The perception that US guarantees to its Arab allies are not trustworthy has heightened nationalist arguments that peace agreements are too risky, and reduced the prospects that peace talks with the Palestinians will soon resume.
ANALYSIS: Prior to the Israeli-Egyptian security agreement, Israel's regional security policy had been based primarily on maintaining friendly relations with 'second ring' states, especially Iran and Turkey. Peace with Egypt in 1979 gave Israel a direct line of communication to the heartland of the Arab world. It also enabled Israel to cut defence expenditures from about 30% of GDP to about 9% today. The collapse of relations with both Turkey and Iran has made Israel's relations with Egypt all the more important (see TURKEY/ISRAEL: Diplomats will try to overcome politics - December 21, 2010).
Israel has viewed President Hosni Mubarak as the anchor of that agreement; although the peace has been 'cold', Mubarak was perceived as a central stabilising factor in the region (see ISRAEL/EGYPT: Relations will stay focused on security - May 3, 2010). He was able to fend off attempts by radicals to abrogate the pact, and also acted as a mediator between Israel and the Palestinians.
Fears. Following major unrest in Cairo, Israel fears that it may once again have to contend with hostile regimes both to its north and south, and that other major regional players will also be affected. Three concerns are paramount:
Egypt, especially if the Muslim Brotherhood gains power, could abrogate the peace agreement.
Other regional powers will no longer trust the United States not to abandon them as it has Mubarak. This could lead them to seek an accommodation with Iran for self-protection.
Peace negotiations can only be successful if accompanied by US guarantees. If Washington appears to be breaking a long-standing alliance with Mubarak, this could affect the belief in the value of those guarantees.
These fears explain why Prime Minister Binyamin Netanyahu this week demanded that Western countries delay according legitimacy to any new Egyptian government until it has reaffirmed a commitment to the peace agreement. They also explain the televised condemnation by all former Israeli ambassadors to Egypt of the approach of Washington and European states.
Frustration. As the US position has become increasingly firm in recent days, frustration has risen sharply. US President Barack Obama is now perceived by Israel as having little understanding of Middle Eastern culture, since:
senior officials consider his demands of Mubarak to have given the impression of an imperious master dealing with a servant -- and his reactions to Israel are being perceived similarly;
he has left Mubarak with no honourable way out -- in important consideration in the region -- and made no mention of his positive achievements during 30 years of intimate relations with Washington;
the apparent willingness of some Egyptian opposition groups, such as the Wafd party, to negotiate with the regime, was superseded by Obama's demands that Mubarak step down; which
Israel compares to US demands for a total settlement freeze, making it impossible for the Palestinians to compromise on settlements.
Israel also decries the demands for quick, open elections before preconditions for democracy -- an independent judiciary, the creation of a civil society and other institutions -- are put into place. Without such measures, they argue, it will be too easy for the Muslim Brotherhood to seize power. They point to Hamas's victory at the polls, and its subsequent violent seizure of power in Gaza, as a case in point.
Security stakes. Israel's first reaction to the protests was to reinforce its military units along the border. In the short term, it does not fear tension on the border, but there was concern about a possible influx of Egypt-based Sudanese and Eritrean refugees, or of Bedouin fleeing clashes with the army in the Sinai (see ISRAEL: New efforts unlikely to curb illegal migration - December 20, 2010). There were also worries that Gaza-based militants might use the opportunity to try to infiltrate Israel from the Sinai.
In the medium term, there are fears that a new Egyptian government that includes the Muslim Brotherhood would be much more sympathetic to Hamas, and might turn a blind eye to the import of weaponry into Gaza. In the long term, the Israelis fear that Egyptian developments may lead to a greater radicalisation throughout the region that, in turn, would enable Iran to spread its influence.
Economic stakes. Israel's economic stakes are high. Bilateral trade in industrial goods is small; it rose by 24% last year, but stands at only about 500 million dollars. However, 90% of Israel's trade with Asia passes through the Suez Canal, and Egypt supplies 40% of the gas used in Israeli electrical production -- about a quarter of all the fuel burned to produce electricity.
Mitigating factors. However, Israeli security analysts believe that any new Egyptian government will have little choice but to focus on domestic issues in the short term. Moreover, they know that a formal break with Israel could have significant economic consequences for Egypt:
Egypt originally sought peace because the cost of maintaining a massive army was a huge drain on economic development; tension with Israel would inevitably lead to an increase in the defence budget. The agreement also brought massive US military aid that would be jeopardised if Egypt resumed a hostile posture towards Israel.
Gas sales to Israel are a major earner of foreign exchange. Moreover, since Israeli electrical generating plants were originally designed to burn coal, Israel could survive a halt in gas sales by pumping more gas from its own Yam Tethys field and by switching back to using coal -- at least until its newest Tamar gas field comes on stream (see ISRAEL: Promising gas outlook stokes political debate - November 30, 2010).
Tens of thousands of Egyptian jobs are now dependent on the Qualified Investment Zones. Under a 2004 agreement, Egyptian exports from these zones enter the United States customs-free if they have a certain percentage of Israeli inputs.
Peace process. While officials are acting cautiously, hard-line nationalists have already launched a major public relations campaign claiming that, as the potential overthrow of Mubarak has shown, any peace agreement with any Arab country is inherently at risk -- and that a deal with the Palestinians would be even more risky. Moreover, the Palestinian National Authority, seemingly attempting to ward off contagion, has announced that it will hold municipal and general elections later this year. This may provide Netanyahu with another reason not to resume the peace talks. Furthermore, the peace process has always been reliant on support from other Arab states, with Egyptian support crucial; the emergence of a different government could see this support dissolve.
CONCLUSION: Israel's stake in the outcome of the unrest is exceptionally high. It fears a Muslim Brotherhood takeover, Egyptian support for Hamas and growing Iranian influence across the region. It also is growing increasingly frustrated with the US role. The perception that US guarantees to its Arab allies are not trustworthy has heightened nationalist arguments that peace agreements are too risky, and reduced the prospects that peace talks with the Palestinians will soon resume.
