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Will Bibi’s Chinese Choo-Choo Train Save Israel and Transform the Middle East?

A bold new freight railway bypassing the Suez Canal may annoy Egypt and the United States, but that’s not the goal

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(Photoillustration Tablet Magazine. Train photo Yehudit Garinkol via the PikiWiki - Israel free image collection project)
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In 2003, when Benjamin Netanyahu was finance minister, he unveiled a bold proposal to build a high-speed rail line connecting Eilat, Israel’s Red Sea port, to Ashdod, Israel’s largest Mediterranean port. The rail line, he said, would form an alternative to the Suez Canal, enabling Israel to leverage its status as the most stable country in the Middle East and host cargo traveling from the Far East to Europe. Ultimately, however, the plan to supplant age-old trade routes came to nothing. Israel’s economy was reeling from the Second Intifada, and there was little appetite for grand infrastructure projects. Netanyahu resigned from the government over Ariel Sharon’s pull-out from Gaza, and the vision for a high-speed rail line went with him.

Almost a decade later, with Egypt unstable and trade with Asia increasing, Netanyahu has revived the idea of the “Red-Med” rail line. In May of 2012, Netanyahu’s cabinet unanimously approved the project. That July, Yisrael Katz, Israel’s minister of transportation, signed a memorandum of understanding with his Chinese counterpart announcing China’s involvement in the rail line’s construction. Earlier this year the government voted to fast-track the project, overruling an appeal by the environmental protection minister. The Transport Ministry estimates that construction will take five years. The aggressiveness with which the Netanyahu Administration is pursuing the rail project highlights the priority the administration places on developing trade ties with East Asia, even as critics of the plan worry that Israel is becoming too dependent on China. According to Israel’s Economy Ministry, 2014 is the first year that trade to Asia will exceed trade to the United States. Export growth to Asia is increasing at three times the rate that it is to the United States and Europe. While Israel’s largest trading partner remains the European Union, tension between European governments and Israel has led Israel’s Finance Minister Naftali Bennett, as well as other prominent ministers, to advocate quickly transitioning to an Asia-oriented economic program.

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A primary hurdle to Israel’s “Asia pivot” is that Israel’s infrastructure is oriented westward; it is designed to handle Mediterranean, not Red Sea, trade. Even though there are major advantages to shipping goods from Asia to Eilat, underdeveloped Red Sea infrastructure means that, aside from a few niche products, shipping between Israel and Asia goes via Israel’s Mediterranean ports.

In an interview, Oded Eron—a former Israeli diplomat who has studied the rail line at the Institute for National Security Studies, a Tel Aviv think tank—said that there would be numerous advantages to making the transition between ports. Shipping to Eilat would reduce the length of the shipping route to Asia and therefore reduce shipping costs. It would allow freight destined for Israel to avoid the Suez Canal, which exacts substantial toll and demurrage fees. Ships are often delayed as they wait for convoys to make the crossing, adding to costs. And while the Suez Canal has operated efficiently during Egypt’s recent turmoil, trade strategists see advantages in developing alternatives to the Egyptian sea route.

In order for goods to be transited to Eilat, the government will have to develop an efficient means of delivering products from Eilat to Israel’s center. Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, said in an interview that goods that arrive in Eilat are currently transited by truck to central Israel. For most products this is expensive and inefficient. The rail line would greatly increase the efficiency of sending goods from Eilat to Israel’s major population centers. Israel’s semi-privatized Port Authority has developed a corollary plan to develop the Port of Eilat to accommodate increased demand that the rail line would bring. The same memorandum of understanding that had Beijing agreeing to build and help finance the line also had the Chinese agreeing to further develop Eilat’s port.

Netanyahu has aggressively hawked the line’s possibilities in domestic forums and when traveling to East Asia, where he says there is resounding demand for such an initiative. In a January speech delivered to Israel’s Institute of Security Studies he spoke about developing Israel into an entrepot—a stable country that would host trade traveling from Asia to Europe. In a different speech he suggested that the route would be a gift to Israel’s Asian and European allies. The rail line has become part of his go-to pitch about the advantages that Israel brings to the world. In an interview with Mainichi Shimbun, a Japanese newspaper, he capped an answer to a question about Israel’s settlement activity by mentioning the advantages the Red-Med line would offer East Asian countries that trade with Europe.

Still, outside experts are skeptical that—barring calamity in Egypt—the rail line will actually provide a substantial alternative to the Suez Canal for Far East-Europe trade. According to Peter Sand, BIMCO’s chief shipping analyst, the rail line will effectively service Israel-Asia trade but will prove an expensive alternative for freight destined for Europe. According to Sand, “The trend is for larger and larger vessels to be deployed on the FE [Far East]-Europe trade, limiting the transshipment to a minimum in order to optimize your network and cut cost.” (Transshipment refers to the cost of transferring containers from ships and back. Transshipment costs would increase for goods on the Asia-Europe line because they would have to be unloaded at Eilat, loaded into train cars and reloaded onto a ship before going to their port of destination.) He estimated that a fully operational rail line, in 2025, would at most attract 3 percent to 4 percent of Asia-Europe trade, assuming there are no difficulties with the Suez route.

