce America's support for Israel.
It's well known that the U.S. supplies the Israelis with much of their military hardware. Over the past few decades, the U.S. has provided about $53 billion in military aid to Israel. What's not well known is that since 2004, U.S. taxpayers have paid to supply over 500 million gallons of refined oil products -- worth about $1.1 billion –- to the Israeli military. While a handful of countries get motor fuel from the U.S., they receive only a fraction of the fuel that Israel does -- fuel now being used by Israeli fighter jets, helicopters and tanks to battle Hamas.
According to documents obtained under the Freedom of Information Act, between 2004 and 2007 the U.S. Defense Department gave $818 million worth of fuel to the Israeli military. The total amount was 479 million gallons, the equivalent of about 66 gallons per Israeli citizen. In 2008, an additional $280 million in fuel was given to the Israeli military, again at U.S. taxpayers' expense. The U.S. has even paid the cost of shipping the fuel from U.S. refineries to ports in Israel.
In 2008, the fuel shipped to Israel from U.S. refineries accounted for 2 percent of Israel's $13.3 billion defense budget. Publicly available data shows that about 2 percent of the U.S. Defense Department's budget is also spent on oil. A senior analyst at the Pentagon, who requested anonymity because he is not authorized to speak to the press, says the Israel Defense Force's fuel use is most likely similar to that of the U.S. Defense Department. In other words, the Israeli military is spending about the same percentage of its defense budget on oil as the U.S. is. Therefore it's possible that the U.S. is providing most, or perhaps even all, of the Israeli military's fuel needs.
What's more, Israel does not need the U.S. handout. Its own recently privatized refineries, located at Haifa and Ashdod, could supply all of the fuel needed by the Israeli military. Those same refineries are now producing and selling jet fuel and other refined products on the open market. But rather than purchase lower-cost jet fuel from its own refineries, the Israeli military is using U.S. taxpayer money to buy and ship large quantities of fuel from U.S. refineries.
The Israeli government obtains the fuel through the Defense Department's Foreign Military Sales (FMS) program, and pays for the fuel and the shipping with funds granted to it through Foreign Military Financing (FMF), another Defense Department program. (In 2008, Congress earmarked $2.4 billion in FMF money for Israel, and $2.5 billion for 2009.) The dimensions of the FMS fuel program are virtually unknown among America's top experts on Middle East policy. For his part, the Pentagon analyst was surprised to learn that FMS money was even being used to supply fuel to Israel. "That's not the purpose of the program," he says. "FMS was designed to allow U.S. weapons makers to sell their goods to foreign countries. The idea that fuel is being bought under FMS is very, very odd."
The fuel program, in fact, raises a number of pressing questions. The shipments have occurred during times of record-high oil prices, when American consumers have been angered by motor fuel prices that in 2008 exceeded $4 per gallon. Given those high prices, it appears to make little sense for the U.S. government to be promoting policies that reduce the volume of -- and potentially raise the price of -- motor fuel available for sale to U.S. motorists.
The U.S. fuel shipments are part of a sustained policy that has widened the energy gap between Israel and its neighbors. Over the past few years, the Israel Defense Force has cut off fuel supplies and destroyed electricity infrastructure in the Gaza Strip and Lebanon. Those embargoes and attacks on power plants have exacerbated a huge gap in per-capita energy consumption between Israelis and Lebanon, the West Bank and Gaza. And that sharp disparity helps explain why the Palestinians have never been able to build a viable economy.
Edward S. Walker, former president of the Middle East Institute, a Washington-based think tank, says the fuel supply program is emblematic of U.S. military support for Israel. Walker, who has served as U.S. ambassador to the United Arab Emirates, Egypt and Israel, explains that the FMF money allows the Israelis to "do with it what they want. They can buy equipment or fuel. It's their choice, not the government's choice. It's the only program where we give someone a blank check and they can use it any way that they choose."
Given the recent spike in oil prices, which helped send the U.S. and the world economy into a tailspin, and Americans still smarting from paying $4 at the pump, says Walker, "Why are we supplying fuel to Israel when we are paying such high prices?"
