Energy Exploration Process a Major Test for Lebanon

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Maybe there may be some luck in Lebanon’s future after all. For 60 years, the people of Jordan, Palestine, and Lebanon benefited from the region’s oil wealth, not directly, but as a result of the hundreds of thousands of their citizens who worked in the Gulf since the early 70s.

Visiting Aramco and cities throughout the Kingdom in the late 70s and early 80s, I invariably came across Lebanese working in Saudi Arabia (my Barakat cousins even had a company in Jeddah), in many positions related to the country’s development – from the financial sector to agriculture, food processing, retail, construction, engineering, and education, among others.

In those years, Yemeni shopkeepers recognized my accent from having lived in Sanaa, which only slightly affected the jabali (mountain = hillbilly Arabic) I learned from my parents…some things are not worth changing. Even today people enjoy hearing my Araby makhlota (mixed Arabic) as the Lebanese language, thanks to LBC, Fayrouz, and Lebanese cinema, is well-known throughout the Arab world.

Now, Lebanon, nishker allah, may finally get a break if it can diminish its usual tribal politics and move ahead proactively with awarding its oil and gas concessions. A recent Al Monitor called the potential energy resources a “game-changer” for the country, as Lebanon and Israel met to discuss for the first time the demarcation of their maritime border.

It was only a year ago that the Lebanese government, despite a vacant presidency, agreed on a formula to divide the offshore gas and oil blocks using political, geographic, and sectarian criteria! Sectarian business as usual had delayed the agreement, giving Cyprus and Israel a significant head-start in exploiting the potential resources.

The first two blocks were recently awarded and an agreement is expected to be signed by the end of January, with exploration slated for mid-2019 and any commercial production in 2021-22.

Two major conditions will impact the likelihood of production: a continuing agreement between the political factions, already threatening to implode; and maintaining the current stalemate between Hezbollah and Israel as one of the blocks in located next to the Israeli economic zone. Internally, managing the energy agreement is a hot item that may affect the Aoun-Berri alliance. President Aoun, keeping with his pledge to keep corruption out of the energy business, wants the Energy Ministry, held by his party, to be in control; while Speaker Nabih Berri, is, of course, looking to set up an agency controlled by his party, to shape the award and exploration process.

According to Al Monitor, “The next parliament, with a term that expires once the energy exploration concludes in 2022, will have to debate and vote on establishing a sovereign fund to preserve and invest the surplus revenues of oil and gas production. The exploration process’ financial dimension is currently led by a small unit in the Finance Ministry, while the energy minister, advised by a multi-confessional Petroleum Authority, handles the technical side. Moving forward, Lebanese politics is not expected to have an impact on the exploration process, at least until production starts.”

Who controls the future?

Absent Hezbollah, it would have been rather straightforward for Lebanon and Israel to adjudicate a boundary in the sea. However, given the continuing war of words on the border, this is not a sure bet. As Al Monitor put it, “The blue line that was drawn in 2000 between Lebanon and Israel, from Shebaa Farms to Naqoura, was not extended into the sea, which caused a dispute over 860 square meters (9,257 square feet) of international waters and triggered an energy exploration race between Lebanon and Israel.”

Previous US and UN efforts to hammer out a bilateral agreement failed and were suspended in 2014. In December 2017, military commanders from UNIFIL, Lebanon, and Israel met to demarcate the “maritime blue line.” “Satisfied with the status quo along the Lebanese-Israeli border since 2006, both Hezbollah and Israel became less interested in a confrontation as they eyed the economic benefits of oil production,” according to Al Monitor.

What’s vital to Lebanon is that, given its excessive power demand, it will absorb an energy production for at least the next two decades. Given that the production costs may increase due to the sedimentary layers about the hydrocarbons, an increase in production costs may cut into the profits of the Lebanese state.

As the Al Monitor article concludes, “Managing expectations is paramount regarding the potential benefits and rewards of energy production. The Lebanese government has yet to devise a long-term economic plan or offer a road map that addresses the country’s crippling electricity problem and a national debt spiraling out of control. Lebanon’s energy promise could indeed be a regional game changer, but the jury is out on whether the Lebanese people will get the chance to reap the economic benefits.”

And the Walls Came Tumbling Down, Up, Then Down Again

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 The New Year has some new looks and some old threats along Lebanon’s borders. Part of the good news is that Lebanon’s five official border crossings with Syria are all open, some of them closed for five years. Maybe more importantly for the Lebanese, the government has finally removed security barriers in the downtown section around Parliament Square, which were not only an eyesore, but a death knell for the businesses that once thrived in the area.

