Global Economics

A Mideast Valley of Peace


Business and political leaders are backing a Red-to-Dead Sea canal project that would solve the area's water crisis. Can it bring Israelis and Arabs together?

Itzhak Tshuva was born into a poor family of 11 who crammed into a single room after immigrating to Israel from Libya in the 1940s. He went on to build a global real estate empire that includes New York's Plaza Hotel, as well as a recently announced $8 billion luxury hotel, retail, residential, and casino complex on the Las Vegas Strip. Now the 60-year-old billionaire, one of the world's richest men, is spearheading an ambitious plan to bring another desert project to life.

This time Tshuva has set his sights on the Arava, an arid valley along the southern portion of the border between Israel and Jordan. If his vision comes to pass, the private sector will build a $3 billion canal that not only connects the Red Sea to the Dead Sea but also links Israelis, Jordanians, and Palestinians—possibly helping bring about peace through greater economic integration.

This so-called Valley of Peace is part of a 520-kilometer (323-mile) corridor being proposed by Israeli President Shimon Peres for regional economic development. About 420km of the corridor runs along the Jordanian border—with no fences, walls, or minefields—and another 100km touches on the Palestinian territories. Other projects envisioned by Peres involving the German, Japanese, and Turkish governments are meant to create up to a million new jobs in Israel and the West Bank. "People are sick and tired of peace conferences because they don't see the results," says Peres. "Here they can have jobs and make a living."

An Ambitious Vision

The 166km (103-mile) Red-Dead Sea canal is only the beginning. Both sides of the waterway would be developed to include convention and cultural centers, up to 200,000 beds of hotel space, restaurants, parks, artificial lakes and lagoons, waterfalls, and one of the largest botanical gardens in the world. Greenhouses would produce winter fruits and vegetables to be sold in the region and abroad. A high-speed train line and highway would run along the canal, transporting people and goods between the Dead and Red Seas within an hour. The area also could be made into a free-trade zone, attracting investment from around the world.

It's an audacious vision, to be sure, but the question is whether it will ever happen. Engineers have talked about building a canal from the Dead Sea to the Red Sea since as far back as 1858. Some 30 years ago when Menachem Begin was Prime Minister, plans were floated to link the Dead Sea to the Mediterranean, and in the 1990s, after Israel and Jordan signed a peace treaty, a Red-to-Dead Sea canal plan blossomed again. But progress has been excruciatingly slow.

The difference this time is the private sector is getting on board in a big way. Peres has long championed the project as a path to peace through regional economic cooperation. Now people like Tshuva—who owns the El-Ad Group real estate empire and a controlling interest in Delek (DELKG.TA), Israel's second-largest oil and gas company—and Carnival (CCL) cruise line heiress Shari Arison are throwing their support behind it.

Arab Support for the Project

Joining them are Nochi Dankner, chairman and chief executive of IDB Holding, which has interests in telecommunications, real estate, and insurance; Stef Wertheimer, founder of Iscar Metalworking, which sold 80% of its shares to Warren Buffett's Berkshire Hathaway (BRKA) in 2006 for $4 billion; and Israeli businessman Benny Steinmetz, who owns interests in diamonds, high tech, real estate, and African mines.

Equally important, the project is getting a warm reception in parts of the Arab world. Peres says he has received letters of support from both Palestinian President Mahmoud Abbas and Jordan's King Abdullah II. And according to Israeli press reports, Saudi Prince Alwaleed bin Talal—known for his investments in Western icons such as Apple (AAPL) and the Plaza Hotel—recently told Tshuva that he will support the project through Jordan.

The combination of private-sector and regional support could tip the balance. Peres says building the canal could take as little as two years, once the Israeli and Jordanian governments pass the necessary legislation and bids are put out to tender. Another positive factor: The project is intended to be as "green" as possible, in keeping with the current global interest in environmentalism.

Major Desalination Complex

A key component of the project concerns water. In addition to the canal and commercial areas, the Valley of Peace would host a massive desalination complex capable of producing a billion cubic meters of fresh water annually. That would be enough to meet 30% of the water needs of Israel, Jordan, and the Palestinian territories—as well as to make the Arava green on both sides of the border. To minimize the energy impact of producing that much water, the project would include hydroelectric power plants that take advantage of the difference in height between the two seas.

Jordan, which currently runs an annual water deficit of 500 million cubic meters, is especially keen on the desalination. "We will need to urgently consider various options if the RedDead Sea canal project is not built," says Professor Mousa Mohsen, a water expert at Hashemite University in Zarq, Jordan. The project also fits into the "Mediterranean Union" concept articulated by French President Nicolas Sarkozy, which focuses heavily on both water production and alternative energy. He plans a visit to Israel in June, and the Valley of Peace is likely to be on the agenda. "Environmental and economic issues force people to ignore borders," says Israeli President Peres.

To be sure, there are environmental concerns about the project—paramount among them, the unknown consequences of mixing the waters from the Red Sea and Dead Sea and the ensuing ecosystem effects. The World Bank has hired outside consulting firms to investigate the environmental impact of the canal, as well as the desalination and power-generation portions of the project. But it doesn't cover the tourism and agricultural elements introduced in the new Tshuva plan.

Reverberations in the Fertilizer Industry

The issue for the Dead Sea is it is slowly dying, dropping by one meter per year due to evaporation and diversions by Israel, Jordan, and Syria. The surface is now about 420m below sea level. But pumping in water from the Red Sea poses problems because the two bodies have different densities. The Dead Sea also is rich in calcium while the Red Sea is rich in sulfate, and mixing the two could create gypsum, which would interfere with the lucrative business of extracting potash from the Dead Sea.

It's not an insignificant worry. Potash is highly sought-after for making fertilizer, and Dead Sea Works, a subsidiary of Israel Chemicals (ICL.TA), and Jordan's Arab Potash Co. (APOT.AM) produce about $3 billion worth every year, plus $1 billion in byproducts such as bromine and magnesium. No wonder, then, the companies are calling for a thorough review before the project gets approved.

Still, most experts think the only way to save the Dead Sea is to pump in water from someplace else—either the Red Sea or the Mediterranean. That's the view of Michael Beyth, former chief scientist of Israel's National Infrastructure Ministry, who served as the head of the Israeli team that helped draw up the tender for the World Bank feasibility study. But Beyth and others oppose adding the ambitious tourism and agricultural projects proposed by Tshuva.

"The saving of the Dead Sea is the goal of the project, not the building of thousands of hotel rooms," says Naama Ela, a lawyer for the Israel Union for Environmental Defense. In the end, Beyth predicts, "the actual scale of the project will be largely determined by the environmental impact on the Dead Sea." Or, perhaps, by the big money that could be made from tourism, recreation, and the sale of water, power, and crops. This canal may really happen, and with some luck peace will follow.

With Neal Sandler in Jerusalem.


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