Filling the Presidential vacuum and what it means for the oil & gas sector

The election of Michel Aoun as President on October 31 puts an end to a 29-month-long presidential vacuum, and signals a possible end to the political deadlock that has paralyzed the country since the start of the Syrian crisis in 2011.

The election of a President is a good indicator there is a wide enough consensus now among the political class that the time is right for compromise. It will revive the country’s institutions, starting with the Parliament and the Council of Ministers, and – it is hoped – would also contribute to gradually unlocking the vital political and socio-economic issues that have been put on hold over the past few years, including those related to the nascent oil and gas sector. The keyword is gradually, as the election itself – or how it unfolded – is not enough to guarantee an immediate and smooth return to normalcy.

Possible scenarios

Speaker Nabih Berri’s opposition to the deal that led Aoun to Baabda is likely to complicate the management of public affairs post-election, if he is not ultimately persuaded to get on board. Complications can take various forms: social unrest, endless bickering over representation in the cabinet, and over certain portfolios (interior, foreign affairs, defense, finance… but also energy) etc. Saad Hariri will most likely be appointed Prime Minister shortly after Aoun is sworn in and based on binding parliamentary consultations. But forming a government may prove to be difficult in case the backing of important factions is not ensured. It took months for Hariri’s predecessors to form a government. If there is not a unanimous decision to facilitate Hariri’s work, it may take him months to form a government, without any guarantees he will succeed before May 2017, when parliamentary elections are due.

Any cabinet – whether it is a new one headed by Saad Hariri or the current one headed by PM Tammam Salam in a caretaker capacity in case Hariri was not able to form a government – will be short-lived. It will be considered resigned at the beginning of the term of the next Chamber of Deputies, if elections are indeed held in May 2017, or a few months down the road if elections are rescheduled.

What implications for the oil and gas sector?

As in 2013/2014, when Tammam Salam was trying to form a cabinet, the Ministry of Energy and Water is expected to feature among the key ministerial portfolios all sides will be secretly or not so secretly vying, in addition to the Ministry of Finance, Ministry of Foreign Affairs, Ministry of Interior and Ministry of Defense. The next PM-designate will find that disagreements over who get this or that ministry will be one of his biggest challenges. We hope we will be spared the 2013/2014 bickering over the Ministry of Energy, incorrectly considered as lucrative, just as the country is mistakenly perceived as oil-rich, before any discovery has been made.

If the next government is formed with the blessing of all those who count, without upsetting or sidelining a significant faction, it will be in a position to get a lot of work done, fast. We hope this will include passing the two missing oil and gas decrees that are needed to pursue the offshore tender, on hold since 2013 and forgotten by pretty much everybody in the industry: a decree defining offshore blocks and their coordinates, and another one approving the tender protocol and the model exploration and production agreement. In addition to the petroleum tax law, which must be adopted by the Parliament.

The oil and gas sector will continue to be perceived as lucrative… and as a platform

This dossier is not an absolute priority. The security situation, a sluggish economy and deteriorating government services, spillovers from the Syrian war and the socio-economic impact of the influx of hundreds of thousands of refugees, the upcoming parliamentary elections will be the focus of government work in the coming months.

That said, slow growth and declining financial support from Arab and foreign partners, in addition to the severe strain the influx of refugees has put on an already fragile economy, is leading the political class to look for an alternative source of revenues. That explains why a lot of expectations are placed on a still elusive sector, considered as a promising source of revenues (sometimes with a slightly excessive confidence).

Among the political class, an active presence in the sector is perceived, rightly or wrongly, as one way to retain political influence. The opposite is also true. A marginalization from the sector is also viewed as imminently leading to political marginalization. Not a cause of worry for those who hold enough influence in the country. The others will make themselves heard. They will adopt a civil society discourse with the final objective of improving their political positioning. Among those, in the political class, who are not confident in their future role in the sector, transparency, good governance, combatting corruption, education and youth employment opportunities etc. will be recurrent themes. As they gain confidence, we expect their commitment to these themes to wane. Even before we have a proper sector, the sector is already viewed as a platform.

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