Lebanon: The Oil & Gas Week, August 05, 2013

Lebanon – First licensing round:

Following his press conference on 05/07 in which he warned Israel may now have the capacity to siphon off Lebanon’s gas and urged Lebanese authorities to deal with the new threat by encouraging offshore oil and gas exploration, caretaker Energy Minister Gebran Bassil held a round of meetings with President Michel Slaiman, caretaker PM Najib Mikati and Parliament Speaker Nabih Berri, in a bid to hold an urgent cabinet session to approve two key decrees required to proceed with the first licensing round. The decrees (one demarcating the 10 offshore exploration blocks and the other approving the model exploration and production agreement) must be adopted by the Council of Ministers before any contract can be awarded. Bassil reported that all three leaders were responsive and agreed to take the necessary measures to counter Israeli threats, including the holding of a special cabinet meeting to adopt the two decrees. This was followed by a favorable opinion from the Committee of Legislation & Consultations which has authorized the caretaker government to hold a special session to adopt the decrees. The consultative body considered that the element of urgency/emergency, resulting from potential Israeli threats, justifies the adoption of the related decrees by a caretaker government, something that would have been considered illegal in normal circumstances.

On 31/07, acknowledging the urgency of the situation, Mikati announced that he will call for a cabinet meeting “if no new cabinet was formed by mid-September,” relatively fast by Lebanese standards. However, pushing the cabinet meeting until mid-September may raise a few problems: 1) it opens up the debate around the issue, which may lead to further delays; 2) it does not respect the September 2 deadline announced by Bassil during the ceremony held on 30/04 to launch the first licensing round, where he announced that if the two decrees are not adopted by this date, he would be authorized, as caretaker Energy Minister, to extend the bidding period.

The Opposition’s reaction was first expressed by Future Movement MP and chairman of the Parliament’s Public Works, Transport, Energy and Water Committee, Mohammad Qabbani, who listed his own recommendations to counter Israeli threats. Among these: proceeding with exploration in the South, starting with blocks that are along the Lebanese-Israeli border; renegotiate the maritime delimitation agreement with Cyprus. Nowhere did he mention the need to approve the two decrees in a special cabinet meeting, nor did he express any support to efforts to hold such a cabinet meeting. He did however note that the earnings of the Petroleum Administration’s board members are excessively high and need to be reviewed. If anything, this indicates that the government’s actions are being and will continue to be closely monitored, although not necessarily in the name of transparency, and sometimes with the purpose of interrupting or delaying the government’s work in a lucrative sector until more friendly parties are in power. This is the treatment any future cabinet must also expect, by whoever is in the opposition and is not controlling the Ministry of Energy. Some will be reassured that, in a country with dysfunctional institutions, this type of monitoring will ensure a minimum of transparency; some are worried it will not always be a case of constructive criticism but simply a means to interrupt work and provoke delays; others will be pleased to know that work can indeed be interrupted if need be.

Lebanon – Country risk:

EU foreign ministers agreed on 22/07 to put the armed wing of Hezbollah on its list of terrorist organizations. The move was motivated by “strong evidence” of the Lebanese group’s involvement in the deadly bombing that targeted a passenger bus in Burgas, Bulgaria, in July 2012, killing five Israelis and their Bulgarian driver. The blacklisting allows EU governments to freeze assets belonging to Hezbollah’s military wing in Europe, makes it illegal for EU citizens and non-citizens residing in EU countries to transfer funds and bans diplomatic relations with the group’s armed wing.

Some have questioned the effectiveness of the decision, given that there is no clear distinction between the political and armed wings of the group. EU Ambassador to Lebanon Angelina Eichhorst visited Hezbollah “political” leaders soon afterwards, on 25/07, to reiterate that the political branch of the group is not targeted nor concerned by possible sanctions, which will be limited to what the EU defines as the group’s military wing: the Jihad Council and External Security Organization. Eichhorst also confirmed that Hezbollah’s participation in any future cabinet will not be met with EU rejection and European assistance to Lebanon will not be halted. Despite this, Hezbollah official Ammar Moussawi, speaking after his meeting with Eichhorst, said that the decision will have repercussions on the party’s relations with the EU. The group will not target European interests in Lebanon – this is not part of its modus operandi – but may retaliate on another, more politically acceptable level: challenge European economic interests in the country. This may affect European oil and gas companies seeking to win an offshore exploration license (particularly those hailing from countries that were active in pressing for the adoption of the decision, such as the UK or the Netherlands), if the government awarding the contracts is controlled by Hezbollah and its allies.

The decision highlights the risks of doing business in Lebanon. As we have said when Bulgaria first accused Hezbollah of being behind the Burgas bombing back in February, this is a new parameter that companies wishing to invest in Lebanon must take into consideration.

Lebanon/Israel – Maritime border dispute:

The U.S. resumed efforts to settle the maritime border dispute between Lebanon and Israel. Deputy Assistant Secretary of State for Energy Diplomacy Amos Hochstein was dispatched once again to Beirut after his March 2013 visit, and held talks with President Michel Slaiman, caretaker Prime Minister Najib Mikati and caretaker Energy Minister Gebran Bassil on 17/07. Mikati and his advisors have been coordinating with Hochstein in the past few months in order to find a solution, after going a long way and developing trusted ties with former Special Coordinator for Regional Affairs at the State Department Frederic Hoff, previously in charge of the dossier in Washington. In the wake of renewed negotiations between Israel and the Palestinians pushed by the American administration in order to stabilize Israel’s environment, the maritime border issue between Lebanon and Israel may gain from the U.S. diplomacy’s renewed dynamism in the region.

Lebanon – Turkey:

Lebanese-Turkish ties may suffer an additional setback in the coming months. Although the Turkish Parliament voted on 05/07 to extend Turkey’s participation in the United Nations Interim Force in Lebanon (UNIFIL) for one more year starting September 5, 2013, Lebanese daily al-Akhbar quoted a security source on 26/07 saying that Turkey decided to withdraw its troops at the end of their mission in September. The reason behind the decision is, reportedly, the Turkish government’s fear that troops may be targeted in South Lebanon, a Shiite-majority area perceived as increasingly unfriendly to Turkey and Turkish citizens, following the kidnapping of nine Lebanese Shiite pilgrims by Syrian rebels suspected of collusion with Turkish authorities [See “Lebanon – Turkey” in our May 20 and April 29 reports].

The report, later denied by a UNIFIL spokesperson who said that the leadership was not notified of any decision by the Turkish contingent to leave South Lebanon, is indicative of the strained relations between Lebanon and Turkey in recent months. Added to the recent EU decision to blacklist the armed wing of Hezbollah, and the active role the UK and the Netherlands played in that regard, The TPAO-Royal Dutch Shell consortium is not expected to be the most desired choice of Shiite political parties in Lebanon and the smaller parties that orbit around them.

Middle East Strategic Perspectives – Lebanon: The Oil & Gas Week:

Our next report will be published on August 19, 2013.

Previous reports:

Lebanon: The Oil & Gas Week, July 08, 2013
Lebanon: The Oil & Gas Week, July 1st, 2013
Lebanon: The Oil & Gas Week, June 24, 2013
Lebanon: The Oil & Gas Week, June 17, 2013
Lebanon: The Oil & Gas Week, June 10, 2013

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