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Wednesday, December 6, 2006

How Israel Lost to the Iranians [by Yossi Melman]

PostGlobal []
Dec. 6, 2006

Panelist's View: Posted at 9:05 AM ET, 12/ 6/2006
How Israel Lost to the Iranians

Yossi Melman - In spite of the belligerent declarations of Iran's
leaders - President Mahmoud Ahmadinejad repeated his mantra this
week that he expects the Zionist entity to collapse in the near
future - Iranian representatives are holding negotiations with
Israeli representatives. These are not only indirect
negotiations, but real meetings. These meetings have been going
on for about two decades, and concern laborious international
arbitration regarding the debts between the two nations.

There are three separate litigations, which are taking place
simultaneously in several European countries, all of them
pertaining to a complex legal and business entity called
Trans-Asiatic Oil Limited, and relating to one of the biggest
secrets between Israel and Iran: the past oil connections between
the two countries. Three years ago one of the arbitrations ruled
that Israeli fuel companies have to pay the Iranian National Oil
Company tens of millions of dollars. All the parties made efforts
to maintain the secrecy of the decision and every other detail
connected to the subject.

From the time that Iran de facto recognized Israel in 1951,
increasingly close relations developed between the two countries,
until the 1970s when they reached a point of strategic
partnership. This partnership had four main components: Iranian
assistance for the immigration operations for Jews from Iraq;
Israeli-Iranian cooperation in the area of intelligence (the
Mossad, the Shin Bet security services and the Israel Defense
Forces helped to establish, train and operate the Iranian army
and the units of Sawak - the Iranian security service. In
exchange, Israel's intelligence organizations received Iranian
assistance in gathering information and operating agents in Iraq
to assist the Kurdish revolt); agreements for military
cooperation; and the supply of Iranian oil to Israel.

Beginning in 1975, the military cooperation focused on an Iranian
investment of $1.2 billion in several research and development
initiatives of Israeli armaments. These initiatives, whose code
name was Tzur, included the establishment of a Soltam munitions
plant in Iran, the development of the Lavi fighter plane, the
development of a sea-to-sea missile based on Gabriel technology,
and according to foreign sources, the development of an upgraded
ground-to-ground missile, whose range at the time was about 600
kilometers. By the time Ayatollah Ruhollah Khomeini came to power
in 1979, ending the cooperation, Israel had managed to transfer
the plans for the missile to Iran.

The supplying of Iranian oil to Israel began already in the early
1950s. The oil was transferred in tankers to Eilat, and from
there was channeled to Be'er Sheva in a pipeline with a diameter
of about 40 centimeters. The pipeline and its installation were
funded by the Rothschild family, who were its owners. After the
1967 Six-Day War and the closing of the Suez Canal, Israel (whose
prime minister at the time was Levi Eshkol) convinced the Shah,
Mohammed Reza Pahlavi, to exploit the new situation and set up a
joint and expanded oil initiative. The Shah agreed to the idea.

Thus Trans-Asiatic Oil was established, a company under joint
ownership of the Israeli government, through the Finance
Ministry, and the Iranian National Oil Company. The Israeli
government gave the company an exclusive franchise to transport
and store the oil. The main fear of Iranian opponents of the
initiative was that if the cooperation were to be exposed, the
Arab countries would use it to criticize Tehran. Therefore, in
order to maintain secrecy, the company was registered in Panama.
The owners of Trans-Asiatic, as they appear in the Israeli
Registrar of Companies, are the Eilat Corporation and another
company, both of which are also registered in Panama.

In Israel, Trans-Asiatic operated as though it were a foreign
company. It acquired the pipeline to Be'er Sheva from the
Rothschild family and laid a larger pipeline, with a diameter of
about one meter (42 inches), alongside it, from Eilat to
Ashkelon, where they also built terminals for loading and
unloading the oil. The construction of the terminals was
completed in 1969. The closing of the Suez Canal made it
difficult to supply oil to Europe from the Persian Gulf. The
tankers were forced to sail on a long route around the Cape of
Good Hope. The idea behind the establishment of the company was
to shorten the sailing routes and the supply time, and thus of
course earn more money. The tankers loaded oil in the ports of
Iran, sailed to Eilat, where they unloaded the cargo at a special
terminal that was built for that purpose, and the oil transported
in the pipeline to Ashkelon. Most of it was loaded onto tankers
bound for Europe, and a small percentage was used for Israel's
energy economy. The Iranian National Oil Company sold the oil to
Trans-Asiatic below the market price, and granted it credit for
three months.

In its heyday, Trans-Asiatic was an economic empire with a
turnover of billions of dollars. It established a subsidiary, the
Eilat-Ashkelon Pipeline Company (EAPC), which owned the two
pipelines, and a storage container farm to store the oil in
Ashkelon and Eilat. It purchased or leased a fleet of 30 huge
tankers. In its successful years, about 54 million tons of oil
were transported in its pipelines.

But after 10 years of flourishing activity came the crisis. The
Shah's rule was weakened. About two months before Khomeini came
to power, the Iranian National Oil Company stopped selling oil to
Trans-Asiatic, in effect paralyzing it. One of Khomeini's first
acts when he came to power was to sever relations with Israel
completely. The many Israeli companies and businessmen who had
worked in Iran in construction, communications, infrastructure,
drugs and commerce had left already during the twilight days of
the Shah's rule. The Iranians still owed money to some of them,
such as Ya'akov Nimrodi, who had built desalination plants on
Kish, the Shah's pleasure island. All the joint initiatives in
the areas of security and oil were discontinued.

