Egypt on Sunday terminated a long-term gas deal with Israel, a stakeholder said, prompting Finance Minister Yuval Steinitz to express “deep concern” over what he described as a move diminishing the peace treaty between the two countries.

Neither the Foreign Ministry nor the Prime Minister’s Office had any comment on the report, with one ministry official saying that the relevant authorities were “looking into” the matter.

“We have no information that the contract has been nullified,” one Foreign Ministry official said.

The official added that if the report was indeed true it would be a “grave development” with ramifications on the normalization of ties between the two countries under the 1979 peace treaty. But, the official added, this was not an agreement between governments, but rather between private companies and the Egyptian government.

Steinitz said he viewed with “deep concern the unilateral Egyptian announcement over terminating the gas deal with Israel, both because of its diplomatic and economic aspects. This is a dangerous precedent that diminishes the peace treaty” between the neighboring countries.

Opposition head Shaul Mofaz said that the move puts the ties between the two countries at their lowest since the peace treaty was signed.

According to Israel Radio, Mofaz said this was a “blatant infringement of the peace treaty.” This step, he said, necessitated a reaction from the US, which was the guarantor of the Camp David Accords.

However, diplomatic officials in Jerusalem said after speaking with their counterparts in Egypt Sunday night that the issue was part of a commercial dispute between private companies and Egyptian government corporations that is presently being adjudicated abroad.

The officials said that this had nothing to do with the status of Egyptian-Israeli diplomatic relations. A senior Egyptian military official was quoted as saying on Egyptian television that the gas deal was not nullified, but rather halted because of a business dispute regarding the transfer of payment.

The developments came after a string of crossborder pipeline attacks in the 14 months since Egyptian president Hosni Mubarak’s ouster last February.

Ampal-American Israel Corporation – a partner in the East Mediterranean Gas Company (EMG), which operates the pipeline – said the Egyptian government had notified it that the deal would be discontinued.

EMG said in a statement that it “considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal,” and that Ampal and EMG’s other international shareholders were “considering their options and legal remedies as well as approaching the various governments.”

Ampal holds 12.5 percent of shares in EMG, which since 2008 has carried gas from El-Arish in the northern Sinai Peninsula to Ashkelon. Gas flow has been cut off since April 9, when perpetrators attacked the pipeline for the 14th time since the start of the anti- Mubarak uprising.

Before the sabotage, Egypt supplied about 40% of Israel’s natural gas, which is the country’s main energy source. Ampal and two other companies have sought $8 billion in damages from Egypt for not safeguarding their investment.

Officials have warned that Israel may be at risk of facing summer power outages due to energy shortages. Electricity prices in Israel have risen 20% since the attacks began.

The 1979 Egypt-Israel peace treaty stipulates that normal economic relations between the two countries will include the normal commercial sale of oil, later changed to natural gas, from Egypt to Israel.

A natural gas deal was not signed until 2005, and the $460-million pipeline was inaugurated four years later.

That agreement has long been condemned by Egyptians, both out of widespread opposition to normalization with Israel and because of claims Jerusalem was receiving the gas for below-market prices.

Earlier on Sunday, Foreign Minister Avigdor Liberman posted on his Twitter account a link to a Ma’ariv story quoting him as telling Prime Minister Binyamin Netanyahu in a recent meeting that the situation in Egypt was more disconcerting for Israel than the situation with Iran.

According to the report that appeared Sunday, Liberman said that in light of the developments in Egypt – which include the introduction of Egyptian forces into Sinai to try to regain control there – the IDF needed to rebuild and significantly increase the southern command.

Liberman said that the Egyptian forces, which Israel agreed Cairo could move into Sinai, have proven ineffective in fighting terrorism there.

The foreign minister was quoted as saying that it was conceivable that following the presidential elections in Egypt, Cairo would in a significant way renege on the peace agreement and move a considerable number of troops into Sinai. Globes and Reuters contributed to this report. (© 1995-2011, The Jerusalem Post 04/23/12)