Power Play

Egypt may think it struck a blow against Israel by canceling a gas deal between the two countries. But all it really did was shoot itself in the foot.

It must be serious news to make Israel's ultra-hawkish foreign minister turn conciliatory. Yet Avigdor Lieberman described Egypt's April 22 cancellation of its deal to supply Israel with natural gas as "a trade dispute," minimizing the political repercussions of the end to the most significant economic tie between the two erstwhile adversaries. "To turn a business dispute into a diplomatic dispute would be a mistake," Lieberman counseled.

At first sight, the deal's cancellation is a blow to Israel. During normal times, 40 percent of its gas needs were met by Egypt. In the deal's absence, Israel's utility company has raised its rates by a third and has turned to burning expensive, dirty fuel oil. Even so, there are fears of blackouts this summer.

The formal cutoff was only the postscript to a long series of interruptions to the gas supply. The pipelines in the Sinai Peninsula have been bombed some 14 times since Egypt's revolution as law and order has broken down and Bedouin tribes have revenged their grievances against the government. Gas flowed to Israel for only 140 days last year, and 25 days in the first three months of this year.

Other Israeli politicians were not as sanguine as Lieberman. Finance Minister Yuval Steinitz worried that the cancellation was "a dangerous precedent which casts a shadow on the peace agreements and the peaceful atmosphere between Egypt and Israel."

Yet the cancellation is neither a challenge to the Camp David Accords nor a purely commercial matter. The decision is instead a product of Egypt's muddled domestic politics, which means short-term pain for Tel Aviv but a longer-term strategic defeat for Cairo. As for the law, it's at least debatable: The 1979 peace treaty obliges Egypt and Israel to maintain normal economic relations, but the gas deal is dealt with in a 2005 memorandum of understanding referencing the treaty. Such memoranda are generally considered nonbinding in international law.

The gas deal with Israel has long been deeply unpopular in Egypt. Quite apart from the unpopularity of trading with a regional pariah, the deal is seen as a giveaway. The price for the gas was initially as low as $1.25 per million British thermal units (MMBtu) and was reportedly increased to $4 in 2008 -- the same as Egyptian industries pay. In the absence of a regional benchmark at the time of the deal in 2005, the price might have been defensible, but it now seems very low compared with the $7 to $10 Egypt earns for exports to Southern Europe.

The Egyptian Natural Gas Holding Company (EGAS), the Egyptian company that canceled the deal, explained its decision by saying that the East Mediterranean Gas Company (EMG), the Egyptian-Israeli joint venture that runs the pipeline, had failed to pay for the gas. But EMG had already last October launched arbitration proceedings against EGAS, with total claims amounting to some $8 billion, due to the repeated interruptions in supply caused by pipeline bombings. So it seems likely that's not the whole story.

Still, the timing of the cutoff is strange, as the gas contract has in recent months not been high in the public's consciousness. It is also hard not to speculate how the tumultuous politics in Cairo played into this decision. If it was sanctioned by the ruling Supreme Council of the Armed Forces (SCAF), was the aim to take credit for a popular initiative ahead of the presidential election -- and if so, why has SCAF not claimed responsibility? Or was the intention to remove a potentially thorny issue from the agenda of the new president, or alternatively to deny him such a populist victory? Given the tumultuous and often opaque political scene in Cairo nowadays, observers can do little more than wonder.

Rather than being an orchestrated maneuver for political advantage, it is also possible that the termination is one more part of Egypt's chaotic, mismanaged transition. Former officials in Hosni Mubarak's regime who allegedly enriched themselves off the gas deal have increasingly been on the receiving end of public anger. Quintessential crony capitalist Hussein Salem, a Mubarak intimate, was convicted in absentia last October on corruption charges related to the deal, and his protégé, former Petroleum Minister Sameh Fahmy, was arrested on similar charges more than a year ago and is currently facing trial. Informed sources have suggested to me that Fahmy's successor, Abdullah Ghorab, was apparently not involved in the decision to annul the contract, which may have been made by senior EGAS personnel fearful of prosecution or public anger.

The cutoff may also be part of rather heavy-handed negotiation tactics to compel the Israeli side to pay a higher price. Compared with the alternative of burning fuel oil, a short-term price as high as $16 per MMBtu might still be competitive. Indeed, Egypt's minister of international cooperation, Fayza Abul Naga -- who is already seen on the world stage as decidedly uncooperative due to her central role in the prosecution of American NGO workers in Egypt -- said on April 23 that the country was ready to resume supplies, albeit at a higher price.

