Motti (not his real name ), a businessman with connections in Arab countries, was stunned several months ago when representatives of a well-known Israeli food company asked him to check the possibility of exporting to Iran. They told him an Iranian company had approached them through contacts abroad.

Motti refused. He didn't want to violate the embargo. But since then, he says, he's discovered that quite a few local companies and businessmen trade indirectly with Israel's number one enemy. So he wasn't shocked by a Bloomberg News story three weeks ago about Allot Communications selling Internet surveillance and monitoring equipment to Iran over five years through a Danish distributor.

Open gallery view Employees working at the Tripoli port. Credit: AP

According to the article, Allot sent the equipment to Denmark where workers removed the labels and repackaged it to hide its Israeli origin. It was then passed along to an intermediary who sold it to Iran. Three former Allot employees told Bloomberg that the equipment's Iranian destination was an open secret, but the company denied giving its approval or having any knowledge of its products winding up there.

"Trade with Iran is an ancient story," says Prof. Uri Bialer of the Hebrew University of Jerusalem, an expert in international relations who has researched ties between Israel and Iran. "Money has no smell. Iranians always try to do business, and there have always been Israelis with an eye for making money."

Nachum Shiloh, an expert on Iran and owner of GMI - Gulf Markets Intelligence - says that for some Iranian businessmen it makes sense to import from Israel. "Here we view Iran as the enemy, a demon," he explains, "but not every Iranian gets up every morning thinking of ways to destroy Israel. Iran has a large segment of businessmen who are not fanatics, people who want to make money and further their businesses - if they could only trade, even indirectly, with businesspeople and companies from Israel."

The Allot story is also surprising because over the past 30 years - since the Iranian Revolution and severing of ties with Israel - several trade scandals have provoked tremendous fallout, most recently an affair linked to the Ofer family's businesses.

Sanctions threatened by Israel and the United States are also intended to deter companies from considering ties, even indirectly, with Iran. But in today's reality, with crisis weighing on western markets, there are companies ogling the third world - with some finding markets in countries hostile to Israel. These countries also have many adoring fans of Israel's technology and products but, because of political sensitivities, everything must be done on the QT. Stickers and packaging saying "Made in Israel" must be removed and a bill of lading must be produced from an intermediary country - Turkey or somewhere in Europe.

"It's forbidden to talk about these things," says Dan Catarivas, director of the Foreign Trade and International Relations Division of the Manufacturers Association of Israel. "Israeli industrialists want to stay as far out of the spotlight as possible in this respect. Companies sometimes approach us asking how to obscure their product's Israeli identity. We refer them to experts in this field - usually shipment, transport and logistics companies."

"Operating surreptitiously is inconvenient and involves hard work and investment, but sometimes there's no choice," explains a senior official at a well-known Israeli high-tech company. "Our foreign competitors deal freely with Arab countries, so they can lower their prices in Europe - and this is really annoying. It's worth entering these markets to narrow the gap even slightly."

Israeli business quietly thrives in Saudi Arabia and Iraq, and in far-off countries like Indonesia and Malaysia, too. Company owners on both sides do all they can to avoid harmful publicity. Contacts are made at international conferences overseas, through European and U.S. companies familiar with both sides, and directly over the Internet.

"Technology, particularly the Internet, is making the world smaller," explains Eliran Malul at Arab Markets, which brokers deals in Arab countries. "Arab entrepreneurs are interested in Israeli technologies and search them out through the Internet and social networks like Facebook, Twitter and LinkedIn."

Fuzzy rules

Israeli law bans trading with Lebanon, Syria and Iran, directly and indirectly. Some businesspeople complain that rules are too fuzzy, especially when it comes to products showing up in unwanted destinations. "Sometimes Israeli companies don't know who they're selling to," says a high-ranking source at the Manufacturers Association. "Let's say you're fighting for the business of a new international customer. What can you tell him as you close the deal?: 'You won't sell the product to Iran, right?' Would it help? How would you know if he's lying?"

Some people believe Israeli companies play dumb regarding the final destination of their products. A high-tech source claims many international technology companies, including Israel-based companies, use local and regional distributors to market their products in broadly defined territories. Iran, for example, is frequently included in the Europe/Middle East/Africa distribution territory, allowing them to turn a blind eye to the product's final destination.

"Companies need to show growth and meet investors' expectations, and managers want to continue receiving bonuses," says the Manufacturers Association source, adding that they don't want to invest resources in investigating where their products end up.