When I visited Lebanon in 2006 with my children, there was no better time than being part of the happy crowds strolling along the streets watching the World Cup and savoring the nightlife of Beirut. The area was closed off after a show of strength by Hezbollah in response to the government trying to reign in its illegal ITC network. Then the area was the site of large-scale demonstrations during the trash crisis.

This made it a flashpoint for anti-government actions with the result that the area was barricaded except for a bit of foot traffic. One of the most attractive centers that Solidere built in the reconstruction of Beirut’s downtown became a virtual ghost area, soon to lose its luster to Beirut Souks, a misnamed tribute to the original shopping district of the city.

According to a recent article, “Parliament Speaker Nabih Berri ordered the roads leading to the Parliament Square open days after the square witnessed its largest New Year’s Eve celebration, with thousands of revelers, as part of a government initiative to revive the area. Berri on Wednesday urged business owners, restaurants, hotels and offices in the area to reopen after many of them had closed down, having given up on the area attracting visitors again.”

Well, that was one source of optimism. Another is that the last official border crossing at Qaa between Lebanon and Syria that had been closed is now opened. With a large sign “Welcome to Bashar al-Assad’s Syria” greeting those who use the crossing, there is a not so subtle reminder on the sign that “The Lebanese and Syrians are one people that live in two brotherly lands.”

The Syrian government, under Assad father and son, insisted that there was no need for an ambassador to Lebanon as the countries were one peoples divided by the Great Powers. While this sentiment once had some popularity in Lebanon, that faded under the Syrian presence after the civil war and has diminished even more with the hosting of more than 1.5 million Syrian refugees in Lebanon.

While the opening is good news for local residents on both sides of the border with property, family, and friends now accessible, it is not seen as an indication that Syrian refugees may soon begin to return home. At this point, the main beneficiaries are Syrians who can come to Lebanon and finds goods and products unavailable in war-ravaged Syria.

The newly opened “Chtaura-Homs road,” according to one article, “Used to be a busy artery, with hundreds, if not thousands, of cars crossing the border every day. But clashes between different rebel groups operating from Syria and the Lebanese army forced its closure.” This past year, with the territory back under government control, “All five official border crossings between Lebanon and Syria are now open and controlled by the Syrian regime.”

Chtaura is a key city in the Bekaa valley, a major agricultural area in Lebanon long under the control of Hezbollah. Locals are hoping that in time the situation will normalize and customary business will resume. This is critical for the Bekaa, which is “one of Lebanon’s poorest regions and houses a disproportionate number of Syrian refugees compared to the rest of the country because of its proximity to the border. There are a little under 1 million Syrian refugees registered with the United Nations High Commissioner for Refugees, of whom roughly 350,000 live in the Bekaa Valley. However, Lebanese officials believe that the number of Syrians that fled to Lebanon because of the war is closer to 1.5 or 2 million people,” according to an article in Al-Monitor.

The article noted that “Those who are tempted to go home are still wary of the economic situation back in Syria. Askar, a young agricultural worker, fled Homs to Qaa several years ago with 100 extended family members. “[God willing] we will go home soon. But there are still problems. We will not be able to live like before. For now, the situation is still better in Lebanon, as I can find work here.”

According to a Lebanese security official interviewed by Arab News, “the whole issue could be limited to local residents only, because there are Lebanese citizens who have properties in Syria, and there are Syrian citizens who have relatives in Lebanon, otherwise we do not expect the return of Syrian refugees to inland Syria.” He estimates that there are about 30,000 Syrian refugees in the border area.

Noting that the open crossing with enable better control of the movement of refugees, “the actual return of refugees is still awaiting a political solution for the war in Syria, which involves tackling the issue of refugees.” However, the source said that “opening the border crossing is part of field preparations for any future step in this direction.”

An indication of how unresolved the situation is was a statement from Prime Minister Hariri’s office that “those who think the war in Syria is over are mistaken.” Without a formal rapprochement between the two governments, which will be difficult given the enmity between the Prime Minister and President Assad, the opening is symbolic and functional, no more.

From the Lebanese side, the regional representative of Lebanese General Security, Major General Abbas Ibrahim, inaugurated the new General Security center without coming to the Syrian side. He said in a speech that the inauguration of the center “is of great importance at these exceptional sensitive times. We are here to set the borders of our homeland with efforts and sacrifice.” He also said that “the cooperation with the Syrian side is within the limits imposed by the procedures and laws,” stressing that “the policy of dissociation has nothing to do with opening the border crossing.”

Of course, Israel is looking closely at any movements by the Syrian government or its ally Hezbollah to change the status of the current borders, an issue I will explore in my next blog.