Whatever the reason for the decision, it has squandered one of the Egyptian energy industry's most precious resources. The one thing more important for gas customers than attractive prices is security. As Algeria discovered in the early 1980s and Russia and Ukraine in 2009, once a gas supplier gains a reputation for unreliability, it is very hard to shake off. With the pipeline bombings and now this contractual action, Egypt has squandered a lot of hard-won trust.

This incident marks the definitive end of a very successful period for Egypt's gas industry. Beginning in the early 1990s, Cairo liberalized its natural gas exploration policy, invited foreign investment, and developed new gas exports, including building liquefied natural gas (LNG) plants and pipelines to Israel and its Arab neighbors Jordan and Syria. Major new fields were found offshore in the Nile Delta, and in the two decades since 1990, gas reserves increased nearly sixfold and production almost eightfold.

But this policy had already run into trouble before the revolution. Low, fixed prices made new developments unviable, while encouraging demand to grow at 9 percent annually. Egypt's LNG plants are running below capacity, and its promising shale-gas potential and new offshore fields will not be exploited without price increases. Political paralysis in Cairo, however, makes it all but impossible to reform the subsidized domestic market.

The horizon of Egypt's gas sector is also steadily shrinking. Ambitious plans to expand the Arab Gas Pipeline as far as Turkey, to link it to the European market, have been relegated to the realm of dreams. It also remains to be seen whether prices to Jordan will be raised further or whether that deal too will be annulled. Hassan Younis, minister of electricity and energy, made it clear that the gas originally sent to Israel will now be diverted to the domestic market. But despite claims that Egypt could benefit from using the gas at home, the 2.1 billion cubic meters (BCM) shipped in 2010 is a small part of Egypt's total output of 61 BCM.

Israel will suffer some short-term pain for Egypt's decision. It has already begun contingency plans, however, stepping up output from its existing domestic fields and planning a fast-tracked LNG import terminal. It could be operational as early as the end of this year and would more than replace the lost Egyptian gas -- though at three times the price.

Additionally, while Egypt's gas future looks gloomy without major reforms, Israel's has been transformed by new discoveries in the deep waters of the eastern Mediterranean. The first big find, the Tamar gas field, is due to start production in April 2013. Egypt has thus given Israel a useful opportunity not only to escape from a deal that was about to become unnecessary, but also to claim damages and the moral high ground.

The timing is admittedly awkward for Israel, given that its electricity company has been negotiating gas purchase agreements with the companies developing Tamar at the same time as the Knesset passed a law imposing higher taxes and royalties on profits from the fields. Now -- with the energy companies aware that Israel needs their gas supplies more than ever before -- the electricity company's bargaining position has weakened significantly.

But in the longer term, the picture is bright. Even without Tamar, the Leviathan gas field alone -- found in 2010 and due to enter production in 2017 -- could supply increasing Israeli demand up to 2030 and still have a 20-year reserve remaining. With significant remaining exploration potential, Israel could therefore become a major exporter. Energy-poor Jordan is a likely market; the Hashemite Kingdom is already set to lose $2.1 billion this year due to the pipeline bombings. The other countries on the eastern shore of the Mediterranean, Syria and Lebanon, are obviously not possible customers for Israel, barring a seismic political realignment. Iraq should be the major supplier for these countries, but Baghdad is locked in a lengthy internal debate concerning gas requirements for domestic use.

In a remarkable role reversal, it is even conceivable that Israel could end up sending gas to Egypt. Or Israel may expand its share in the European market by becoming a significant LNG exporter in its own right, perhaps via Cyprus, which enjoyed a significant discovery of its own last October. Either way, Israel draws its neighbors closer into its economic orbit, while at the same time diminishing Egypt's role. This will also strengthen the determination of Lieberman and Prime Minister Benjamin Netanyahu to press ahead with offshore gas development despite territorial disputes with Lebanon and Turkey (via the conflict over the divided island of Cyprus).

The cancellation of the unloved gas deal should not be overplayed as a token of hostility from the new Egypt toward Israel. But it does remove one plank of their already shaky economic cooperation. And it demonstrates that, under its current leadership, Egypt's political and economic clout is further dwindling at the very moment that Tel Aviv has landed an unexpected windfall.

AFP/Getty Images

Democracy Lab

Predators for Peace

Drones have revolutionized war. Why not let them deliver aid?

