Fuel to Lebanon's Fire

Lebanese fire fighters extinguish a flame at the site of a car bomb in a southern suburb of Beirut on August 15, 2013. (AFP/Getty Images)

Lebanese fire fighters extinguish a flame at the site of a car bomb in a southern suburb of Beirut on August 15, 2013. (AFP/Getty Images)

Hezbollah’s leader, Hassan Nasrallah, wants Lebanon to close its eyes, forget its domestic divisions and its disagreements over Syria, and form a cabinet for the single purpose of approving licenses for gas and oil exploration. Stability, Nasrallah said in a speech, is required for that kind of economic activity. It is true that the exploration of gas and oil could prove instrumental in paying down Lebanon’s national debt, which is among the highest in the world relative to its GDP. If Beirut manages to capitalize on these reserves, it could pay off nearly half its external debt in a relatively short period of time.

But Nasrallah’s request sounds a stretch, to say the least. The Levantine Basin, the offshore area in the eastern Mediterranean that the US estimates to have 1.7 billion barrels of recoverable oil reserves and 122 trillion cubic feet of gas, has more problems than oil barrels.

Lebanon does not admit that Israel exists, and has been in a state of perpetual war with it since its creation in 1948. Turkey does not talk to Greek Cyprus, and insists that Turkish Cyprus has its own Exclusive Economic Zone beyond its immediate territorial waters.

And then there is the civil war in Syria, a source of destabilization that continuously threatens to spill over in to Lebanon, and thus undermine any potential business planning or investment.

In money talk, the Levantine Basin’s reserves cannot transform any of the surrounding countries into world players on the oil or gas stages. Compare the basin’s oil reserves of 1.7 billion barrels to Syria’s estimated 2.5 billion. Syria, before the revolution, exported 150 thousand barrels of oil a day to foreign buyers, a small number that could never cause any dent in world prices.

But compared to Syria’s population of 22 million, Lebanon’s oil and gas reserves might yield a handsome sum for its 4 million residents.

Since the end of its own civil war in 1991, Lebanon has incurred an enormous debt, predicted to reach USD 61 billion by the end of this year. While many blame the astronomical rise in the debt on government corruption and the liberalization policies of late Prime Minister Rafik Hariri, other economists believe that fighting between Hezbollah and Israel until the Israeli withdrawal in 2000, as well as the 2006 Israel–Hezbollah War, forced the government to finance its desperately needed post-war reconstruction by borrowing at high interest rates.

Today, Lebanon spends USD 13 billion a year, and collects just over USD 9 billion. The budget deficit this year has just surpassed USD 2 billion.

The breakdown of Lebanon’s spending is simple. Beirut spends over a fourth of its budget on the servicing and refinancing of its debt, a sixth on its military and police forces, and the same again to fund the annual deficit of Électricité du Liban, the national electricity supplier. The rest goes on its other expenses, including its bureaucracy, retirement and health funds, education and other sectors.

Incurring USD 2 billion of debt a year, the state-owned Électricité du Liban has become a national embarrassment. Electricity is cut on average nine hours a day in the capital, and over fifteen hours in rural areas. Corruption is rampant and the company’s labor force is bloated. The World Bank has repeatedly called for the company to be restructured and then privatized to relieve some of the pressure on the Lebanese budget, but that debundling plan has been repeatedly delayed. Exploiting Lebanon’s gas could be a good alternative to restructuring, both because a large portion of that USD 2 billion goes to purchasing fuel for electricity generation from foreign suppliers and because it would add to the government’s coffers.

Lebanon’s caretaker energy minister, Gebran Bassil, a Hezbollah ally, invited journalists to a press conference on board a ship some 95 miles to the southwest of Beirut to tell them that a survey of Lebanon’s Exclusive Economic Zone suggested the amounts of gas found could fire Lebanon’s electricity production for more than ninety-nine years. So while the state has not been able to reform or privatize its electricity company, Bassil suggests that its newfound gas fortune would supply the country with a century of uninterrupted electric power, without even having to eradicate the corruption.

Bassil, meanwhile, cannot take bids for exploration licenses without cabinet approval. But Najib Mikati’s cabinet resigned in March, and his successor, Tammam Salam, has yet to select his ministers.

So in a country where political consensus is rare, and where the state has failed to reform or privatize its beleaguered electric company, and where the prime minister designate has failed to form a cabinet in over six months, Bassil and Nasrallah still think it’s possible for the nation’s oil and gas to be explored, extracted and sold. And if Lebanon does not act on its gas, Israel will, or so claims Bassil.

All views expressed in this blog post are those of the author(s) and do not necessarily represent the views of, and should not be attributed to, The Majalla magazine.

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