Lebanon: The Oil & Gas Report, February 24, 2014

Lebanon: How will the new cabinet manage the oil & gas file?

Lebanon has a new cabinet. In this report, MESP sheds light on the context of the formation of Salam’s cabinet, including the appointment of Arthur Nazarian as Minister of Energy and Water, and what it implies for the oil and gas sector and the first licensing round. We provide a bio of the new Energy Minister, a Tashnag MP belonging to the Change & Reform parliamentary bloc. We expect former Energy Minister Gebran Bassil (currently serving as Minister of Foreign Affairs) to remain influential, paving the way to a closer cooperation between the Ministry of Energy and the Ministry of Foreign Affairs. Keyword for the coming months: continuity.

Eleven months after his appointment, Prime Minister Tammam Salam announced a new cabinet lineup on February 15. The Ministry of Energy and Water is now headed by Arthur Nazarian, a member of the Tashnag party. The Energy Ministry was one of the main apparent obstacles Salam encountered when forming the government. For years, ministerial candidates struggled to avoid the over-complicated ministry and the burdensome work associated with it, but potential offshore resources turned it into the crown jewel all sides were trying to snatch. It is without a doubt one of the main reasons that pushed Salam and a number of political parties to call for the rotation of ministerial portfolios, across sects and parties. A principle rejected outright by then Energy Minister Gebran Bassil and his party, the Free Patriotic Movement (FPM). A compromise was reached when the main parties involved agreed to apply only a partial, symbolic, rotation: To assuage Christian fears of being under-represented in the cabinet, a Christian MP, Arthur Nazarian, belonging to the Change & Reform parliamentary bloc headed by the FPM, was nominated to the post. Bassil, for his part, was appointed Minister of Foreign Affairs, the first time in over two decades a major Christian party holds one of the so-called “sovereign portfolios” (interior, defense, foreign affairs and finance).

[Background: Lebanon: cabinet formation, the Ministry of Energy and the “Christian factor” explained]

The new government has a one-month deadline to draft a cabinet statement, the major hurdle being the mission and weapons of the Resistance, a term referring above all to Hezbollah. The regional context that permitted the breakthrough resulting in the formation of the cabinet will likely also allow the different political factions to overcome these hurdles and agree on a statement that is able to get the Parliament’s confidence.

One of the first items approved by the cross-party committee drafting the statement was the need to speed up the process related to the first licensing round for offshore oil and gas exploration. This is a good signal, but not an absolute guarantee that the tender will not be delayed again. While this is indeed one of the government’s priorities, the two dominant issues on its agenda are indisputably the security situation (six car bombings in 2014 alone) and the presidential election (President Slaiman’s mandate expires on May 25, 2014).

How long is this cabinet expected to last?

On paper, Salam’s cabinet is short-lived. According to the Constitution, the government is considered resigned at the beginning of the term of the President of the Republic. In theory then, the question of the Presidency must be settled by May 25, 2014. In reality, and given the reigning deadlock, the holding of a presidential election by that time is not certain. Lebanon is particularly exposed to events in Syria, and the balance of power at home is to a large extent affected by the balance of power in Syria. Syria’s presidential election is theoretically scheduled for June 2014. This might complicate holding elections on time in Lebanon. Had the situation been reversed, chances for holding the elections on time in Lebanon would have been greater. Salam’s cabinet might live a few months longer than expected.

Who is Arthur Nazarian?

Arthur Nazarian is a Lebanese businessman of Armenian descent. A member of Tashnag – an Armenian party allied with the Free Patriotic Movement and the March 8 coalition – he won unopposed in the 2009 parliamentary elections (elected as a consensus candidate), after a previous unsuccessful bid in 2000. He has previously served in the Lebanese government as Minister of Tourism and Environment in Salim Hoss’ cabinet, between 1998 and 2000.

Nazarian is Managing Director and Partner in a number of well-established companies in Lebanon and the Arab Gulf. While this entails developing good relations with local authorities, having business interests in the Gulf region could reduce, to a certain extent, his margin of maneuver vis-à-vis certain actors in Lebanon. He is a non-executive independent member of the board of Byblos Bank (served as a member of the Risk, Compliance, Anti-Money-Laundering and Combating the Financing of Terrorism Committee) and serves as member of the board of Byblos Bank Armenia.

Born in Beirut in 1951, he holds a degree in textile engineering from Philadelphia University.

The keyword is continuity…

Though he is not known, in his entourage, to be the most docile, Nazarian was appointed Energy Minister because of his close links to the FPM and a quasi-total convergence of views on how to manage the emerging oil and gas sector. Gebran Bassil is not out. He will continue to play an influential role in the sector, whether through his advisors at the Ministry of Energy (who were kept in place by Nazarian although he could have appointed his own advisors) or as Minister of Foreign Affairs. The Economic Department at the Ministry is expected to be more involved in energy issues, and a new Energy Department at the Ministry of Foreign Affairs should not be ruled out. Bassil can be expected, in his new post, to focus much of his energy on oil & gas related issues, including finding a solution to the maritime border dispute and strengthening cooperation with Cyprus. Interestingly, among the first messages he received as the new Minister of Foreign Affairs, were messages from Deputy Assistant Secretary of State for Energy Diplomacy Amos Hochstein (who is attempting to mediate between Lebanon and Israel to settle the maritime border dispute), and Cypriot officials, including Foreign Affairs Minister Ioannis Kasoulides and Energy Minister Giorgos Lakkotrypis.


Lebanon: Navy to benefit from international support to the Lebanese Armed Forces

The security of offshore resources is an issue the Army leadership is increasingly tackling. Although it does not have the means to fulfill its ambitions, the outpouring of international support, including a $3 billion Saudi donation (designed to buy French arms exclusively) and an international conference to strengthen the capacity of the Army (Rome, spring 2014), allows it to address one of its current weaknesses: its limited ability to secure Lebanese waters and the country’s exclusive economic zone (EEZ) on its own.

Lebanese Army Chief Jean Kahwagi headed to Italy on February 23 where he is scheduled to meet with military officials and prepare for the conference. The Army has formulated a 5-year plan, which will provide the basis for international support, and which includes boosting the Navies capabilities by providing with patrol vessels and radars. Differences with the French are starting to surface. According to unconfirmed reports, the French are reluctant to provide certain types of weapons to the Army. But for the Saudi-French operation to be successful the proposed aid must be adapted to the Army’s needs and must be in line with its defense strategy, or run the risk of being rejected by a large part of the Lebanese. The protection of the country’s EEZ is certainly an issue that must be explored by the French, for it is beneficial for the country and does not risk alienating any Lebanese faction [Read our analysis: Liban – France: Armement: Pourquoi les Français doivent être créatifs].


Previous issues:

Lebanon: The Oil & Gas Report, February 10, 2014
Lebanon: The Oil & Gas Week, January 27, 2014
Lebanon: The Oil & Gas Week, January 13, 2014
Lebanon: The Oil & Gas Week, December 09, 2013
Lebanon: The Oil & Gas Week, November 25, 2013

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