Border War of Words Threatens Economic Recovery of Lebanon and Dissociation Policy

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Recent movements by Hezbollah and the Syrian Army on Israel’s northeast border and the strong likelihood of no US disapproval of any upticks in Israeli militancy regarding the Palestinians, Hezbollah, or its borders, has prompted statements and actions by Israel’s right that portend bad news for Lebanon’s stability and security.

While Lebanon’s government and citizens are pressing for more economic development, stability in the political arena, and incremental reforms needed for infrastructure projects, the war of words on the southern border are heating up, most recently around the visits of Syrian, Iranian, and Hezbollah military leaders to the area. The most immediate effects are the potential to divert government funds away from development to security, discourage international investors from entering Lebanon, and cast doubt on the stability needed to move ahead with the May elections

Recent flare-ups include the statement from the IDF spokesperson Avichai Adraee telling Hezbollah to refrain from any aggression “because we are going to surprise you if you dare. Maintaining stability in the region is a common interest of the Israeli and Lebanese sides, but if you dare, we will surprise you.” Of course the root cause of the recent resumption of hostile exchanges is Iran’s success in support the Assad regime’s hold on power. Adraee said that “Hezbollah has been working as an Iranian arm in Lebanon and sacrificing Lebanese to foreign interests. [and that Israel] is closely monitoring what Hezbollah is doing as well as what is happening on the border and beyond.”

This past week, the Israel’s security cabinet met several times to review conditions along Israel’s northern border, discussion which were reported to be “extremely significant.” Among the issued reportedly discussed were Iran’s activities supporting the Assad regime, its likely control in the near future over most of Syria, Hezbollah’s possible next actions, and options for dealing with growing Iranian presence in Syria.

Also noted in the article is that PM Benjamin Netanyahu has expanding his conversations with world leaders on Iran’s efforts to set up bases in Lebanon and Syria using Hezbollah and Syrian Shiite militias as proxies. Among his most immediate concerns is that “At the end of December, Assad’s troops, accompanied by Iranian-backed militias and the Hezbollah, took over the Syrian Golan from the rebels, giving the government control over the Golan Heights, captured by Israel from Syria during the 1967 Six Day War.”

Adding more incendiary comments from Israel,

the IDF Chief of Staff Gadi Eisenkot said that Hezbollah was the most serious threat to Israel followed by other Iranian-backed jihadist groups in the border areas. Without giving his sources,, Eisenkot mentioned that “Each year Iran sends between $700 million to $1 billion to Hezbollah, $100 million each to Shiite militias in Syria, Shiite militias in Iraq, rebels in Yemen, and to the Palestinian Islamic Jihad and Hamas terrorist groups.”

He repeated charges that “the Hezbollah terrorist group has transformed from a so-called defender of Lebanon to an Iranian proxy in Syria, Iraq, and Yemen,” with significant defense capabilities as well as the ability to attack Israel.

Eisenkot noted that with regard to Syria, the IDF will continue to strike targets in Syria to prevent build-up of a military capability and presence on the border by Iranian-backed Shiite militia. These statements came on the heels of a heightened movement of Iranian-backed militias into Beit Jinn, close to the border with Lebanon and the last significant rebel-controlled area on the border.

This is problematic for Israel in that “After years of cultivating ties with rebel-held forces across the border in the Golan, Israel now faces the prospect of the return of forces from the Lebanese Shiite Hezbollah army and fighters commanded by Iran.” This will also impact Israel’s so-called “good neighbor policy” that provided humanitarian assistance to Syria’s rebel-held villages.

In light of the incremental success of the Syrian regime and its allies inching closer to the border areas, some Israeli analysts are encouraging the Israeli government “to bolster the pockets of non-regime holdouts…[by] quietly trying to broker a cease-fire deal between Druze, Muslim, and Christian areas…to communicate to villagers that they should avoid cooperation with Hezbollah and Iran, and focus on their local interests rather than foreign powers.”

While this may differ in many ways from the South Lebanon Army, which was allied with Israel until it was disbanded in 1980, it poses a threat for Lebanese who would then be exposed to retaliation from the militant and heavily-armed Hezbollah. Today the Iranian presence and influence in Syria most troubles Israel, and could lead to preemptive actions that damage Lebanon’s infrastructure and security capabilities.

What this means for Lebanon in advance of the May Parliamentary elections is unclear. Unless the government has unfettered access to Lebanese civilians throughout the country, there may be challenges to the results and once again push Lebanon into political stalemate.

