A shot at utopia: assessing Lebanon's challenges in the race for Mediterranean oil wealth

Lebanon's plans to harnass the vast oil and gas reserves off its shores already reveal familiar echoes of past internal divisions and external conflicts. But is this finally a chance for Lebanon to remake its future?

Sabine Saade
27 February 2013

In a recent post that appeared on the FCO blogs, British Ambassador to Lebanon Tom Fletcher thought to imagine a ‘Beirutopia’ in which the country would celebrate its centenary as “a Talisman for coexistence”, a “Singapore with more skiing, or Qatar with more culture”. He imagined a prosperous and peaceful Lebanon that had come to term with its past, embraced its long forgotten legacy and was already building a promising future.  All of this was possible because of its “new wealth, the result of huge amount of offshore gas” which, instead of bringing more conflict to the region, fostered peace and coexistence, with Israel and Iran sitting side by side and Hezbollah renouncing violence in this vision of Lebanon 2020. Is this wishful thinking, or a soon-to-be reality?

What is certain is that the country today is at a crossroads more than ever, and needs to make vital decisions that will determine the course of its future and, even possibly, decide the geopolitics of the region.  In the last decade, Lebanon has turned from an aid dependent, debt burdened country to a soon to be gas and oil producing one: British Company Spectrum estimated the size of the gas off the southern coast of the country to 32 trillion cubic feet, while Beicip Franlab announced that waters off the northern cost may hold up to 675 million barrels of oil. Consequently the government ratified the Petroleum Resources Law in 2010, while the long awaited Petroleum Administration Board that will negotiate with international oil companies, issue licenses and regulate drilling off the Lebanese Coast, was finally formed last year.  This month, despite a recent report which stated that commercial exploitation in the country is unlikely to happen before 2020, the Lebanese Energy Minister announced the official launch of the prequalification process for companies to bid for offshore gas exploration licenses with the aim of starting the first drillings in 2016 at the latest. Companies are rushing to purchase data covering the exploration area; Lebanon is finally catching up in the race for Mediterranean Oil

Theoretically, this means that Fletcher’s Beirutopia might soon be every Lebanese’s reality. Lebanon’s oil and gas reserves represent a solution for the country’s costly energy dependence; according to a recent CITI group report, oil represents 25% of Lebanon’s total imports, equivalent of 7% GDP, while the fiscal burden of covering the losses of state-owned Electricite du Liban’s accounts for 5% of GDP. Furthermore, it would end Lebanese citizen’s personal use of generators to make up for energy deficiencies, which incur billions of dollars of losses for the Lebanese economy. More importantly, offshore gas and oil exploitation will radically change public finances with the significant revenues generated dramatically reducing the country’s burdening debt - Lebanon has one of the highest percentages of debt in the world, currently at US $56 billion, representing the equivalent of 135% of its economic output With radical changes in its economy, Lebanon could indeed hope for a brighter, prosperous future. However, the road to Beirutopia is still arduous and the country still has to face many challenges that might compromise the success of its offshore gas and oil exploitation endeavours.

The Israeli-Lebanese maritime border dispute

Of course, as always in the Middle East, everything involves some kind of border dispute. While the first drilling expected for 2016 will take place in the northern offshore territory of the country, further activities in the country’s southern exclusive economic zone (EEZ) will be limited until the Israeli- Lebanese maritime border dispute is solved – hopefully, diplomatically. The two countries are involved in a dispute over a maritime area of 850 square kilometres. After Israel’s cabinet approved and submitted to the UN a map of its maritime borders, which conflicts with a different map submitted by Lebanon in 2010 giving Israel less territory, the two countries have bitterly bickered over these issues. Lebanon argues that the offshore fields are inside its territorial waters as delineated by the 1982 UN conference on the Law of the Sea, which Israel has not ratified, while Israel sustains its demarcation is correct, based on an agreement signed by Lebanon in 2007 with Nicosia which has never been ratified in Lebanese parliament nor approved by the government.

Delineation of EEZs is usually a complicated process that requires negotiations, which is unlikely in this scenario as the two countries do not have any diplomatic ties.  Instead, they both refuse any compromise and have even sometimes threatened each other with the use of force. However, given the high stakes, Cyprus has offered to mediate between Israel and Lebanon over this dispute, and the US has even given both countries a map detailing a proposed fair compromise to divide the disputed zone and the gas resources in the area. The offer is now on the table and it is up to these two countries to decide whether to take it, without necessarily turning the compromise into a diplomatic agreement between them which would - god forbid - bring a bit of peace to the region.

Lebanese politics, corruption and nepotism 

The Energy Minister’s recent decision to speed up the bidding and licensing process to start drilling in 2015 has been welcomed by international energy companies, though many remain sceptical of the Minister’s capacity to stick to this timetable given Lebanon’s political fragmentation that has always represented an impediment to the country’s development. The CITI Group report also concluded that the government’s previous aim to start commercial exploitation in 2017 was unrealistic exactly because of Lebanon’s “divisive politics and institutional bickering”. Already, the appointment of a six-person Petroleum Administration Board has taken two years since the ratification of the Petroleum Resources Law. Despite this, commentators argue that with these steps, the process will be autonomous from traditional politics and the committee, which will rotate every year, will be immune to the country’s familiar sectarian disputes.

Yet the possibility remains that local leaders will claim their share of the wealth depending on the region where drilling will take place and jeopardise the profitability of this enterprise for the country as a whole and cause further disputes between already hostile communities. Furthermore, on-going low level violence in Tripoli, designated to host oil storage facilities and related infrastructures, might prove to be another impediment to the ambitious project if not addressed. Finally, endemic corruption and nepotism will present other major barriers for Beirutopia. According to Transparency International, Lebanon ranks as one of the 50 most corrupt countries. With recurrent corruption scandals in medicine and food safety and consequent lack of accountability, the country’s already low position on the corruption index has worsened in the last few years. Strict and appropriate measures against widespread corruption should therefore be taken if the Lebanese population is to derive maximum benefits from the profits of the oil and gas industry.

Conflict studies scholars sometimes argue that the presence of natural resources within a country increases the likelihood of civil conflict emerging.  While it is still too early to tell whether Lebanon can prove such theories wrong, the country has been given a new chance to determine its future. It can either re-write its history by creating Fletcher’s Beirutopia, or carry on down the self-destructive path it chose for itself in 1975. The challenges the state will have to surmount in order for the first scenario to materialise are still immense and it is today for the government and the emerging Lebanese civil society to determine whether they are willing to face them.  

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