By Anurag Punetha
In the labyrinth of Middle Eastern geopolitics—where missiles fly and proxies move like pawns—a forgotten $1 billion oil debt from 1979 continues to haunt the bitter Iran-Israel rivalry. It’s not just an economic dispute. It’s a ghost story about trust betrayed, friendships turned hostile, and alliances collapsing into vendettas.
Before 1979, Iran and Israel were unlikely but strategic allies. Under Israel’s “Periphery Doctrine,” which sought allies among non-Arab nations, Iran emerged as a key partner. The Shah’s Iran provided oil; Israel offered arms, intelligence, and support. The Mossad and Iran’s SAVAK shared secrets, guarded common interests, and operated as silent guardians of the pro-Western status quo in the region. The United States, still glowing from its 1953 coup against Iran’s elected Prime Minister Mossadegh, encouraged this cooperation.
Then came the Iranian Revolution. The fall of the Shah and the rise of Ayatollah Khomeini shattered the alliance overnight. Iran transformed into an anti-Western theocracy and recast Israel as a mortal enemy. The once-busy Trans-Israel oil pipeline was shut down. But Israel still owed Iran around $1 billion for previously delivered oil. Tel Aviv refused to pay, citing Iran’s new hostile status. Tehran, meanwhile, saw it not merely as unpaid dues, but as betrayal, compounded by diplomatic coldness and covert war.
This oil debt became more than a legal dispute—it morphed into a symbol of lost friendship and festering rage. Iran sued in international courts and won, but Israel never paid. Over time, this financial ghost became embedded in the broader psychological war. Iran-backed proxies like Hezbollah and Hamas; Israel retaliated through cyber warfare, sabotage, and assassination. The old intelligence alliance now lay buried under layers of mistrust, replaced by missile trails and encrypted warfare.
Such fallouts aren’t unique in the annals of espionage. History is littered with former allies turned enemies.
During World War II, the United States and Soviet Union cooperated to defeat Nazi Germany. The OSS and the NKVD even collaborated on counterintelligence. But by 1945, that camaraderie splintered into the Cold War. The exposure of the Cambridge Five—British spies for the Soviets—exemplified how shared intelligence networks can become tools of betrayal.
The same pattern recurred across time. France and Britain, once co-defenders of American independence, became rivals after the French Revolution. Germany and Russia—initially aligned under the League of the Three Emperors—became adversaries by World War I. And in East Asia, China and the Soviet Union went from communist comrades to rivals by the 1960s, with both sides infiltrating each other’s intelligence services and clashing at the Ussuri River in 1969.
Even in the modern Middle East, relationships built on intelligence cooperation often falter. Egypt and Israel collaborated against Hamas before 2011, but Mohamed Morsi’s brief Islamist rule disrupted that alignment. Though cooperation resumed under President el-Sisi, the relationship remains cautious and transactional.
In this context, Israel’s unpaid oil debt is no minor bookkeeping error. It’s the scar tissue of a much deeper wound. It has appeared in Iran’s courtroom battles, in fiery Friday sermons, in missile rhetoric and diplomatic indictments. It’s a ghost that shows up not in bank ledgers, but in blood and fire.
Since the early 2000s, Mossad has led a shadow campaign against Iran’s nuclear program. The 2010 Stuxnet cyberattack—widely attributed to Israeli and U.S. intelligence—crippled Iran’s centrifuges. Between 2010 and 2022, at least seven Iranian nuclear scientists, including Mohsen Fakhrizadeh, were assassinated. In 2024, Israeli airstrikes killed IRGC commanders in Syria. Iran, meanwhile, escalated its regional outreach—arming Hezbollah in Lebanon, Hamas in Gaza, and the Houthis in Yemen.
Beneath all this strategic manoeuvring lies a deeper emotional story: how trust curdles into hatred. The intimacy of the Iran-Israel fallout makes it unusually vicious. These were not strangers; they were once partners in intelligence, trade, and covert diplomacy. They knew each other’s systems and weaknesses. Today, that knowledge translates into surgical strikes, cyber sabotage, and psychological warfare.
What makes this story chilling is not just the unpaid debt—it’s what it symbolises. It’s a frozen moment in time, a pivot from promise to peril. The 1979 Revolution didn’t just reorient Iran politically—it changed its perception of betrayal. For Iran, the unpaid money represents humiliation and moral injustice. For Israel, the alliance was broken by revolution and religious extremism.
This isn’t a conflict driven by land or even religion alone—it’s about loyalty, memory, and vengeance. Iran’s nuclear ambition, its proxy strategy, and its missile program are all shaped by a siege mentality—one that sees betrayal everywhere, especially in Jerusalem and Washington. Israel, facing existential threats from Iran-backed militias and missile systems, operates from a doctrine of pre-emption and dominance.
The Iran-Israel drama reminds us that espionage is built on fragile trust. When that trust breaks, the fallout is not limited to policy shifts—it turns into an intergenerational vendetta. Intelligence agencies, which once built silent alliances, become instruments of revenge. The oil debt, then, is not merely a monetary figure—it’s a metaphor. A balance sheet of betrayal.
Until this ledger is settled—not just financially but symbolically—it will continue to fuel conflict. It will haunt not only Iran and Israel but also every alliance that imagines intelligence cooperation as eternal. Because in geopolitics, as in life, the most dangerous enemies are the ones who once called you a friend.
Contributing Author: Anurag Punetha is a senior journalist and Media Head of the Indira Gandhi National Centre for Arts, based in New Delhi, India.
Disclaimer: The opinions expressed within this article are the author’s personal opinions. The Australia Today is not responsible for the accuracy, completeness, suitability, or validity of any information in this article. The information, facts, or opinions appearing in the article do not reflect the views of The Australia Today, and The Australia Today News does not assume any responsibility or liability for the same.
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