Key Takeaways:
KSG assesses that the likelihood of a direct conflict between Israel and Hezbollah is currently high, as a ceasefire between Hamas and Israel is not in sight. Hezbollah states its hostilities against Israel are due to Israel’s actions in the Gaza Strip.
Israel's position as an ‘energy island’ makes its energy supply highly vulnerable to disruption by external threat actors. Hezbollah is capable of targeting Israel’s offshore gas fields (crucial for electricity production and regional exports) and land-based energy infrastructure in northern Israel.
Precision strike missiles provided by Iran in significant numbers means Hezbollah has the capability to successfully strike the infrastructure mentioned above. KSG considers the probability of a successful strike as likely if a full-scale conflict were to break out between Israel and Hezbollah.
The Threat to Gas Supplies
Often described as ‘an energy island’, Israel is dependent on importing coal and oil from abroad, and gas supplied by its own offshore fields for its energy supply. Given this vulnerability, KSG assesses that a war between Israel and Hezbollah would significantly strain Israeli energy supplies. The main reason is the threat of attack by Hezbollah on Israel's offshore gas fields. These include the Leviathan, Tamar, and Karish fields which supply the country with nearly all of its gas. These sources are incredibly vulnerable to attacks. Hezbollah possesses the offensive capabilities in the forms of rockets and missiles to launch attacks against these gas platforms and other gas related infrastructure. After gas deposits were discovered in 2009 and 2010 the Israeli energy sector was transformed as energy providers led a radical shift away from oil and coal (of which it has no domestic reserves). Israel now relies upon gas for 67.58% of its electricity production – in 2022 figures – and 40.61% as a share of energy consumption by source in 2023.
The vulnerability of these sources is highlighted by the fact that Hezbollah would not even need to resort to a direct attack to shut them down. The mere threat of an attack can be sufficient to cause the Israeli authorities to shut down operations as a precautionary measure. This has occurred previously, such as in May 2021 when Chevron – which has a concession for the Tamar gas field – said it would follow a request issued by the Israeli government to cease operations of a gas processing rig after Hamas announced intentions to target the facility. Israel’s Energy Ministry denied any such request had been issued.
Disruptions to Israeli gas production would also have implications for regional energy markets, as gas is exported from these fields to Jordan and Egypt. Egypt’s cabinet announced that power cuts would be extended due to fuel availability being impacted at a time when energy consumption peaks due to summer weather. For Israel, the interruption in supply could lead to increased reliance on alternative fuel sources, a loss of export revenue, an increase in electricity prices as suppliers switch to imports, as well as disruptions to the domestic energy supply in the short term.
Even though the threat from an all-out conflict would be greater than the Chevron incident mentioned above, KSG believes that Israel would likely attempt to continue production in some of its gas fields. The country is simply too dependent upon the resource to shut them all down for several weeks and it would take several days if not weeks before natural gas could be provided to power plants via (liquified natural gas) LNG sourced from the open market.
Yet KSG assessment concludes that an operational gas field would remain a prime target for Hezbollah, and a successful attack would be highly consequential. Gas supplies lost due to a partial closure would be compensated with foreign LNG imports, yet the insurance costs of energy companies and maritime traffic, not to mention the significant environmental damage, would be very financially damaging. Israel has a significant naval advantage over Hezbollah, and these would be tasked with protecting the country’s gas fields as well as escorting merchant shipping to Israeli ports. However, even with military protection, such trips would still carry significant risk, as demonstrated by Operation Prosperity Guardian in the Red Sea. The American led military operation has been active in fighting Houthi attacks since December 2023, yet commercial shipping is still avoiding the area and shipping is still regularly struck by projectiles. KSG assesses that this would result in a sharp decrease in merchant shipping to Israel. However, unlike in the Red Sea where ships risk their cargoes in transit and can simply select alternate routes, services to Israel would continue in a limited capacity to ensure the flow of essential goods, especially those deemed necessary for Israel’s security (for example – weapons and coal).