During the first years, the Israeli managers of Trans-Asiatic
tried to conduct secret talks with representatives of the Iranian
National Oil Company to dismantle the partnership voluntarily and
in an orderly manner. But the Iranians broke off contact and
refused to hear from Israel. Trans-Asiatic sold the oil tankers,
at a loss for the most part, dismissed dozens of employees and
closed operations and offices abroad. What saved it from
bankruptcy was the 1979 peace treaty with Egypt, in the context
of which Egypt promised to sell Israel oil as a substitute for
the loss of the oil wells in Sinai. The Egyptian oil, an average
about 1.5 million tons annually, arrived in tankers to Eilat, and
from there it was transported via the pipeline to Ashkelon and
then to refineries in Haifa and Ashdod.

The Iranians want money

In 1985, the Iranians suddenly began to show a renewed interest
in Trans-Asiatic. Via attorneys in Europe they demanded the
company pay its debts to their national oil company. The debts
were divided into three ways: an indirect debt of the Paz, Sonol
and Delek fuel companies, which was estimated at over $100
million at 1979 values; a direct debt of Trans-Asiatic, estimated
at half a million dollars at 1979 values, for transporting the
oil in the pipeline on credit for three months; and another debt
relating to money that was in joint bank accounts. Iran claimed
that Israel had unilaterally emptied the company and taken over
its property and assets.

When the Iranian claims were made, attorney Elhanan Landau, who
in the past had served as the legal adviser of the Finance
Ministry and was very familiar with the subject, was appointed to
handle the case for Trans-Asiatic. After his death he was
replaced by his partner, Zvi Nixon, who continues to serve as the
legal adviser of the company. The line of action that was decided
upon was that the responsibility for the situation lay with the
Iranian National Oil Company, because it had unilaterally stopped
honoring its commitments to Trans-Asiatic, severed contact,
ceased taking an interest in the company and caused it severe damage.

Israel proposed holding discussions about all the joint
enterprises of the two countries, in order to bring about an
accounting for and payment of debts. Iran turned down the
proposal and demanded the debt for the oil connections be paid
back. When Israel rejected the demand, the Iranian National Oil
Company activated the articles in the contracts that stated that
in case of a dispute the issue should be brought to arbitration.

Thus three arbitration mechanisms were established. Two were held
in Switzerland, and a third in another European country. At first
the arbitrator representing the Israeli side in Trans-Asiatic was
former justice minister Haim Tzadok. After his death,
representation was transferred to attorney Dori Klagsbald.
Attorney Klagsbald is now serving a 13-month prison sentence for
his involvement in a serious traffic accident, but Trans-Asiatic
does not intend to relinquish his services as an arbitrator for
the Israeli side.

The approach Israel adopted since the start of the discussions on
the various issues is one of deliberate foot-dragging. For years
Israel even refused to pay the salaries and expenses of the
arbitrators. Only recently has the company begun to pay its share
of the arbitration. Moreover, Israel raised counter-claims,
accused Iran of dispatch responsibility for the situation that
was created, and did everything possible to avoid paying Iran a
single penny. The only ones benefiting from the situation are the
lawyers and the arbitrators, who receive generous salaries for
their efforts.

Representing Iran in the arbitrations are its legal advisers who
operate in Europe, including its legal adviser at the
International Court of Justice in The Hague. Lawyers from
Switzerland conduct the arbitrations. As mentioned, about three
years ago, after almost 20 years of discussion, the arbitrator
ruled that the three Israel fuel companies would pay Iran a sum
of tens of millions of dollars. Originally the Iranians had
demanded hundreds of millions, but this demand was reduced after
the arbitrators' acceptance of the claims by the Israeli firms
that they had suffered severe financial damage as a result of the
behavior of the Iranian side. To date the debt has yet to be paid.

A direct arbitration against Trans-Asiatic, for a debt of half a
billion dollars for transporting the oil in the pipeline,
continues. Another arbitration, for which no details were
available, is also taking place. In any case, the discussions in
these two arbitrations, according to knowledgeable sources, are
far from over.

Although the arbitration issues are a cause of concern for the
managers of Trans-Asiatic, they continue to operate with momentum
to expand it, as though there had never been any arbitrations. In
effect, today there is a network of companies called the
Eilat-Ashkelon Pipeline Company Group, whose chairman and
president is Major General (res.) Oren Shahor. (He was preceded
by Uri Lubrani and Ehud Yatom, for three months.) The
subsidiaries are the Eilat-Ashkelon Pipeline Company (EAPC),
whose general manager is Yair Waide, and Eilat-Ashkelon
Infrastructure Services (EAIS).

EAPC is responsible for operating the pipelines and the terminals
in the Eilat and Ashkelon ports, and for the storage container.
EAIS is responsible for all the foreign franchise activity of the
EAPC group. In other words , for everything not related to the
franchise for transporting the oil in the pipeline and storing it.

Through EAIS, EACP has a 20 percent partnership in building the
Dorad Energy power plant, which is supposed to be built in
Ashkelon within three years. Its next goal is to purchase oil in
Russia and the Commonwealth of Independent States, in Central
Asia and in the Caucasus, to transport it in tankers to Ashkelon,
to channel it through the pipeline to Eilat and from there in
tankers to Asia's energy-guzzling markets: China, India, Korea
and Japan. So far these efforts have not been successful.

By Yossi Melman | December 6, 2006; 9:05 AM ET

Copyright - Original materials copyright (c) by the authors. Originally posted at Please do link to these articles, quote from them and forward them by email to friends with this notice. Other uses require written permission of the author.


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