Israel also uses businessmen and trade networks for political and commercial purposes. The state monitors activities of businessmen from Arab countries and enlists the help of Israeli businessmen in carrying out diplomatic missions and serving as intermediaries in clandestine intrigues. After it was revealed that ships belonging to the Ofer Group docked in Iran, foreign publications claimed the Ofer family's ships had for years assisted Israeli agents in infiltrating Iran. Sources close to the Ofer family hinted in the media at the same time that the Ofer Group claimed it had long played a part in the country's security.

Apart from this, throughout its existence Israel has used economic transactions for political ends. In the 1950s, for example, Israel secretly sold minerals from the Dead Sea Works to Romania - despite an embargo on communist bloc countries - to persuade Romanian authorities to let Jews there leave for Israel.

Until the rise of Islamic extremists in the late 1970s, Israel secretly bought oil from Iran - part of its tight relations with the Shah's regime - despite Iran's official participation in the Arab oil embargo on Israel.

Offices in Indonesia

Relations with Muslim countries extend far beyond the Middle East. In the late 1990s the Foreign Ministry tried establishing trade with Indonesia and Malaysia, Muslim countries with strong economic potential but without diplomatic relations with Israel. It was the heyday of the Oslo Accords and many believed Israel's economic ties to Muslim and Arab countries would become much more open and productive. Several years earlier Koor Trade had opened an office in Indonesia and began establishing low-profile trading relations there.

"Indonesia and Malaysia were a big story and we dedicated huge efforts to developing economic relations with them," recalls Alon Liel, the Foreign Ministry's director general at that time. "We reached all sorts of understandings on trade through a nearby embassy. We published a newspaper ad to interest Israeli businesspeople in investing there, but right afterward Indonesia and Malaysia abrogated all the understandings. The trade went underground. For the Foreign Ministry there was no point to it because it had no diplomatic value."

Trade continues covertly with Indonesia at the lowest possible profile and without diplomatic relations. Singapore serves as a base for businessmen trying to penetrate there. In 2007 a subsidiary of Ormat Industries signed a $200-million contract to supply electricity for 30 years. Ormat is part of a consortium on this project, with a Japanese bank providing most of the funding.

An Indonesia-Israel trade bureau was opened two years ago in a bid to make it easier for Israeli businesspeople to enter the country. Currently they can only get in by invitation from a local source sponsoring the visit. If none is available, the Israeli Embassy in Singapore assists by providing a local consultant who can serve as a sponsor in a pinch. Occasionally, however, the authorities turn down requests, depending on the country's political mood.

Indonesia is one of the world's fastest growing markets, with great potential in the field of communications because of its vast population - more than 200 million. Clandestine trade is also carried out in the opposite direction, according to Catarivas. Indonesian business delegations visit Israel, too, but this is kept from the general public. Israel imports eight times as much as it exports in its trade with Indonesia.

"This is an economic relationship with tremendous potential," says Emanuel Shahaf, chairman of the Israel-Indonesia Chamber of Commerce. "Businesspeople operating in Indonesia keep their cards close to their chests. Business is good and they don't want to share it with anyone. The Indonesians also maintain secrecy because of the political sensitivity."

Shahaf says neighboring Malaysia also has great potential but there it's even more difficult doing business. "They are more radical Muslims. While Indonesians shut their eyes occasionally, a Malaysian company needs a special permit from a government ministry to do business with an Israeli firm."

One of the most interesting countries for duality of relations with Israel, if not the entire Arab world, is Saudi Arabia. On the one hand it has produced some of the world's most heinous terrorists, most notably Osama bin Laden. On the other hand the country is considered a relatively moderate Arab state - in 2002 it proposed the "Saudi initiative" for peace between Israel and the Arab countries, an initiative disregarded by Israel. Saudi Arabia is at odds with Iran and enjoys excellent diplomatic and economic relations with the United States.

Quite a number of Israeli companies export products to Saudi Arabia, including technological goods. This is sometimes done through their U.S.-registered subsidiaries, thanks to the strong relations between the U.S. and Saudi Arabia. Israeli companies, such as body armor manufacturer Rabintex Industries, have also provided equipment to U.S. forces stationed in Saudi Arabia. (Rabintex entered receivership last week.)