Humanitarian relief can be a frustrating, dangerous task. Even the best-intentioned donors can face hostile conditions or less than honorable intermediaries. Two years ago, the Geneva-based Global Fund to Fight AIDS, Tuberculosis and Malaria issued a report describing how corrupt officials in Djibouti defrauded its programs of millions of dollars in cash, medicines and health supplies. Another well-organized theft ring, the group found, was operating across several African countries stealing anti-malarial drugs from supply chains and reselling them in the black market. Also two years ago, the U.S. Agency for International Development (USAID) discovered that inefficiencies in the supply chain had left a backlog of bed nets languishing in Nigerian warehouses, giving corrupt officials more time and opportunity to steal them.

The truth is that while the phrase "humanitarian relief" may sound grand and abstract, in practice it usually involves transporting specific items by people to other people who need them. And each person who comes into contact with these sometimes valuable goods can potentially speed up -- or sabotage -- the journey. The supply chains for these goods extend from urban depots to remote villages, often crossing myriad checkpoints along the way. This makes it easy for warlords and corrupt officials to delay or divert vital supplies for their own gain while depriving the starving and sick.

Aid workers are often put in harm's way. In Darfur, a wave of killings, kidnappings, and intimidation was aimed at stopping aid during the peak of the conflict in 2006. In the years since, the violence has forced relief teams to retreat or cease operations.

Convoys supplying the isolated Yemeni region of Dammaj earlier this year were attacked by rebels, killing many workers. But even the absence of hostilities does not mean that aid will reach its intended recipients. In Pakistan's Punjab province, desperate crowds stranded by floods in 2010 looted trucks bringing food.

Thugs, crowds, and sleazy officials are just one kind of obstacle. Rough terrain, foul weather, fuel shortfalls, warfare, and inefficiencies also deplete aid flow. Ironically, such barriers shift the incentives for aid delivery towards larger, more populated centers where security tends to be stronger. The result is a skewing of aid that encourages migration from small villages into the larger towns and aid depots -- exposing the already vulnerable recipients to crime, trafficking, and illness along the way. And each time a cargo is delayed, tens, hundreds, or thousands of people may perish. Reverberating across oceans, all these losses and inefficiencies undermine donors' faith in the aid process overall.

But what if you could leapfrog over these obstacles? The technological versatility of airborne drones, the flying robots that are already transforming warfare, also has the potential to revolutionize how humanitarian aid is delivered worldwide. Now used by the U.S. military to conduct surgical, sniper-like missile strikes against al-Qaeda and Taliban leaders in the badlands of Afghanistan and Pakistan, drones have many capabilities that are easily applicable to peaceful pursuits as well. Just this past December, the U.S. Marine Corps used an unmanned helicopter to resupply troops in Afghanistan for the first time -- demonstrating that drone technology is also feasible for the transport of cargo.

The versatility of these machines is already lending itself to novel uses. Drones have begun to soar over disaster zones to assess damage. Sensor-laden Global Hawks have flown over Haiti after its devastating 2010 earthquake and peered into the damaged Fukushima nuclear reactors in Japan after the March 2011 tsunami. The U.S. space agency NASA flew Predator drones over California to assess wildfire damage. Commercial interest in using drones for civilian use is also stirring. Fred Smith, the founder of FedEx, aspires to deploy specially adapted cargo drones that could cut shipping costs closer to those of sea-borne freight.

Emboldened by the robots' versatility, a new movement is emerging to adapt them for international aid. An expanding range of entrepreneurs is crafting prototypes and sketching out plans to use drones to distribute medicines or conduct emergency functions. A start-up company called aria (for "autonomous roadless intelligent arrays") wants to supply rural Africa with a drone skyway network run by aid groups. Leaving drone development to deep-pocket manufacturers, aria is creating "rules of the air" by which relief groups would share the skies. By establishing a community of drone deployers, aria hopes to launch a new strategy of fighting poverty from the air.

Aria is part of a broader movement initiated by Matternet, a company that is also pushing plans for automated, airborne delivery systems powered by sophisticated technology. Along similar lines, Vijay Kumar, an engineering expert at the University of Pennsylvania, riveted audiences at a recent TED Conference with his astonishing on-stage presentation of how computer-linked squadrons of small drones can be used as first responders in catastrophe situations, autonomously executing search-and-rescue operations using onboard sensors. As Kumar envisions it, the drones can be programmed to take action individually or in groups, acquiring real-time data that can be used to build a broad picture of the area in question.

The work of these entrepreneurs points to a future in which waves of aid drones might quickly deliver a peaceful "first strike" capacity of food and medicines to disaster areas. By skipping over rough, roadless terrain, and overflying choke points where bandits and corrupt officials rule, relief drones could offer direct point-to-point delivery of medicines and essential supplies. On-board video could verify that the aid has been dropped to target recipients and provide real-time feedback on ground conditions.