Since 1948, oil has been a critically important commodity for both the Israel Defense Forces and the Israeli economy. And Israeli leaders have long worried about their energy security. In 1957, Israeli Prime Minister David Ben Gurion wrote in his diary, "The only sanctions which could defeat or break us are oil sanctions."
In 1967, Egypt's blockade of the Straits of Tiran precipitated the Six Day War. The Straits, writes Israeli historian Michael Oren in his book on the conflict, "Six Days of War," were "a lifeline for the Jewish state, the conduit to its quiet import of Iranian oil." In 1973, the Yom Kippur War (Arabs call it the Ramadan War) led to the Arab Oil Embargo, an event that still reverberates in the U.S., particularly in the fanciful political rhetoric about the desire for "energy independence."
The U.S.-Israel oil relationship goes back to 1975. In September of that year, Henry Kissinger, who was then secretary of state, struck a deal with Israeli Prime Minister Yitzhak Rabin that led the Israelis to partially withdraw from the Sinai Peninsula. The agreement required Israel to pull out of the Giddi and Mitla passes and relinquish the Sinai oilfields the Israelis had captured during the 1967 war.
In return, Kissinger agreed that America would provide multibillion-dollar economic and military subsidies to Israel. He also agreed that the U.S. would supply Israel with oil in case of any emergency. That agreement was formalized in 1979 about the time of the Camp David peace talks. It says that the U.S. will "make every effort to help Israel secure the necessary means of transport" for the oil that it purchases. The agreement concludes by saying that the U.S. and Israel will "meet annually, or more frequently at the request of either party, to review Israel's continuing oil requirement."
Since 1979, the agreement has been quietly renewed every five years. (The most recent approval of the document was done by the U.S. State Department in November of 2005.) The U.S. does not provide any other country the same insurance.
Nor does any other country get anything close to the volume of fuel that Israel does under FMS. In 2004, more than 140 countries received FMS aid from the U.S. Of that group, only about 13 countries received fuel of any kind through the FMS program and the biggest recipient, after Israel, was Singapore, which got $7.3 million in fuel. That year, Israel received 17 times more FMS fuel than all of the other countries combined.
Why did the U.S. Defense Department begin providing oil to Israel in 1986? And why does the program persist, particularly given that Israel no longer sees its refineries as strategic assets? The Defense Security Cooperation Agency, which manages the FMS and FMF programs, referred questions about the program to the Israeli government. The press office of the Israeli Embassy in Washington did not respond to numerous requests about the program.
While the rationale for the oil transfers remains elusive, the facts behind Israel's refinery privatization are freely available. In 2006, the government sold the Ashdod refinery to Israeli tycoon Zadik Bino for about $500 million. And in early 2007, it sold the larger refinery in Haifa to a group led by Israel Corp., the shipping and chemicals conglomerate, for $1.5 billion.
The sale of the refineries marked a major turning point in Israel's attitude toward oil. In its earliest years as an independent nation, Israel's survival was made possible by using crude from the Soviet Union and Venezuela. From the 1950s to the late 1970s, Iranian crude was the lifeblood of the Zionist state. Later still, the Israelis relied on the Kuwaitis. Today, the Russians are providing much of Israel's crude needs. And the sale of the refineries is indicative of the Israeli government's confidence in its ongoing ability to purchase the oil it needs on the international market.
Nevertheless, the FMS fuel shipments to Israel have continued. The most recent shipments for which records are readily available occurred in July and October 2008.
On July 7, 2008, the spot price for U.S. crude oil hit a near-record of $141. That same day, the San Antonio Business Journal reported that San Antonio-based refiner Valero Energy Corp. had been awarded a contract by the Defense Energy Support Center (DESC) worth $46 million to provide fuel to Israel. Valero has won a number of lucrative contracts from the DESC, the Defense Department agency that handles all of the Pentagon's bulk fuel purchases. On Oct. 9, the Journal reported that Valero had been awarded a $235 million contract under FMS. Bill Day, a spokesman for Valero, says that the company "doesn't talk publicly about its contracts."
Documents obtained under the Freedom of Information Act show that U.S. taxpayers are paying the shipping costs to move the fuel from refineries -- many of them on the Texas Gulf Coast -- to Israeli ports at Haifa or Ashkelon. Shipping costs vary but one specific bid called for shipping costs of $.30 per gallon. Officials with the Defense Security Cooperation Agency, the arm of the Pentagon that manages programs that "strengthen America's alliances and partnerships," has confirmed that the costs to ship the fuel from U.S. refineries to Israel have been paid for with FMF money designated for Israel by Congress.
