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Iran Wants Israel to Settle a Multi-Million Dollar Debt From More Than 35 Years Ago

Before they were sworn enemies, Israel and Iran were business partners — and there are hundreds of millions of dollars at stake from a decades-old oil dispute that Israel may be forced to pay.
December 11, 2014, 11:55pm
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Israel owes Iran a lot of money over a commercial partnership that was severed decades ago and a legal case is slowly moving through European courts to force its government to pay out its debt.

While the ruling is still preliminary, Israel may have to pay up to $100 million in compensation to its worst enemy, according to a preliminary decision handed down by a Swiss arbitrator following a legal dispute that's already lasted two decades.


That ruling, which was actually handed down nearly two years ago, was only recently brought to the attention of the Israeli public after Israeli newspaper Haaretz got its hands on the court's documents.

The dispute dates back to a time likely forgotten by many Israelis and Iranians alike, when the two countries were not only not at verbal war with each other, but actually business partners. In 1968, when Iran was still under the rule of its last Shah, Mohammad Reza Pahlavi, the two countries joined hands to create the Iran Eilat Ashkelon Pipeline Company — a pipeline today better known for a massive spill that saw 600,000 gallons of crude oil flow along the Jordanian border in early December.

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The deal allowed for Iranian oil to be shipped to the Israeli port of Eilat on the Red Sea, and then trucked overland to Ashkelon, a shortcut to bypass Egypt's costly Suez Canal. From Ashkelon, the oil was shipped off to buyers in Europe and across the world — a profitable deal for both Israel and Iran.

But the 1979 revolution, which overthrew Iran's shah, effectively put an end to both the deal and the partnership between the two countries. Iran cut all diplomatic ties with Israel and some 800,000 tons of Iranian oil remained in the pipeline and unpaid for — worth about $400 million in today's prices.

For the past three decades, Iran has been trying to get that money back — with interest — and in 2013, a Swiss court ruled that it should.


Until recently, few Israelis knew of the arbitration, but those who did said the country won't have it.

"We have a situation in which Iran calls for the destruction of Israel, sees Israel as an enemy, and supplies terrorist organizations against Israel, but on the other hand, it takes Israel to court for a commercial dispute," Yoav Harris, an Israeli maritime lawyer who came across the Swiss ruling and became interested in the multi-decade history of the dispute, told VICE News. "It cannot be both ways."

Harris said the case is hardly discussed in Israel, but that the Israeli government could answer in kind.

"Obviously Israel's counter argument can be loss of profit because the party that ended this cooperation was the Iranian regime," he noted. "They could ask for the damages caused to the state of Israel by Iran."

Instead, Israel has rejected outside arbitration — by France first, and then Switzerland — because of a clause in the original contract stipulating that the two partner countries should first try to work it out on their own.

The 1968 agreement, cited in the Swiss ruling reviewed by VICE News, stipulated that, should a dispute arise, and "failing any agreement to settle it by other means," the two countries could resort to appointing arbitrators. Failed that, the Paris-based International Chamber of Commerce could be asked to step in and appoint a third arbitrator.

But the current Iranian regime, which does not recognize the legitimacy of the state of Israel, skipped the "other means" part, and went straight to arbitration.


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In the mid 1980s, when Iran first started its attempt to recoup the money, then minister of energy Moshe Shahal agreed that Israel should pay its debt, and suggested sending a representative to Iran — an unheard-of proposal.

In 1994, Iran proceeded to appoint its own arbitrator, but Israel refused to do the same, citing the fact that the contract determined direct negotiations should have been tried first.

Finally, in 2004, Iran filed a claim against Israel for $800 million, half the value of the assets connected to the 1968 agreement, plus damages. Lawyers representing Israel repeatedly appealed, but their claims were rejected in 2013, and Israel was ordered to pay $250,000 in court fees.

As for the settlement itself, that's likely years away — if it ever happens.

'You can't call someone your enemy and also ask them to give you money.'

The National Iranian Oil Company, which filed the claim and operates under Iran's Ministry of Petroleum, did not respond to VICE News' requests for comment. According to the Swiss ruling, Israel filed a series of counterclaims, which so far have been rejected.

"It's a very strange situation because the arbitration clause on which the Iranians rely on says that both parties will try to resolve the dispute amicably, in a friendly way, and if it fails each side will nominate its own arbitrators and if these arbitrators will not reach an agreement the head of the International Chamber of Commerce will nominate a third arbitrator which will be the decisive one," Harris said.


The Iranians, he added, skipped "all the amicable parts." "You can't call someone your enemy and also ask them to give you money," he said.

But a debt is a debt, others say — though the level to which relationships between Israel and Iran have become strained may make it almost impossible to settle.

"I think people in Israel don't want their country to pay Iran, even though many people believe that a deal is a deal," Meir Javedanfar, an Iranian-Israeli analyst, told VICE News. "And in the current climate, I don't think there's any politician that would dare pay $100 million of public money to the current rulers of Iran.

"Israel owes Iran money, full stop, there's no dispute about that: there's Iranian oil that Israel used and according to the contract Israel needs to pay Iran," he added. "But according to the same contract, it needs to be done through direct negotiations. If they are not even willing to sit down with Israel bilaterally to negotiate this thing, that kind of negates the contract."

After some thwarted attempts at an overture in the early 2000s, Israel-Iran relations have been on a downward spiral for years, but despite some politicians' attempts to make the issue a national priority, most Israelis don't really care, Javedanfar added.

"In Israel the most important issue is that it's too damn expensive to live here," he said. "Nobody here wants Iran to have nuclear weapons but I think in some cases some Israeli politicians have tried to use it to divert attention."

Iran, for its part, is hardly in this for the sake of winning a political victory, he suggested.

"It's a bit bizarre that Iran wants a country to pay which it believes shouldn't exist," he said. "They just want the money back, they're under sanctions, they need money badly."

Follow Alice Speri on Twitter:@alicesperi