Can Lebanon Salvage Its Stability and Regional Economic Role? PR Hariri Thinks So

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A recent story on www.Naharnet.com featured an assessment of Prime Minister Saad Hariri’s recent experiences and his vision for Lebanon in the coming year. He emphasized once again that it is vital that the parties in Lebanon engage in serious and concrete dialogue as the only possible approach to moving the country forward.

The posting noted Hariri’s statement “Emphasizing that he and certain political parties will not agree on a lot of issues, especially regional matters, Hariri asked: “Without dialogue, how would the situation in the country be? We experienced the absence of dialogue prior to the Taif Accord but we ended up around the same table. The Taif Accord is doing very well because we will always defend this Constitution.”

Despite his return and the commitment of the government to observe the dissociation agreement, many questions regarding the relationship with Saudi Arabia, the role of Hezbollah as Iran’s proxy, the flailing economy, and the impact of the outcome of upcoming election on May 6, still confound most Lebanese and outside observers.

Hariri remains proactive on the economy

High on the PM’s agenda is restoring Lebanon as an investment destination for regional business. Even the latest political upheaval around his resignation/reversal has not dimmed his optimism. In a statement carried by the government media, He said that “this is the best time to invest in Lebanon because, thanks to this political stability and security in our country, we have been able to establish that the country is capable of confronting crises in a wise manner.”

More specifically, he hopes the government will not increase the fiscal deficit next year while meeting the financial demands of the new national budget.
His remarks came during a session at the Global Business Summit organized by LIFE and Endeavor Lebanon.

Regarding the national budget, he noted that the recently passed legislation includes a number of reforms and some taxes. He was quick to emphasize that investments in the existing infrastructure program, debuted at the donors conference last year, was a viable starting point. The PM said that the government was ready to launch its efforts based on the results of the upcoming donors conference in March, which would mean raising $750 million of the $3 billion price tag. He also stressed the importance of the private sector’s role in the program with projects that could be initiated as early as February to upgrade the power infrastructure, rebuild roads, and other projects requiring the acquisition of land from existing owners.

In order to attract both domestic and international investors, however, Lebanon must adopt certain regulations and protocols that are not yet in place. Hariri said that “There are many laws that we have prepared and which are very important to encourage work. We worked on them in cooperation with several ministries and advisory bodies. They will be completed in Cabinet and then referred to Parliament, which will not delay them. With these laws, business will be much easier. There are a number of other laws that we will work on and a number of legal offices will help us in this matter in order to speed up their adoption.”

On the thorny issue of transparency, the PM pointed out how Lebanon had utilized international standards for the oil and gas awards and was now following up with the World Bank and IMF to implement similar standards for the CIP (Capital Improvement Projects) and other efforts that require international donors and participation by the private sector.

The wide-ranging discussion continued on topics such as taxes, the government deficit, support for SMEs, perceptions of political stability, relations with the Gulf States, investing in technology, and the internet in Lebanon. While it was an effective presentation by the PM, his points did not go unchallenged.

Not so fast Mr. Prime Minister In an article posted on the UAE site www.thenational.ae, the author challenged the PM’s optimism on a number of points. The author, Michael Karam, noted that “Everyone from the IMF to the various ratings agencies knows that the country is crippled by an external funding deficit of roughly 20 per cent of GDP and a government debt running at 150 per cent of GDP.” He also noted the disproportionate importance of remittances, some 16% of GDP, which could be reduced by political actions abroad, setting off an economic crisis.

Karam wrote that “Mr Hariri should take a page out of his late father’s book and give the people he is trying to woo something worth investing in. Rafik Hariri rebuilt the whole of central Beirut into what he believed would be a retail, tourism, and commercial hub.” It was a success initially “But today, the Beirut Central District lies largely deserted, a symbol of what happens when regional politics trumps business ambition,” referring to the blockade of the BCD by Hezbollah to force the government to not interfere with its independent telecommunications network.

The key point, he contends, “Is that the initiative was government-led, forming part of Hariri’s Lebanon 2000 vision, which he unveiled in the mid-90s. If only someone would give us similar hope, the business community might get behind his son. Give the private sector enough electricity, adequate clean water, and decent broadband, and it will perform miracles. And it could all be paid for with the oil and that gas that in all likelihood sits under the Lebanese coast.”

Although any realistic projection of revenues from oil and gas production is still 3-5 years away, there can still be another Lebanese “miracle” if somehow the business of reconstruction reverses the stereotype of Lebanon as a country that lacks transparency, is ruled by elites more concerned with benefiting their own constituencies rather than country as a whole, and a political system beholden to forces domestic, regional, and international forces that do not respect Lebanon’s independence.