Additionally, there is a significant chance that Hezbollah will deploy new weapon systems suited for targeting shipping. The 2024 Annual Threat Assessment of the U.S. Intelligence Community highlights the continued military support provided by Iran to Hezbollah is increasing the sophistication of Hezbollah's capabilities[FG1] . Although specifics were not mentioned, KSG draws attention to the attack of the coal carrier ‘Tutor’ by the Houthis, on 12.06.2024. The bulk carrier was struck by two unmanned surface vehicles (USV) – commonly referred to as boat drones and sank six days later. This marks a lethal increase in capabilities due to the Houthis having so far relied on inaccurate missiles and drones. As reports from the UN Panel of Experts have shown, Houthi drones are supplied directly by or supplemented with technology provided by Iran. Given that Iran fosters extremely close connections to both militant organisations through the ‘Axis of Resistance’, KSG believes that weapons systems available to one group would be available to the other. USV’s could be utilised by Hezbollah to target ships attempting to enter Israeli ports.
Critical Infrastructure in Mainland Israel
Besides the threat to offshore energy infrastructure and sea trade, land-based energy infrastructure is also vulnerable to potential Hezbollah attacks, but would be treated as a higher priority target. This is due to the fact that the warfare in the land domain addresses more of their objectives. Whereas targeting offshore energy infrastructure would allow Hezbollah to destabilise Israel economically, attacking land-based infrastructure achieves this whilst also [FG2] granting them the opportunity to weaken Israel's defence systems and civilian morale.
Particularly vulnerable are those installations in the vicinity of the Israel-Lebanon border, as this would be the area primarily targeted by Hezbollah’s rockets and land incursions where possible. Several key power generation facilities are located in northern Israel. This includes the Haifa Power Plant (gas), the Orot Rabin Power Plant (coal/oil), the Alon Tavor Power Plant (gas), and the Hagit Power Plant (gas) with a combined nameplate capacity (maximum output under ideal conditions) of 5,410 megawatts (MW). This represents over a quarter of installed Israeli power generation capacity. In addition, one of the country’s two oil refineries – the Bazan refinery – is located in Haifa. Israel is also extremely dependent on desalination plants, five of which provide up to 85% of the country’s potable water.[FG3]
The degree of Israel’s energy sensitivity was highlighted by Shaul Goldstein, CEO of Noga (Israel’s National Electrical System Management Company) an independent contractor responsible for guaranteeing Israel’s electricity supply. Goldstein stated that Israel’s power grid was entirely unprepared in the event of a conflict with Hezbollah. He highlighted the lack of preparedness for a prolonged electricity outage, emphasising the critical impact this would have on daily life in Israel.
Hezbollah's recent release of detailed drone footage of Haifa indicates a strategic focus on Israeli critical infrastructure. The footage revealed detailed images of the civilian and military sections of Haifa Port, highlighting ships, containers, specific military assets like the INS Komemiyut landing craft, and images of the Haifa Airport, including the control tower and runway. In addition to indicating Hezbollah's aim to disrupt Israel's economic and military capabilities, the released footage underscores the challenges faced by Israeli defence systems in detecting and intercepting UAVs. Despite the sophisticated surveillance and defensive measures in place, Hezbollah's drones were able to penetrate Israeli airspace and gather substantial intelligence.
Alongside powerplants, an attack on the Haifa Port would be detrimental to the Israeli economy as well as foreign business interests. The Shanghai International Port Group (SIPG) operates the Haifa Bayport Terminal on a 25-year lease, whilst India's Adani Group, in partnership with Israel's Gadot Group, acquired the Haifa Port Company in a separate deal. The potential damage inflicted and loss of material would likely lead to a loss of investor confidence, increased insurance premiums, and heightened security costs, complicating international trade and investment in the region. [FG4] Domestically, Haifa accounts for 50.3% of all freight that passed through Israel’s four ports in 2018, A quarter of which is fuel and cereals. A shutdown would significantly disrupt domestic supply chains, leading to delays and increased costs for goods. This disruption would affect various sectors, including manufacturing, retail, and agriculture, and could potentially lead to shortages of essential goods in Israel.[FG5]
Hezbollah – often referred to as the ‘best armed non-state actor in the world’ – possesses armaments capable of striking such targets from distance. The militant group has amassed tens of thousands of warheads, many of which are guided and therefore capable of precision strikes. Despite significant Israeli and allied defensive capabilities, as demonstrated in April against the barrage of Iranian drones and missiles, there is no guarantee that all launched warheads would be neutralised in the event of a conflict[AH6] – KSG considers it likely that some missiles would strike their intended targets. During the attacks on October 7th, Hamas successfully struck the Rutenberg power plant, a dual-fuel (coal/oil) installation in Ashkelon. Israeli officials estimate that Hezbollah may have as many as 150,000 rockets and missiles aimed at Israel. This would cause significant power outages, disrupting industrial production, supply chains, and critical infrastructure like water desalination plants. In turn, this would lead to economic losses, public safety and health concerns, while also affecting daily life and healthcare services.
