Israel-Egypt gas deal 'on verge of collapse' amid Gaza, Sinai tensions

A major Israeli natural gas deal with Egypt is facing collapse amid political disputes in Israel and tensions with Cairo over Gaza and Sinai, according to senior Egyptian petroleum officials and industry experts.

The agreement, worth $35 billion and intended to supply 130 billion cubic metres of gas until 2040, has stalled just days before a key implementation deadline of 30 November.

High-level sources in Egypt’s Ministry of Petroleum told The New Arab's sister outlet Al-Araby Al-Jadeed that current Israeli gas supplies range between 850 million and 1 billion cubic feet per day under the 2019 gas agreement.

They said Israel has not complied with commitments to increase flows under an updated arrangement concluded in July 2025, which aims to raise deliveries to 1.3 billion cubic feet per day by the end of 2025, 1.6 billion by spring 2026, and between 1.8 and 2 billion cubic feet per day during the summer.

The sources said Israel had previously attributed lower flows to technical problems that were resolved last October, but the Israeli government has since indicated, with support from Knesset committees, that it wants to freeze the expanded deal due to political disagreements with Egypt over Gaza, Egypt’s military presence in Sinai, and future pricing.

Companies operating the Leviathan field, the main source for the deal, continue to press for implementation. But Egyptian market indicators and recent government measures suggest Cairo is preparing for a sharp decline in Israeli gas flows, and possibly a partial halt lasting into summer 2026.

Egypt’s petroleum authority issued a tender this week for three spot LNG cargoes for November delivery, to be regasified at Alexandria and Ain Sokhna and injected into the national grid. Ministry data shows agreements with Saudi, French, Dutch, and Azerbaijani companies to supply 20 LNG cargoes before year-end, alongside contracts for about 125 LNG cargoes in 2026 from more than 70 suppliers.

Petroleum expert Hossam Arafat said Israel could cancel the expanded supply deal without financial penalties, calling it "a memorandum of understanding that is not binding on the seller” and noting that “the agreement has not yet entered into force".

He said the cancellation would not affect the original 2019 agreement supplying up to 1 billion cubic feet per day until 2035, which has been disrupted "several times" due to force majeure, including the outbreak of Israel’s war on Gaza and Iran’s retaliatory missile strikes on Tel Aviv.

Arafat said Netanyahu’s government had turned the economic deal into "a political game", using it to remain in power and avoid prosecution over "corruption and security failures". He added that "these reasons push the far right in Israel to obstruct the deal and continue the state of aggression on Gaza", and to create a crisis with Egypt for domestic political use.

Despite this, he said Israel cannot halt all gas exports to Egypt due to pressure from Leviathan’s partners, led by Chevron, which holds 39.66 percent of the field, along with NewMed Energy and Ratio.

These companies, he said, are optimistic about exporting 130 billion cubic metres of gas to Egypt until 2040 and earning $20 billion, noting that "there is no alternative export route" except through the Egyptian network or domestic use, which would waste $15 billion in investments.

Arafat said the field’s partners have given the Israeli government a deadline of 30 November to obtain Energy Ministry approval to expand Leviathan’s capacity and authorise a land pipeline route to the Egyptian border. He warned that "the failure of the Tel Aviv government to comply" jeopardises the companies’ investments and could halt exports for years.

He added that pressure from the US Energy Secretary, who supports the deal, is likely to push Israel toward implementation because it lacks liquefaction facilities like Egypt’s that would allow re-export to Europe.

An Egyptian gas-sector official said Israeli talk of exporting gas to Cyprus or Europe via Greece is "illogical" and aimed at political consumption, requiring infrastructure costing "up to $10 billion" with "very low" returns. He described such claims as "a media stunt".

The official said the Egyptian presidency’s refusal to respond to Israeli threats reflects a desire to avoid giving Netanyahu "a political opportunity", adding that carrying out the threat would expose "to the world" Israel’s failure to honour commercial agreements.