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Israel secretly pays debt to iran

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How Israel lost to the Iranians
By Yossi Melman

Last Update: 06/12/2006 12:28

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.

The Eilat-Ashkelon Pipeline Company is born

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.

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