For decades, analysts and diplomats have dreamed that the Middle East’s economic ties might soften its sharp political conflicts. Trade, energy, and investment, the argument went, could create interdependence strong enough to restrain wars and reshape old enmities.
Regarding Israel, this was often packaged as the idea of “economic peace.” The assumption was simple: if neighbours benefited from Israeli exports, whether high-tech goods or natural gas, then hostility might give way to pragmatism.
But recent events suggest that this dream is crumbling. On 3 September, the Israeli newspaper Israel Hayom reported that Israeli Prime Minister Benjamin Netanyahu had ordered the suspension of a landmark natural gas deal with Egypt. The justification was striking: alleged Egyptian violations of the military annex to the 1979 Camp David Treaty, specifically the deployment of additional troops in Sinai.
No evidence of these violations was provided, and Cairo has not issued an official response. Yet the move has already reverberated across the region, raising questions about energy security, political trust, and the fragile notion of economic integration in the Eastern Mediterranean.
To understand the significance of this, one must recall the scale of the gas agreement. Signed earlier this year, it was the largest energy contract in Israel’s history and valued at around $35 billion until 2040. The plan was straightforward: Israel, which has discovered vast offshore gas reserves in fields like Leviathan, would export surplus gas to Egypt. Cairo would then liquify and re-export it to global markets through its liquified natural gas (LNG) terminals, reaping transit fees and enhancing its role as a regional energy hub.
For Egypt, the deal was attractive. Domestic gas production, while significant, has been declining from its peak. Fields such as Zohr, once touted as game-changers, are showing signs of depletion. At the same time, demand at home is rising fast, driven by a growing population and an expanding industrial base. To bridge the gap, Egypt has been importing costly LNG cargoes. Israeli gas, delivered through pipelines, seemed a cheaper, more reliable solution.
The arrangement also carried symbolic weight. It was a chance to turn the “cold peace” between Egypt and Israel into a more substantive partnership and one rooted in shared interests rather than mere treaty obligations.
Why, then, would Netanyahu suspend such a lucrative and strategically valuable deal? The timing offers clues. Egypt has been one of the strongest voices opposing Israeli proposals to forcibly displace the Palestinians from Gaza and the West Bank, an idea floated in the Gaza war and strongly resisted by the Arab states. By invoking Sinai and the Camp David Treaty, Netanyahu is signalling that Egypt’s resistance has costs. In effect, gas becomes a tool of political leverage.
This is hardly the first time that energy has been weaponised in international politics. Russia’s repeated use of natural gas as a bargaining chip in Europe is a familiar case. But the Israeli move is especially telling because it undermines Israel’s own narrative. For years, Israeli leaders have argued that regional energy cooperation could knit together former adversaries in a web of shared benefits.
This suspension suggests the opposite: that cooperation itself is fragile and is easily sacrificed to short term political manoeuvring.
For Cairo, the suspension is inconvenient but not catastrophic. Egypt still has alternatives. It can continue to import LNG from global markets, albeit at higher cost. It can expand partnerships with regional gas exporters such as Qatar and Algeria. It can deepen energy ties with Cyprus and Greece, which also sit on significant reserves. Over the longer term, Egypt is investing in renewables and nuclear energy as part of a broader diversification strategy.
Still, the short term impact should not be underestimated. Energy is a sensitive political issue in Egypt, where periodic electricity blackouts already spark public frustration. Any perception of vulnerability to Israeli decisions could complicate the government’s domestic standing.
Moreover, the suspension raises questions about Egypt’s larger ambition: to serve as the central hub for Eastern Mediterranean gas, channelling supplies to Europe and beyond. If Israeli gas, the region’s largest reserves, cannot flow reliably through Egypt, the hub strategy is weakened.
REGIONAL AND GLOBAL FALLOUT: The consequences also extend beyond Egypt. For Europe, already scrambling to secure energy after cutting its dependence on Russian gas, Eastern Mediterranean supplies were a welcome prospect.
Most of that gas would move through Egyptian LNG terminals. An unreliable Israeli-Egyptian partnership thus complicates Europe’s diversification plans.
For investors, the suspension reinforces a long standing perception: that the Middle East remains a risky place to bet on large energy projects. Contracts can be undone by political disputes, and pipelines can be halted by leaders acting on short term calculations. This uncertainty raises financing costs and delays infrastructure development.
And for the broader Arab-Israeli dynamic, the episode may be most damaging of all. The idea of “economic peace” was already fragile. Many in the region doubted that trade or energy deals could soften deep grievances tied to territory, sovereignty, and national identity. Netanyahu’s move confirms those doubts. If Israel can suspend its largest energy agreement over unproven military allegations, what hope is there that smaller deals can survive future crises?
The lesson for Egypt is both sobering and galvanising. It must treat energy independence not just as an economic goal but as a matter of national security. The more Cairo can diversify suppliers, expand renewables, and invest in domestic capacity, the less it will be subject to political blackmail.
For the wider region, the episode highlights a paradox. The Eastern Mediterranean is rich in natural gas. But instead of serving as a foundation for cooperation, these reserves risk becoming new flashpoints that are contested by national rivalries, shifting alliances, and the enduring shadow of unresolved conflicts.
Ultimately, Netanyahu’s suspension of the gas deal marks the end of illusions about “economic peace.” Trade and investment may complement political agreements, but they cannot substitute for them. Energy pipelines cannot erase decades of mistrust or override ongoing disputes over Palestine, borders, and sovereignty.
In the Middle East, energy is never just energy. It is strategy. It is leverage. And it is power. Egypt may find ways to cope, Europe will adjust, and investors will recalculate. But the broader message is clear: until political conflicts are addressed directly, no amount of economic integration can deliver the peace so many have hoped for.
That is the enduring reality, one that policymakers, investors, and citizens alike would do well to remember the next time they hear that trade and pipelines can substitute for trust and diplomacy.
The writer is head of the International Studies Department and Energy Programme at Al-Ahram Centre for Political and Strategic Studies.
* A version of this article appears in print in the 11 September, 2025 edition of Al-Ahram Weekly
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