A Major Development

22nd July 2020

 

Monday, July 20, 2020, was a red-letter day in the history of the Israeli economy. In the narrower context of the Israeli energy sector, it was the most important day since the initial discovery of offshore gas in the late 1990s.

 

The event that occurred on that day was the arrival in Israel of a top-rank global energy company, a ‘major’, a member (in a previous incarnation) of the group of elite oil companies once known as ‘the Seven Sisters’. The company in question, Chevron, announced it was purchasing Noble Energy for some $5bn in equity (no cash). That deal, already approved by both sides, makes Chevron the operating partner in the consortium with the Delek group in the Tamar and Leviathan offshore gas-fields — and thus, at a stroke, the leading entity in the Israeli energy sector.

 

This Bulletin seeks to briefly summarise why this event is so important. But first, let’s note that it comes against a background of deep crisis in Israel. This crisis is multi-faceted: it encompasses i) a political crisis that has paralysed most sectors of government and is getting worse, literally by the day; b) a health crisis in which the number of people infected by the coronavirus, the number seriously ill/ on ventilators and the number of dead are all rising rapidly — reflecting severe systemic failures by the health service and the government as a whole in the response to the pandemic; c) a social crisis, as large numbers of people are made unemployed on either a temporary or full basis, and large numbers of enterprises are closed, either by government fiat or by economic exigencies; and d) a fiscal crisis, in which the budget deficit is expanding seemingly-uncontrollably and is predicted to rise well into double-digit levels this year, whilst the hapless Prime Minister and Finance Minister roll out programme after programme of ‘support’ for some/ most/ all citizens, at exploding overall cost.

 

It is generally believed or assumed that there is also a severe economic crisis. However, I contend that there is NO economic crisis (yet). The bulk of the economy is functioning fairly normally and, for most productive sectors, the loss of revenues is in the order of 5-10% and hence manageable. I will review the political and economic situations in greater depth as soon as possible.

Undoubtedly, the confusion, distress and gloom generated by all these crises are real, but they are amplified and magnified by intensive and unrelenting media coverage that focuses overwhelmingly on the numerous things going wrong. That provides a partial excuse for the lack of serious media coverage awarded to the Chevron-Noble deal and its relegation to inside pages, although the Tel Aviv Stock Exchange understood immediately that it represented a massive boost for the energy sector in general and for the battered and troubled Delek Group in particular.

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