The huge FMS fuel shipments are puzzling to the Israelis. Amit Mor, CEO of Eco Energy, an Israeli consulting and investment firm, has worked on energy issues in his home country for about two decades. In a recent e-mail, Mor says that "there is a paradox" in the fuel shipments that Israel gets from the U.S. He said that the privately owned Israeli refineries export jet fuel in "FOB prices," while the defense ministry imports jet fuel in "high CIF prices," with the funds of U.S. military assistance.
FOB, short for "free on board," means that customers must take possession of the fuel at the refinery and then pay for all shipping and related costs to get the fuel to its final destination. On the other hand, as Mor explains, the Israeli military is importing fuel from U.S. refineries located 7,000 miles away, while incurring the CIF, short for "cost, insurance and freight," of moving the fuel that distance.
Mor says Israeli refiners have "complained about this issue" but have had no luck with the Israeli government. He goes on to say that "it is the U.S. government that insisted for some reason to continue with this historical, costly and inefficient arrangement."
Energy analysts squabble about a myriad of issues. But if there is one truism that draws near-universal agreement, it's this: As energy consumption increases, so does wealth. And while that truism holds for oil use, it is particularly apt for electricity. As Peter Huber and Mark Mills point out in their 2005 book, "The Bottomless Well," "Economic growth marches hand in hand with increased consumption of electricity -- always, everywhere, without significant exception in the annals of modern industrial history."
That statement underscores the significance of the FMS fuel shipments to Israel, many of which have occurred at or near the time that the Israeli military has attacked the electric power plants of its neighbors.
In late June 2006, Israeli aircraft fired nine missiles at the transformers at the Gaza City Power Plant, the only electric power plant in the Occupied Territories. (One of the original partners in the project was Enron, but that's another story.) The missiles caused damage estimated at $15 million to $20 million and, for a time, made Gaza wholly reliant on electricity flows from Israel. The 140-megawatt power plant, owned by the Palestine Electric Co., was insured by the Overseas Private Investment Corp., an arm of the U.S. government. Thus the U.S. was providing fuel and materiel to the Israeli military, which destroyed the plant, but it was also paying to fix the damage. Call it cradle-to-grave service.
The Israeli attack on the Gaza City Power Plant offers a stark example of how the FMS fuel helps assure that Israel stays energy rich while many of the citizens in neighboring regions live in energy poverty.
Two weeks after the attack on the Gaza City plant in 2006, during Israel's monthlong war against Hezbollah forces in Lebanon, Israeli aircraft attacked the 346-megawatt Jiyyeh power plant, the oldest electric power plant in Lebanon. Those attacks resulted in the largest-ever oil spill in the eastern Mediterranean. About 100,000 barrels of fuel oil that was stored in tanks at the Jiyyeh site flowed into the sea, creating an oil slick that stretched for more than 150 kilometers.
The attacks on the Jiyyeh plant occurred on July 13 and July 15. Those dates are important because they underscore the timing of the U.S. fuel transfers to Israel.
On July 14, 2006, the U.S. military issued two press releases. In one of them, the Defense Security Cooperation Agency announced that it would be providing up to $210 million in JP-8 jet fuel to the Israeli government. The other release, put out at 5 p.m. Eastern time, came from the Defense Logistics Agency, which said that it had awarded a $36.7 million contract to Valero as part of another JP-8 supply deal for Israel.
The July 14 release contains this rather bland description of the fuel deal: "The proposed sale of the JP-8 aviation fuel will enable Israel to maintain the operational capability of its aircraft inventory. The jet fuel will be consumed while the aircraft is in use to keep peace and security in the region. Israel will have no difficulty absorbing this additional fuel into its armed forces." The release goes on to claim that the "proposed sale of this JP-8 aviation fuel will not affect the basic military balance in the region."
