Crude peace: The role of oil trade in the Israeli-Egyptian peace negotiations

Does trading oil promote peace between rival countries? Despite the optimism of liberal theories on the value of economic interdependence, countries worry more about the possibility of being cut off from vital oil supplies than about forgoing the potential economic gains of trade. The 1979 Israeli-Egyptian peace is an exception to this rule, as the inclusion of oil trade agreements during negotiations succeeded and eventually became a positive aspect of the relations between the two states. However, this resulted not from the promotion of economic interdependence during negotiations, but from its avoidance. The United States guaranteed to compensate Israel for any breach in the oil agreement. This permitted Israel and Egypt to trade freely without imminent concern of becoming too dependent on one another. In consequence, they slowly built mutual trust over the years. Israeli and US declassified documents shed light on the creation of this unique oil trade agreement during the final phase of peace negotiations.We argue that a third-party guarantee to compensate for a breach in energy trade is often a necessary condition for such deals to succeed, provided that the guarantor meets certain preconditions unique to energy trade.