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Israel Ordered by Arbitration Panel to Pay Iran over Loss of Pipeline Stake

Saturday, January, 17, 2015


Israel has been ordered to compensate Iran over its share in a joint oil pipeline begun in 1968 when the Shah was in control of Iran and abandoned when the Iranian revolution pushed the Shah out in 1979.  The Eilat-Ashkelon pipeline was meant to move Iranian oil to Israel where it could be shipped out to the Mediterranean and then on to Europe.  When the revolution shut the pipeline down, it contained unrefined oil worth about $400 million in today’s dollars.

 

In 1994, fifteen years after the revolution, the National Iranian Oil Company (NIOC) pointed out a clause in the original 1968 contract and appointed a Swiss arbitrator to resolve Iran’s claims for compensation over the oil lost in the pipeline.  In 2013, the Swiss arbitration panel decided in favor of Iran and ordered Israel to pay 50% of the value of Iran’s stake in the pipeline, or somewhere between $50 and $100 million depending on how the pipeline is valued.

 

Israel has been trying to have the arbitration declared improper and has filed several lawsuits attempting to block or disband the arbitration, claiming the original contract is no longer in force.  However, it has met with failure every time and in 2013 was ordered to pay the Swiss courts $250,000 in legal costs.  Most recently the Swiss High Court has upheld the legitimacy of the arbitration ruling, and will hold Israel responsible for the arbitration ruling once the precise valuation is determined.