Loss of Coal from Colombia
Another acute concern, albeit secondary when compared to physical threats faced by Israeli gas fields and energy infrastructure, is Colombia’s suspension of coal exports to Israel due to the ongoing conflict in Gaza. In 2023, coal constituted a 12.41% share of Israeli energy consumption by source, while in 2022, coal was used for 22.05% of Israel’s electricity production. Coal serves as the primary fuel for the Orot Rabin power plant (Israel’s biggest plant by capacity, located in the Haifa district) and the Rutenberg power plant (the country’s second-largest, located in the city of Ashkelon). However, given the current energy mixture in Israel, these power plants are used primarily as a backup for other power plants when demand spikes, or during emergencies.
Suspension of exports will unavoidably compel Israel to find alternative suppliers for the 3 million tonnes of coal Israel imported from Colombia, which amounted to $450 million in 2023. Alternatives include China, the US, Russia, India, Indonesia, Germany and Australia. As a war with Hezbollah would definitely constitute an emergency, the Israeli government will want to ensure these power stations can be connected to the grid almost immediately to ensure diversity of sources and guarantee backup supplies. These supplies would need to arrive by maritime imports, as Israel has no domestic deposits. As noted, they would be subject to much higher insurance costs, and potentially even premiums as they would be traversing an area of high risk.
Looking Forward
Three factors are of importance in the short to medium run. The most important of these is the likelihood of an all-out war erupting between Hezbollah and Israel. KSG assesses that with little progress in peace talks between Hamas and Israel this is likely to happen. However, there is significant domestic pressure facing President Netanyahu’s government to negotiate for the release of hostages still held by Hamas in the Gaza Strip. Any agreement would require a ceasefire and the withdrawal of IDF forces from Gaza. This would make Hezbollah more inclined to refrain from hostilities as it links its attacks to Israeli actions in Gaza. Currently, however, KSG views the likelihood of a ceasefire agreement unlikely. Then in addition, even if a ceasefire were agreed, this might have little effect on the perceived threat of Hezbollah in Israeli security circles.
The second is the extent to which, and for how long, Israel would be able to cope with severe impacts to its economy and energy infrastructure. Not to mention the effect upon Israels civilian populace. Israel's energy insecurity [AH7] heightens its vulnerability to supply disruptions, and Israel’s opponents will attempt to, and are capable of, exploiting this vulnerability. The country would not be able to operate under unstable energy circumstances indefinitely, which would likely force Israel into taking firmer options to terminate threats quickly in the event of a war. and KSG predicts that this would limit the duration of a war.
The last factor that would influence the magnitude of disruption would be the degree of involvement by Iran. The principal actor in the ‘Axis of Resistance’ has inferred through recent statements by Kamal Kharrazi (foreign affairs advisor to Ali Khamenei) that it would support Hezbollah through all available means. [FG8] This would imply rallying its regional proxies in support of Hezbollah and providing arms, munitions, and other forms of lethal and non-lethal aid. The conditions for a wider regional conflict would be created, but KSG considers it unlikely that Iran would directly engage Israel.
On the business front, it is difficult to imagine a post-war scenario in which foreign investor and business sentiment is not negatively impacted. Naturally, this depends upon the nature of the conflict’s outcome. However, the conclusions from past conflicts between Israel and its opponents demonstrate that underlying causes are not solved in their aftermath. With this in mind, KSG assesses that foreign investor and business sentiment would be harmed during and after any conflict. In addition, Israel would require time to rebuild its international reputation, which has already been damaged given the conflict in Gaza, particularly amongst its neighbours and in the region generally. Prior to the war against Hamas, it was making headway in normalising relations with Saudi Arabia, which would have opened numerous trade and investment opportunities. Just recently however, the Saudi Foreign Minister called for ‘effective sanctions’ against Israel which shows how much work is still to be recovered. A conflict that further threatens Israeli gas will also have profound effects for its neighbours, given it is exported to countries such as Egypt and Jordan. Egypt has already had to introduce blackouts due to delivery shortages.
By Jake Glasmacher, Middle East Analyst