Energy-related stocks across Turkey and Israel advanced after officials said the two countries are mending diplomatic ties, potentially paving the way for multi-billion dollar gas contracts.
The Borsa Istanbul Electricity Sector Index climbed the most since February on a closing basis and the TA-Oil & Gas Index in Tel Aviv rose the most since Thursday. Istanbul-based Zorlu Enerji Elektrik Uretim, an electrical-utility company with investments in Israel, was the biggest gainer on a percent-basis across both gauges. The stock soared 9% as traders exchanged 79mn shares, more than 15 times the 20-day average and the most this year.
A reconciliation agreement restores diplomatic relations that were suspended six years ago after 10 pro-Palestinian Turkish activists were killed in a clash at sea with Israeli commandos. With Israel seeking to export fuel from its largest field and Turkey trying to cut its reliance on Russian gas, the energy deals that may follow are a boon for both nations.
“Energy cooperation is the first thing that comes to mind when I think about the Israel-Turkey deal,” said Burak Demirbilek, an analyst at Istanbul-based Seker Yatirim Menkul Degerler. “While there are other company names out there, Zorlu is the first one investors think of and is perceived to be the biggest beneficiary” because it’s the only company with ongoing energy investments in Israel, he said.
The Borsa’s electricity gauge added 3.5% as of 2.01pm in Istanbul, and the TA-Oil & Gas Index climbed 0.3% to 983.72.
Israeli Prime Minister Benjamin Netanyahu confirmed the agreement in Rome saying the deal will allow the country to export gas to Europe, while Turkey’s Prime Minister Binali Yildirim said the nation will complete a number of construction projects in Gaza and Jenin, including a 200-bed hospital and an industrial zone.
The deal helps alleviate concerns that Turkey will do little work on its growing isolation from the international community. A diplomatic fallout between Turkey and Russia in November, which led to economic sanctions and a 79% decline in the number of Russian visitors, began when the Turkish military shot down a Russian warplane that strayed into its airspace in November. The countries want the crisis to end, said Yildirim.
“On a perception level, there was this prevailing pessimism that Turkey will remain alone in the global arena and that its foreign affairs would not get better,” Burak Kanli, an economist at Finans Invest in Istanbul, said by phone. “This deal between Israel and Turkey may help cap investor pessimism and triggers bets that Turkey may tout a foreign policy that reflects economic realities.”
While Israeli tourism to Turkish resorts fell more than 80% since 2009, other business channels remained open and bilateral trade reached a record $4.4bn in 2011, according to official Turkish figures. It was near that level last year.
The Tamar gas field holds about 10.8tn cubic feet of gas and the Leviathan, the country’s largest offshore site about twice that amount.
The Leviathan gas partners, which include Delek Group Ltd, the country’s largest energy company by market capitalisation, and Houston, Texas-based Noble Energy Inc, need export contracts to get financing to develop the field. Delek rose as much as 2.7% before falling 0.6%.
“The gas partners in the Leviathan gas field are expected to get a higher price for gas in an agreement with Turkey compared with a deal with neighbouring countries such as Egypt,” said Gal Reiter, an analyst at Bank of Jerusalem in Tel Aviv.