U.S. energy company Genie Energy Ltd. (NYSE:GNE) jolted almost 20% on the New York Stock Exchange today as the company announced it has found oil in the southern Golan Heights, an Israeli-occupied and disputed territory in southern Syria.
In an interview with Israel’s Channel 2, geologist Yuval Bartov, in charge of exploration for Afek Oil & Gas, the actual operator of Israel’s oil discovery, pointed out that the deposit is unique. It is contained in layers averaging between 20 to 30 yards in thickness. (Source: “Major oil reserves discovered in the Golan Heights,” Jewish Telegraphic Agency, Oct. 7, 2015.)
Impact of Israel’s Oil Discovery on the Energy Market
The news of the GNE discovery will not have an impact on oil prices any time soon, but it does carry significant geostrategic weight as it could radically change Israel’s energy policies. To date, Israel consumes about 100 million barrels of oil per year to support its economy. An oil field as described by Bartov could meet its needs for many years to come.
Bartov noted that they performed three exploratory drillings in the Golan area (known as Ness 5 in recent months). The company is currently evaluating the data collected in order to ascertain the true extent and future exploitation.
In July, Genie’s exploration contractor Afek had already started exploration in the area known as Ness 3 located about three miles from Ness 5. The company reported that the preliminary analysis of both exploratory wells indicated the presence of hydrocarbons in vertical sections. (Source: Drilling begins at third Golan Heights oil exploration site”, The Jerusalem Post, Aug. 25, 2015.)
Unlike the other, costlier Israeli oil exploration program, offshore, the drilling in the Golan is cost effective. So far, Afek has spent about $2.0 million in drilling with funding from private sources, and with the entire program falling well within budget. As technically and financially sound the discovery in the Golan might be, such activities could face legal problems as the area of Golan Heights is still technically Syrian territory and considered “occupied.”
This suggests that the exploitation of mineral reserves in the occupied Golan Heights would violate international law. As a precedent, Singapore successfully sued Japan in the International Court of Justice for having exploited Singapore’s oil resources during World War II. (Source: Ministry of Foreign Affairs of Japan.)
International law establishes that an occupying power can operate already existing and operating oil fields first used by the sovereign country under its control. However, the authorities and the law are in absolute agreement that the drilling of new wells, let alone fracking, by an occupying power is illegal.
This Could Hold Back Genie Energy Stock
As the situation stands now, even in the throes of a civil war, Syria still has sovereign rights over the Golan. Indeed, Israel first tried to test the Golan’s oil-producing potential 20 years ago, but it was forced to give up after the Syrian government challenged the plans with diplomatic support from the United States.
Perhaps Israel is now trying to take advantage of a weakened Syrian State. But the Golan is still subject to international law. The history of the Golan is as convoluted as any dispute in the context of the modern Middle East.
Since its emergence in 1948, Israel was interested in annexing the Golan Heights region. Then, in 1967, during the Six Day War, Israel managed to occupy the small territory, but Damascus tried to take it back (unsuccessfully) seven years later, during the Yom Kippur war.
Since then, the Golan has become a source of water for Israel. The area is popular with tourists for skiing and for its wine production. Indeed, in 2000, when Israel withdrew from southern Lebanon (occupied in ’82), it also took possession of the She’ba Farms, one of the most fertile areas on the slopes of Mount Hermon.
The restoration of full Syrian sovereignty over the Golan has always been at the heart of any U.S. mediated peace effort since the late 90s. The closest that all parties involved ever got was in 2009 in a series of talks mediated by Turkey between high-level Israeli and Syrian officials. Nevertheless, the civil war in Syria and the rise of right wing politics in Jerusalem wiped out any progress to that effect.
Today, four years later, Syrian President Bashar al-Assad is still in power, even if weakened. UN peacekeepers, who kept a modicum of oversight in the Golan, have lost even the little use they had before Syria imploded.
However, the Golan is much more than the Prison Strip. The original inhabitants, now 20,000 Syrians (there were 130,000 before the occupation), mostly belong to the community of the Druze, an esoteric sect combining elements of Islam and Christianity, concentrated in six villages.
Israel has protected some 22,000 Israeli settlers since 1981. Until recently, Israel’s main interest in the region, other than security concerns, has been a reservoir that meets a third of the entire State of Israel’s water requirements.
News of the oil reserves and their exploration potential, as entrusted to Genie Energy (and its Afek Oil and Gas contractor), an oil company which employs former U.S. Vice President Dick Cheney as a consultant, suggests the Golan will resume center stage in the discussion of the Middle East’s future. Meanwhile, Genie Energy stock could provide some interesting volatility for investors to exploit.
Israel has certainly not wasted any time to promote its position and claim the property for itself. On July 24, 2014, Israel’s Ministry of Energy granted Afek Oil exclusive permission to explore seventeen sites in the Golan, in an area of about 250 square miles south of the Israeli settlement of Kazrin on behalf of Genie Energy. Apart from Dick Cheney, the company has Rupert Murdoch and Jacob Rothschild as its main investors.
Here’s the Bottom Line on Israeli’s Oil Discovery
The fact that Jacob Rothschild and Rupert Murdoch invested in attempts to search for oil in the occupied Syrian territories suggests they support the overthrow of the Assad government in Damascus.
In that sense, the oil discovery in the Golan will not in itself alter crude prices. But the related geopolitical concerns suggest tensions in the Middle East will increase. This should help in boosting the cost of oil in the short and medium run.