Another interesting field is trade in plastics. Israel receives raw materials for its plastics industry - polyethylene and polypropylene deriving from petroleum production - from Saudi Arabia and other Gulf countries. These materials are sent in a roundabout way but Israeli authorities are aware of their source. Israel's plastics industry, in turn, exports greenhouse sheeting, irrigation drippers, house and garden products, disposable utensils and food packaging to Saudi Arabia. Some of these products are made by Turkish factories established by Israeli companies.

According to Liel, who once served as Israel's ambassador to Turkey, this inflates trade statistics with Turkey. "I assume the high trade figures with Turkey are biased to some degree because they include shipments to countries with which Israel has no relations."

Israeli guards in the Gulf

The wealthy Gulf countries are, without doubt, the most attractive places for Israeli business. As Dubai was building the Palm Islands - a megalomaniac real estate project delayed by the global economic crisis - Israelis had a hand in providing some of the shingles through an Italian roofing tile company.

A fair number of Israeli high-tech companies operate in the Gulf states. One field in which they are active is internal security, a particularly thriving activity before the assassination in Dubai of Hamas leader Mahmoud al-Mabhouh two years ago today. When the story broke there were media claims that photographic and security equipment used by Dubai police resembled Israeli technology. It was never confirmed that Mossad agents (according to foreign reports ) were caught through the use of Israeli technology, but it is known that quite a few companies in the Gulf states rely on sophisticated Israeli technology for security purposes. And not just technology - an Israeli-owned security firm protecting oil fields in one of the Gulf countries also brings in Israelis to guard them.

Israel also exports medical, agricultural and water technologies to the Gulf states. Trade depends on the regional political situation, like with the Mabhouh affair. "In such cases you simply keep your head down and wait until it all blows over," says Naava Mashiah, who lives in Geneva and brokers deals in the Middle East. "You need to be sensitive to the situation. You simply stop, not even sending emails, until the tide turns. Israelis have already gone back to doing business in Dubai, Abu Dhabi and Qatar."

Mashiah, who visits the Gulf twice a year, is part of a small group of Israelis who have turned the complicated occupation of business mediation between Israelis and Arabs into a livelihood. Some do it not just for the handsome financial reward but also in the belief that it could bring long-desired peace a step closer. Mashiah belongs to Israeli Peace Initiative, a movement formed by Idan Ofer whose membership, which includes prominent personalities in Israel's business elite, wants to establish an alternative to the political deadlock in the region.

In dealings in Arab countries it's impossible to separate the political and business aspects, says Mashiah. "The Saudi initiative didn't get a response from Israel, and the Arab world sees this as an insult. The Israeli Peace Initiative, in a way, provides an answer to the standstill because it shows there are serious Israelis aware of the political situation and working to change it. Israel is becoming increasingly isolated in the world, and our group is trying to break this isolation. One way is by creating business ties with Arab countries."

A mysterious note slipped to the MK

Of the several scandals involving Israeli-Iranian trade with political and security overtones, the most momentous was the Iran-Contra affair in the 1980s when Israel mediated the U.S. sale of weapons to Iran, transferring the proceeds to the Nicaraguan Contra rebels. One of the key figures tied to the affair was Amiram Nir, the first husband of socialite Judy Shalom Nir-Mozes and the prime minister's adviser on terrorism at that time. He was killed in a mysterious plane crash in Mexico in 1988.

Businessman Nahum Manbar was at the center of another episode. Manbar, who traded with Iran for several years before being caught, was convicted in 1998 for selling it chemical weapons. Several months ago he was released from prison.

The most recent flap, dubbed Ofergate, broke out last May when the U.S. State Department disclosed that the Ofer Group had sold an oil tanker to Iran's national shipping company in violation of international trade sanctions. The ship was reportedly sold by Tanker Pacific, an Ofer Holdings Group subsidiary, for about $8.5 million through a third party. The State Department consequently blacklisted the Ofer Group, impeding its U.S. business activities and ability to obtain credit from U.S. banks. It was revealed by TheMarker that Tanker Pacific ships had docked in Iranian ports on a number of occasions over the last decade.

A debate on the affair by the Knesset Economic Affairs Committee was abruptly cut short when a mysterious note was slipped to committee chairman Carmel Shama-Hacohen. The contents of the note have never been revealed. Several months later the U.S. announced it was removing the Ofer Group from the blacklist following discussions with group representatives. Tanker Pacific, however, was left on the list. Following that scandal the Finance Ministry is setting up an operations center to coordinate international economic sanctions.