While the attacks on the Jiyyeh plant were important, Lebanese citizens could get electricity from other power plants in the country. That was not true in Gaza, a province in which electricity has always been in short supply. According to the CIA Fact Book, the Gaza Strip ranks dead last -- 214th out of 214 countries and territories listed -- in the amount of electricity consumed. According to the Palestinian Energy and Natural Resources Agency, in 2004, the average Gazan used about 654 kilowatt-hours of electricity. By contrast, the 7.1 million residents of Israel consume about 6,295 kilowatt-hours of electric power per person per year, nearly 10 times as much as the average Gazan.
Although more recent energy consumption data for Gaza is not available, there's no question that the endemic poverty in the West Bank and particularly in Gaza, is due, largely, to a continuing lack of energy resources. And the Israelis have frequently cut off the flow of fuel and electricity, which has exacerbated the Palestinians' energy poverty.
Over the past few years, the Israelis have cut off the flow of energy to Gaza as retribution for various transgressions. And those cutoffs have forced the Gaza City Power Plant to shut down for lack of the fuel oil it needs to operate. When the power plant is idled, most of the residents of Gaza City are left without power and overall power supplies in the Gaza Strip decline by about 25 percent.
In May 2006, Israel cut off the flow of oil into the Occupied Territories after the Islamic group Hamas won local elections. In January 2008, the Israelis closed the border crossings into Gaza, which resulted in a fuel shortage that closed the Gaza power plant. In April 2008, the United Nations Relief and Works Agency stopped distributing aid in Gaza after it ran out of fuel. The Israelis stopped the fuel flow as retribution for attacks that killed two Israeli civilians and three Israeli soldiers. In November 2008, the U.N. Relief and Works Agency was again forced to suspend work due to lack of fuel. The fuel shortage occurred after Israel closed the border into Gaza in response to rockets and mortar shells that had been fired into Israel from Gaza.
The disparity in energy consumption between the Palestinians living in the West Bank and Gaza and their counterparts in Israel is just one element in the centuries-old story of tragedy and conflict in the region. But with the U.S. squarely on the side of the Israelis in the Gaza campaign, the potential for an angry backlash against the U.S. appears to be growing.
And that anger will likely only increase when Arabs begin to understand that much of the fuel that the U.S. is giving to Israel is being refined from Arab oil. The Valero refinery in Corpus Christi, Texas, which has won several of the FMS contracts for Israel, is a big buyer of Mideast crude. During the second quarter of 2006, according to data collected by the U.S. Energy Information Administration, the refinery got about 40 percent of its crude oil from Kuwait or Saudi Arabia.
In short, U.S. taxpayers are paying for U.S. energy companies to buy Arab crude, ship it across the Atlantic to refineries in the U.S., refine it, and then ship it back across the Atlantic so that the Israel Defense Force can use it in its wars.
While the origination point of the crude may only matter to part of the Arab world, it is becoming apparent that bloodshed in Gaza is further complicating America's efforts to gain credibility as an honest broker in the region. Anti-U.S. sentiment is not in America's long-term interest, says former diplomat Chas Freeman, a man whose résumé in international affairs extends back nearly four decades.
Freeman is a former U.S. ambassador to Saudi Arabia, as well as a former assistance secretary of defense. He served as Richard Nixon's chief interpreter during Nixon's visit to China in 1972. Now the president of the Middle East Policy Council, a Washington think tank, Freeman says the FMS fuel program for Israel runs counter to long-term goals of resolving the Palestinian conflict and America's stated goal of protecting the flow of oil out of the Persian Gulf. The Defense Department has assumed "unilateral responsibility for the protection of the oil trade in the Persian Gulf, and yet it's assuming responsibility for the delivery of aviation fuel for the Israeli military," he says. "That's confused and contradictory." The program, he adds, is "one of many elements of our relationship with Israel that is very hard to explain."
Freeman may be correct, but the House of Representatives has scant doubt about continued U.S. support for Israel. Nor has Congress shown much interest in the fuel shortages among Palestinians. On Jan. 9, the 14th day of the fighting in Gaza, the House passed a resolution sponsored by House Speaker Nancy Pelosi, "recognizing Israel's right to defend itself against attacks from Gaza." The vote was 390 to 5.
Two days before the vote, UNICEF estimated that 800,000 Gazans did not have running water and 1 million were living without electricity.