2018 was a significant year in relations between Israel and Iran. In May of that year, then-U.S. President Donald Trump, who is weeks away from returning to the White House for a second term of office, decided to withdraw from the nuclear agreement with the Islamic Republic that had been signed three years earlier and, at the same time, to reimpose sanctions against the ayatollah regime. Israeli Prime Minister Benjamin Netanyahu encouraged Trump to take this course of action since he viewed Iran as the greatest and most dangerous threat to Israel and the West – a position he still holds today. Given all that, it is fascinating to discover that throughout the intervening years, Israel and Iran have been engaged in a financial arbitration process over the Eilat Ashkelon Pipeline Company, whereby Iran is demanding compensation from Israel for the investment it made in the project in the late 1960s.

Moreover, according to documents obtained by Shomrim, in late 2017 – some two years after the Finance Ministry declared that Israel has no intention of paying Iran any money, the government agreed to engage in talks aimed at resolving the long-standing dispute.

The secret partnership

The Eilat Ashkelon Pipeline Company was established in the late 1960s, at a time when the Suez Canal was closed due to the Six-Day War. The idea behind the establishment of the company was to build a pipeline that would transport Iranian oil to Eilat and Ashkelon; some of the oil was to be used by Israel and the rest would be transported on to the European market. The agreement between the sides was signed in February 1968 and, within 18 months, the oil began to flow. Once that started happening, Israel built a refinery in Ashdod, as well as storage tanks in Eilat and Ashkelon. Despite the massive scope of the construction, the agreement was kept secret and the public was only made aware of it years later.

In 1978, at the outset of the Iranian revolution, it was obvious that the partnership was on rocky ground, but Israel made every effort to save it until the last moment. For example, according to documents that Israel submitted to the arbitrator, it was agreed between the sides after the outbreak of the Islamic revolution that Iran would continue to supply Israel with oil in 1979. Despite the agreements, the establishment of the ayatollah regime led to an end to the partnership.

The legal battle between the two countries started in the 1990s and, in the intervening two decades, it has been handled by an international arbitrator. The arbitration process was forced on Israel in 2004 following international legal proceedings and in 2012 a court in France (the headquarters of the International Trade Administration) ordered the government to pay legal expenses of almost 1 million shekels. It is worth adding that Israel imposed strict confidentiality regulations on the activities of the Eilat Ashkelon Pipeline Company and it is only relatively recently that these restrictions were lifted slightly and the media was allowed to report on the company. Most of these reports focused on environmental concerns.

A $7 billion lawsuit

Iran has submitted two separate lawsuits against Israel, the combined value of which is estimated by the Global Arbitration Review legal journal at around $7 billion.

The first lawsuit pertains to approximately 50 shipments of crude oil in 1978, for which Iran claims it was never paid. In 2015 and 2016, the Swiss Federal Supreme Court issued two decisions—a primary ruling and a subsequent appeal—ordering Israel to pay $1.1 billion to Iran for these shipments. However, Israel, as already mentioned, declared that it had no intention of paying, in part because of the Enemy Trade Ordinance. Since 2011, Iran has been classified under this ordinance as an enemy state, and Israel argued that it is therefore prohibited from transferring any funds to Iran. A legal expert consulted by Shomrim suggested that the ordinance may not necessarily obstruct the resolution of mutual claims, should an agreement be reached, as international arbitration processes differ fundamentally from standard legal proceedings. In the second Iranian lawsuit, currently under arbitration, alleges that following the 1969 revolution, Israel appropriated the pipeline and related infrastructure from the joint project. Tehran claims that it is entitled to a share of the economic benefits Israel has gained, and continues to gain, from the pipeline since the partnership was dissolved. According to the Iranian argument, the Iranian national oil company, which was in partnership with the EAPC, and the Iranian government are two separate entities and should be seen as such. As far as the company is concerned, the Islamic revolution did impact it as a force majeure, but that does not mean it cannot legally demand its share of the fruits of its investment.

A key question being examined in arbitration relates to the fact that the Iranians do not have enough information about the Eilat Ashkelon Pipeline Company. They claim that the last documents they received about the company were from 45 years ago and that since then, Israel has rejected every request for information. The Iranians add that they still have the right to this information, including documents from after the revolution, which could shed light on the Eilat Ashkelon Pipeline Company’s activities in the intervening years.

In their filings to the arbitrator, the Iranians respond to the Israeli position that the EAPC had no value whatsoever in 1979, in part because it was making heavy losses, and therefore the Iranians are not due any compensation. Tehran responds by saying that this is an issue for a legal authority to settle.

In January 2018, the Israeli and Iranian representatives to the arbitration process – respectively, Alex Hertman (who passed away this year and was replaced by Noam Azmir from the S. Horowitz and Co. law firm) and Mohsen Agha Hosseini (who died in 2019 and was replaced by Dr. Mojtaba Kazazi) – sent separate letters to the attorneys representing the arbitrator countries. Under the heading ‘Instruction,’ the two sides both stipulated that they would be willing to enter into talks to settle the claims. To this end, according to the letter, the tribunal conducting the arbitration would allow the sides to submit amended statements and even to specify a timetable for submission. According to the document, between July and October 2019, a four-day hearing was to be held in Geneva, where the claims raised would be discussed.

According to one source who spoke to Shomrim, that hearing was postponed and apparently never took place. Having said that, the legal case itself is still very much alive. The jurist with whom Shomrim spoke said that, in their opinion, the conflict over the past year, during which the confrontation between Israel and Iran escalated severely, has made the arbitration process even more difficult.

“This is a process that has gone on for many, many years,” a legal source close to the case told Shomrim. “But one thing is for sure: it will end one day.”

The Finance Ministry and the Prime Minister’s Office refused to respond to Shomrim’s questions on the subject.