Sand’s estimate was shared by Israel’s Port Authority, which stressed, in a presentation they released about the plan, that the Red-Med line “is not intended to compete with the Suez Canal.” Uriel Lynn, of the Federations of Israeli Chambers of Commerce, who is a staunch backer of the plan, acknowledged in an interview that Netanyahu, in speaking about the rail line, “glorified it a little.” He does so, according to Lynn, because he “sees it as being more of a strategic service to Europe, so that Europe will value more its friendship to Israel.” Despite these exaggerations, Lynn said that developing the rail line would have a “very important impact on Israel’s economy” because it will speed trade between Europe and Israel and will provide a modest but growing benefit for Israel’s East Asian and European trade partners.

One persistent question in the Israeli and international press is how the Egyptian government will react to Israel’s potential emergence as a trade rival. Egyptian GDP is dependent on Suez Canal fares, and so far reports have varied about whether or not Egyptian officials are concerned that the rail line will divert trade from Egypt. Israeli government ministers have played a delicate game of proclaiming the benefits that Asian and European countries will get from the Red-Med line, while also stressing that the project is not designed to compete with Suez. However, assuming the numbers given by independent analysts are correct, there is little reason to think that Suez Canal traffic, or Egypt-Israel relations, will be much affected.

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While relations with Egypt will likely remain unchanged, the rail line will represent the largest joint infrastructure project in Israeli-China history. For China, the rail project represents a small supplemental route for Europe-destined goods and would make trade more efficient between China and Israel. Because the Red-Med line would diversify China’s trade routes, it can be seen in the same light as China’s recently completed Eurasian Land Bridge, a rail line that freights goods from central China all the way to Germany, China’s recent upgrading of Athen’s Piraeus Port, or any of the other infrastructure projects that China is developing in East Africa and elsewhere. During the Beijing meeting with Transit Minister Katz, Chinese government officials even suggested that financing for the rail line might come from the China Industrial Development Bank, a state-owned bank that finances Chinese infrastructure projects in East Africa and elsewhere.

While the Netanyahu government uses the prospect of an improved relationship with China as a reason for pursuing the rail line, Israel’s China skeptics have worried that it will be bad for Israel’s economy and security. In 2012, Shelly Yachimovich, then Israel’s leader of the opposition, complained to Haaretz about relying on a Chinese company to build the rail line. She said she opposed “Katz’s plan to put the railway-to-Eilat project into the hands of the Chinese while bypassing proper tender processes and importing thousands of Chinese workers.” She continued, “There’s no question the Chinese would be deeply grateful to Yisrael Katz, but the government’s first duty is toward its own citizens.” This May, Yachimovich worried that “Israel is selling itself off” to China as more Chinese companies buy Israeli companies.

Yachimovich’s worries were echoed by Former Mossad Director Efraim Halevy. Yediot Aharanot quoted Halevy’s strong opposition to China’s involvement in the rail project. “China is promoting major projects in our area intended to establish points of influence, via the sea and via the ports, that could assist the enemies of Israel, among other things, to greatly increase their capabilities against Israel.” Halevy has also warned that Chinese involvement in the rail project could damage Israeli-U.S. relations, writing, “China holding the trans-Israel railway, owning it, and operating it, will not be understood by the U.S.” The Ministry of Transport responded to these charges by denying that the United States would be bothered.

Oded Eran disagreed with Halevy’s analysis that Chinese influence on the line would be detrimental to Israeli security, telling me, “My interpretation is the Chinese are looking for economic ventures, they are not looking for political adventures. And I think the government of Israel is capable of stopping the Chinese from taking advantage of [what is] purely an infrastructure project.”

A final geostrategic question to emerge is whether Jordan would be involved in the project or not. Jordan’s Aqaba Port, situated directly across the Red Sea from Eilat, has access to deeper waters than Eilat and has recently undergone renovation. Haaretz reported on a developing partnership between the Ports of Eilat and Aqaba that began in May, with Port Authorities in Aqaba agreeing to accept Israel-bound cargo manufactured in the United Arab Emirates, which does not trade with Israel. If the rail line were extended to Aqaba—which has a larger and better-developed port than Eilat—the amount of cargo traveling the line from the Red Sea to the Mediterranean could increase dramatically. Jordan and Israel’s governments enjoy good relations, and in May Netanyahu acknowledged the possibility that Jordan could be involved in the project.

The rail line’s forward progress offers a picture of the complex ways China’s involvement in the region will transform Israel’s trade, infrastructure, and regional relationships, as well as provide new security challenges and domestic debates. What seems clear is that as Israel adapts its infrastructure to increasing trade with a rising Asia, the country’s landscape—political, economic, and actual—will also be transformed.

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Will Bibi’s Chinese Choo-Choo Train Save Israel and Transform the Middle East?

A bold new freight railway bypassing the Suez Canal may annoy Egypt and the United States, but that’s not the goal

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