As technology constantly betters the drones' capabilities, ranges, and payloads, it's possible to imagine even more creative methods of aid delivery. In the future, intercontinental drone trains could be launched from donor nations, auto-navigate across oceans by GPS, deliver an airdrop to those in need, and return home. Some could land at specified drone ports where they could be offloaded for onward delivery. NGOs running local "drone fleets" with smaller vehicles could dispatch supplies directly to villages.

While the cargo capacity of early generations of drones is likely to be very modest compared to conventional means, the drones' speed and point-to-point ability can already make them valuable emergency channels for specialized, time-sensitive loads. For example, AIDS patients in developing countries need access to a constant supply of anti-retroviral drugs, whose supplies must be managed accurately to assure that the right pills are available at the right time and in adequate quantities. Missing pills allow HIV to regenerate quickly. If supplies of a particular drug run out, a special mission drone might be launched from a depot, loaded with the needed medicines, and deliver them directly to trusted recipients to tide over patient needs until traditional channels are restored.

Within just a few years, first waves of medical supply drones might be launched to mitigate disasters, even including epidemics. Temperature-sensitive drugs could be flown by drones equipped with refrigeration, bypassing the harsh tropical conditions that can spoil them if transported by ground. In the event of a disease outbreak, emergency vaccines could be flown directly from public health authorities or international aid groups. A ready reserve of medical supply drones could even be kept in orbit over vulnerable areas, to be instantly dispatched to any area when needed.

Once overhead, these emergency drones could send back real-time intelligence to disaster coordinators. In calmer times, surveillance drones could be flown over villages on a circuit to keep tabs on the need for water or shelter. They might even be used to detect social unrest by sighting crowds or evidence of violence, such as fires or explosions.

As technology drives down cost and expands capabilities, point-to-point drone operations run by NGOs can also be a force for democratization. Imagine: Instead of traditional government-to-government models of aid delivery, ridden with inefficiencies and corruption, drones could provide the basis for group-to-group networks of aid delivery, thus building communities rather than bolstering bad rulers.

What's more, bypassing graft and theft-ridden supply chains has the potential to boost the efficiency of the operations of NGOs and donor governments -- including saving money currently being spent on security. More resources can actually go to those in need.

It's understandable that drones have not yet been tested for use in delivering aid. Drone proliferation will be a game-changer, which is precisely why regimes in developing zones may fear their use. Proliferation of aid drones will complicate border and airspace control, and raise suspicions that flights are being used for intelligence gathering. Customs officials could be forced to cover more territory, spreading out their ranks. Corrupt officials seeking new sources of graft might seek to control drone ports and infiltrate the networks operating them.

And there are risks. Because any new channel that competes with a regime's supply chains weakens its authority, countermeasures could follow. In conflict situations, regimes wanting to block supplies sent to rival groups could target supply drones for attack. Regimes may even be motivated to acquire their own drones to patrol their skies and intercept inbound craft.

While some authorities may feel threatened, however, other officials may be drawn to the promise of donors' drones alleviating burdens they otherwise might have to bear on their own. Supplies that reliably reach those in need with fewer losses and risks might reward officials who facilitate their arrival.

Higher success rates, in turn, would prompt donors to step up their efforts. With their powerful sensors, aid drones could validate deliveries, help promote transparency, and build trust. A new means of softening the impacts of disaster and disease could even help to stabilize good governments.

Though aid drones aren't yet a reality, there might be a ready source in the making. With U.S. combat having ended in Iraq and winding down in Afghanistan, the U.S. military faces a surplus of unused drones. An entire squadron of attack drones, already built and paid for, currently idles in storage while the military ponders what to do with them.

And while it's unlikely that those military drones (especially if laden with classified equipment) will be converted to civilian use, manufacturers can produce simpler civilian versions for use in humanitarian missions. One firm, AeroVironment, is already marketing a trunk-sized drone purpose-built for civilian first-response missions.

Re-directing these flying robots towards peaceful purposes could change the way we see and develop high technology. As the capacity and range of the machines increase, we might soon witness the first intercontinental drone convoys landing in Africa, perhaps in the form of a fleet aimed at averting mass starvation in a conflict zone. Just as the 1949 Berlin airlift showed, for the first time, the power of mass cargo flights to save lives, future "drone-lifts" could become potent weapons in the fight against hunger and disease.

Cyber Technology (WA) Pty/Ltd