BP and UAE suspend $2 billion gas deal in Israel as Gaza war drags on

BP Plc and the United Arab Emirates’ state oil firm suspended a $2 billion bid to buy a major stake in Israel’s NewMed Energy as the war in Gaza upends politics across the region.

The companies halted talks because of “uncertainty created in the external environment,” according to a statement from NewMed. Despite the pause, the Israeli firm said BP and Abu Dhabi National Oil Co. “again expressed interest in the proposed transaction.”

The deal was announced in March last year, highlighting the burgeoning financial ties between the UAE and Israel since the normalization of diplomatic relations. At the time, the countries said the political accord would lead to billions of dollars of investment.

But negotiations between NewMed, BP and Adnoc were thrown off course by Hamas’s Oct. 7 attack on Israel, which strained ties with Arab states as Israeli forces launched an assault on Gaza. 

A person familiar with the deal said the regional conditions since the conflict began made it difficult to complete the deal. As soon the situation calms down, there is a possibility it can go ahead, the person said. 

Israel’s military operations have angered most of the Arab world, including the UAE. Abu Dhabi has consistently criticized Prime Minister Benjamin Netanyahu’s government for the devastation in the Palestinian enclave and the rising death toll among civilians.

The incursion by Hamas, considered a terrorist organization by the US and European Union, killed 1,200 people in southern Israel. Israel’s retaliatory air and ground assault on Gaza has killed around 31,000, according to the Hamas-run health ministry.

The UAE and Israel only formally recognized each other in 2020 through the US-brokered Abraham Accords. The UAE has said it won’t back out of that deal, even as it pushes Israel to stop fighting and allow more aid into Gaza.

The NewMed deal would have extended BP’s presence in the eastern Mediterranean while marking Adnoc’s first foray into the region. The two companies continue to work on other projects together, having last month said they would form a joint venture in Egypt focusing on natural gas.

Adnoc is also pressing ahead with its own plans to build a global natural gas business. On Tuesday it said it would make final investment decision on a liquefied natural gas export plant this year. The United Arab Emirates is expanding its gas output to become self-sufficient in the fuel by the end of the decade.

NewMed owns a 45% stake in Leviathan, Israel’s biggest gas field, and 30% of Aphrodite, located off Cyprus. Soon after the war started, Israel shut down one of its biggest fields, called Tamar, citing safety concerns. But it was restarted in November and since then the country’s gas production has been steady.