This is an audio transcript of the FT News Briefing podcast episode: ‘Spyware maker NSO hopes for a comeback’

Marc Filippino
Good morning from the Financial Times. Today is Monday, December 12th, and this is your FT News Briefing.

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The UK’s efforts to achieve energy independence are clashing with climate goals. European energy stocks are cheap and US investors are snapping them up. Plus, Israeli spy maker, the NSO Group, hopes a Netanyahu government will provide political cover to pursue new deals. I’m Marc Filippino and here’s the news you need to start your day.

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The environmental group Greenpeace is challenging the UK government’s plan to award 100 new licences for oil and gas exploration in the North Sea. Greenpeace just applied to the High Court for a judicial review. It says issuing the licences would torpedo hopes of limiting the rise of global temperatures. Two other climate groups have also weighed in. They’ve asked the UK business secretary to reverse the decision to award new exploration licences.

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Rallying US energy stocks have left the price of European energy stocks way behind. They are so cheap, relatively speaking, that US investors are snapping them up. BP, British Petroleum, for example, is now the second largest holding in BlackRock’s massive US equity dividend fund. The FT’s Nicholas Megaw says there are a bunch of reasons why European energy stocks are so much cheaper.

Nicholas Megaw
The economy in Europe has been weaker and is more exposed to the war in Ukraine. And also people have pointed to the businesses kind of diverging between Europe and the US, where you have European companies spending more time trying to build up renewable businesses, which you don’t get as much credit for at a time when oil prices are going up. And then there’s also been kind of local political risks where, you know, threats of windfall taxes on big producers and in some of Europe as well. At the same time, like there’s still massive oil producers and the business mixes aren’t that different, which is why you’ve got more and more investors in the US asking whether actually this gap is wider than it should be. It’s just been artificially inflated by the fact that there isn’t the same natural investor base for these companies in Europe. And so that’s why they’re paying more attention to it.

Marc Filippino
What about European investors, Nick? What are their attitudes toward investing in European energy shares?

Nicholas Megaw
Yeah, this has been a really big thing in the last few years, and it’s certainly something some of the US investors that we spoke to were saying is that they feel like there’s just not as much willingness in general to invest in any energy companies in Europe because concerns about ESG and sustainability is much more widespread amongst European investors. And secondly, even amongst various US investors who do care about ESG, they tend to think about it in a slightly different way. So whereas in Europe, there’s been a lot of investors who just say, we don’t want to go near any fossil fuel companies whatsoever. And so just the number of people willing to invest in like a BP or a Shell locally is lower. Whereas in the US actually sometimes investors are looking at like a European oil company and thinking, well, they’re putting more effort into green initiatives than the American ones are. So on a relative basis, they kind of think of it as a pro-ESG bet rather than something that they should avoid for sustainability reasons.

Marc Filippino
So Nick, why does this matter? Is there something that we can take away from this about where the energy sector is headed and where energy investment is headed?

Nicholas Megaw
Long term it raises some interesting questions for the oil companies themselves. If they’re saying, like how investors reward or punish them for different levels of investment in the energy transition, that could then influence future decisions on whether they bother making more investments in green energy. I think actually we should just focus on the coal, oil and gas.

Marc Filippino
That’s the FT’s US capital markets correspondent, Nick Megaw.

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Benjamin Netanyahu is poised to become Israel’s prime minister, again. It would be a remarkable comeback only 18 months after he was ousted and his victory is eagerly awaited by one of Israel’s most famous tech companies, the NSO Group. The company makes the controversial Pegasus spyware, and it was hit by a series of scandals and blacklisting by the US commerce department. To talk about why the company wants Netanyahu back in power, I’m joined by our cybersecurity correspondent, Mehul Srivastava. Hi, Mehul.

Mehul Srivastava
Hi, guys.

Marc Filippino
So Mehul, can you remind us about how big this company was and how badly it was hit?

Mehul Srivastava
So NSO was the darling of the Israeli kind of surveillance tech industries. It’s kind of a shadowy industry that we don’t know much about. But because NSO had reached like a billion dollar valuation and was owned by private equity funds and its software was being abused so widely, there was a spotlight on it. That spotlight eventually resulted in at least 6 to 7 months of no new sales for this company because it became a bit of a pariah in this industry. We wrote a story earlier this year saying that in October 2021, Shalev Hulio, the CEO, he had to go to the managers of the private equity funds that own and so on and ask them for $10mn loan just to make payroll.

Marc Filippino
OK, and the company went south because of a bunch of scandals that ended up with the US blacklisting the company. Can you tell us what happened after that?

Mehul Srivastava
So the blacklisting came at a really interesting time. It came immediately around the time that the American government became aware that NSO spyware had been used by somebody in east Africa to hack the phones of US embassy employees. And there’s a sense that that tipped the US government or the, at least parts of the US government over the edge, to say that this is a company that is, its product can be abused by its clients in a way that is, that’s counter to US interests. And they, the blacklisting was very clear. This is a product as a piece of spyware that’s so powerful that it could penetrate the encryption on your phone and mirror its contents anywhere and do that quietly and surreptitiously in the background. A product like this being made by this specific company, NSO, should not be in the hands of the clients who are gonna use it.

Marc Filippino
Now, in addition, the NSO’s spyware, Pegasus, was allegedly linked to the phones of associates connected to the murdered Saudi journalist Jamal Khashoggi. Was that link ever proven?

Mehul Srivastava
So that’s the most explosive allegation of all and has never been proven because nobody has access to Khashoggi’s phone other than the Turkish government. But the fact that Pegasus, which is the name of the spyware that NSO sells, was found on the phones of his very close associates to the Saudi dissident and in Canada and the women that he was close to in his life. Although this is something that NSO never acknowledges, it is now being contested in a court in Israel and it’s always asked for and received a gag order in this proceeding. So we don’t really know how that court case is going.

Marc Filippino
So the NSO has been struggling and now it’s hoping to get a boost from Netanyahu coming back into power. What’s the thinking there, Mehul?

Mehul Srivastava
When NSO was facing the deepest scrutiny over the last year and a half, Netanyahu was in the opposition. And while it isn’t clear that Netanyahu will use any of his political capital to try and get this commerce department blacklisting removed, it is clear that he is interested in getting the biggest prize of all, which is Saudi Arabia, to have one of the most important Muslim nations recognise Israel and to deepen its security relationship. That would be a huge get. He’s been very open about how he wants to do that as soon as he possibly can. And the Saudis were avid clients of NSO starting in 2017. But the problem is with the Khashoggi deal and the fact that after at some point, as we reported, the deal was cancelled and turned back on and was used to hack the phones of Al Jazeera journalists over in Qatar, which is a Saudi regional rival. It’s a very problematic deal. But if Netanyahu wants to keep deepening that relationship, weapons sales are a way to do it. And Pegasus is one of those weapons that the Saudis deeply desire.

Marc Filippino
Mehul Srivastava covers cybersecurity for the FT. Thanks, Mehul.

Mehul Srivastava
Take care.

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Marc Filippino
Before we go, there’s another company targeting Saudi Arabia with its products, Mars. Yes, the US confectioner and the world’s largest candy maker. Mars is targeting Saudi Arabia as part of the company’s mission to double the value of its candy sales in developing economies. To do that, it’s customising products to appeal to local tastes. Take Brazil, another consumer market Mars is working on. There you’ll find Snickers bars with bacon. In India, Snickers are flavoured with pistachios and saffron. Sounds pretty good.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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