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."
