Egypt's state-run gas company has terminated a controversial natural gas deal with Israel, adding stress to the increasingly fragile relationship between Israel and one of its only diplomatic partners in the Arab world.
If upheld by Egypt's military rulers, annulling the gas deal would level a symbolic blow to peaceful ties that have underpinned regional stability for more than three decades. Israel has said that the cancellation of the gas deal puts Egypt in violation of an economic annex of their 1979 treaty—the first between Israel and an Arab state.
The full impact of the decision was difficult to determine on Sunday night, and Israeli foreign ministry officials said they were still seeking clarification from Egyptian counterparts because they had not been formally notified.
With only two months before Egypt's military authorities are set to turn over power to one of the first popularly elected presidents in Egyptian history, the decision could augur the beginning of a steady worsening in relations.
Israel's Finance Minister Yuval Steinitz said his country viewed the cancellation of the agreement "with great concern."
"This is a dangerous precedent that clouds the peace agreement between Israel and Egypt," Mr. Steinitz said in a statement.
Sunday's cancellation appeared to be a business gambit aimed at securing a higher price and it remained unclear on Sunday night whether Egypt's interim ruling military leaders would intervene, said business analysts. The council of generals could not be reached for comment and they did not issue a statement on the matter.