Lebanon’s Crude Future: Economic Prosperity and Political Stability?

Joseph Coffee

 

Najib Mikati (center) 'Transformations in the Arab World' at the Annual Meeting 2013 of the World Economic Forum in Davos, Switzerland, January 25, 2013

Former Lebanese Prime Minister Najib Mikati (center) at the World Economic Forum in Davos Switzerland. January 25, 2013. Photo taken by Monika Flueckiger for the World Economic Forum (via Wikimedia Commons)

Lebanon has been poised for some time now to attract investors for what they believe is a very lucrative enterprise: oil and natural gas drilling off their coast. The country is in the middle of an economic crisis, which has affected spending, creating an energy crisis. Unable to pay for fuel to constantly power the country’s electricity Lebanon currently suffers from hours long rolling blackouts. Energy minister, Arthur Nazarian like his predecessor Gebran Bassil hopes that potential offshore oil and natural gas reserves will cut Lebanon’s debt and help make the country politically stable; neither of which are small tasks.

Perhaps the biggest issue Lebanon faces revolves around a lack of certainty as to the size of these reserves and whether or not they even exist. Most of the available seismic data is based on a 2010 US Geological Survey of the Levantine Basin and the Lebanese government’s own subsequent surveys. The US Survey estimates that the Basin, which is 83,000 square kilometers and includes areas outside Lebanese territory, could hold 125 trillion cubic feet of natural gas and about 1.5 billion barrels of recoverable oil. What share of this Lebanon would get is unknown, as the figures are broad estimates. Although some energy firms estimate it could be around 90 trillion cubic feet of natural gas and 800-900 million barrels of oil. However, these are all extrapolations from seismic surveys indicating rock types that tend to hold a lot of hydrocarbon material.

While generally governments geological surveys are fairly accurate – there’s too much money and political interest at stake—without drilling there is absolutely no way to know for sure if there is extractable oil and natural gas. Based on these surveys the government has been trying to sell bidding rights for exploration and production off the Lebanese coast. Splitting the area into 10 different sectors for bidding, ranging in size from 1,500 square kilometers to 2,500 square kilometers. This is a fairly standard process for exploration, at least on paper. However, every time the bidding process starts it ends up stalling because of political inadequacy and gridlock. Lebanon is now faced with trying to keep investors interested, as several have expressed concern and hesitancy at moving forward with the haphazard political climate.

The political climate in Lebanon is often defined by factionalism and by messy and inconstant regional rhetoric. Technically they are still at war with Israel. Internal conflicts and violence, often sectarian, are highly common. And the Syrian civil war has begun to spill over into the border region exasperating tensions among the various religious factions in country. The spill over has worsened tensions between the Shi’a group Hezbollah, who support Assad’s government, and the Lebanese Sunni population. These tensions are obviously long standing in Lebanon, where the governmental system is based –at least in part— on confessionalism. Under which all governmental positions and parliamentary seats are divided among the different religious groups. The National Pact of 1943 establishes the President is always Marionite, the Prime Minister is always Sunni, and the Speaker of the National Assembly is always Shi’a. The intent was not for this to be alienating, but rather a temporary solution.

Over time however, this system has become ingrained in the essence of Lebanese politics. Under Article 24 of the Lebanese constitution this system was to be the temporary basis of the government, until new non-confessional elections laws were passed. These guaranteed divisions, further amended under the Taif agreement –which was supposed to end the civil war— have left minority parties in the government bitter and furthered the often-intense political factionalism. All of this political turmoil, that has come to define Lebanon over the last 30 years, was further exasperated in March of 2014 when then-Prime Minister Najib Mikati resigned over a conflict between political parties regarding appointments for the June 2014 parliamentary elections. His resignation and the inability of parliament to agree on members for the electoral commission forced parliament to dissolve and installed a caretaker government, unable to pass new legislation.

For 10 months the process was stalled as each side lobbied for new Ministers with the hopes of supporting their own self-interests. This created a political gridlock, hurting the confidence among the 46 companies chosen to bid for exploration rights, among them Chevron and Exxon. For a country that ranks near the bottom of most transparency and corruption rankings, this is not good. Transparency International, an NGO that monitors political corruption, ranks Lebanon 136th out of 175 countries they monitor, relatively near the bottom. With minimal openness regarding the budget and a political culture that has institutionalized nepotism and religious bias, Lebanon is running out of time to keep on good terms with their potential investors. This political uncertainty amongst the backdrop of the spillover from the Syrian civil war has forced these companies to reevaluate their deals. Couple this with the declining prices of oil and natural gas and most firms really do not have any incentive to drill without a guaranteed return on their investment.

There is also skepticism among many in Lebanon that any oil or natural gas money would be evenly distributed, especially given the government’s relatively low public perception of corruption and the constant fragmentation caused by factionalism. Energy has proven to be a very remunerative business across the world and in most countries everyone wants a piece of the action. These reserves of oil and natural gas are essentially well-founded guesses. Until someone brings a rig in to drill it is unknown if these seismic surveys are correct. It is unlikely that any oil money will change the political or economic situation. The rapid influx of refugees from Palestine and now Syria has created further economic burden on the government. Political and religious factionalism, which has the tendency to flare up regionally, can disrupt day-to-day operations and none of these problems are easily fixed by money that doesn’t exist yet. If anything, it would create a worse political and economic situation as factions fight for their slice of the pie: marginalizing a section of the population and perpetuating the cycle of factionalism.

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