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Lebanon targets gas and aid

The crisis-hit nation dreams of better diplomatic relations to help boost its crippled economy and unlock a gas bonanza. But dreams they may remain

The administration of US president Donald Trump—seeking a foreign policy win ahead of a bitterly contested election—has brokered maritime delineation talks between Israel and Lebanon. The historic negotiations, which stretch from gas development to regional geopolitics, kicked off in mid-October with the two sides, technically at war, sitting in the same room but communicating only through US and UN mediators.

Experts say the tapping of veteran Lebanese politician Saad Hariri as the country’s prime minister in late October may be a positive development for the talks. Nonetheless, low oil and gas prices and possible spoiler actions by Turkey and Russia—as well as Iran—could render any deal meaningless.

Lebanon to the table

The negotiations have not come completely out of the blue. But Lebanon’s agreement to hold them, under the twin blights of a financial collapse and a deep political crisis, is the major development. Israel has long expressed an interest in such discussions, and regional commentators have been predicting them for over a year.

“Initiating new exploration in Lebanon requires a higher degree of security to attract investors” Shaffer, US Naval Postgraduate School

For Israel, they follow a string of offshore gas finds and investments, the most recent of which was Chevron’s $5bn agreement to acquire US independent Noble Energy in July. The talks centre on a wedge of the Mediterranean approximately 860km² in size, which contains parts of Lebanon’s offshore blocks 8, 9 and 10 and the promise of more discoveries.

“If Lebanon gets all or part of the disputed territory and can develop its gas reserves it may be able to export natural gas from its continental shelf and exclusive economic zone for billions of dollars,” says Ariel Cohen, a senior fellow at the Washington-based Atlantic Council thinktank.

It is more than just the potential reserves in the contested areas. Delineation of the maritime border could have a significant psychological impact, offsetting the disappointment of April’s dry hole at Biblos-1, Lebanon’s first ever offshore well, and attracting additional interest from US and international E&P companies.

“Initiating new exploration in Lebanon requires a higher degree of security to attract investors,” says Brenda Shaffer of the energy academic group at the US Naval Postgraduate School. “Despite having what many in the energy industry believe are excellent geological prospects, Lebanon has not been able to get into the Med game and launch exploration. Hopefully, improving the security environment with Israel will prod Lebanon closer to a launch of exploration licence bids.”

US paradox

Add to that the hope of American generosity. Therein lies significant irony: after sanctioning Lebanese officials with ties to the Iran-linked militant group Hezbollah last month in a move many pundits consider unprecedented, the US Department of State has apparently invested considerable political capital and force in pushing through the talks. That, indirectly, lent legitimacy to Hezbollah. The group, which is also a major political force in the country, has the power to scuttle the negotiations and stands to benefit from their success.

“[An agreement] might help to obtain some US financial aid, which I presume is the main reason for Lebanon’s going along with it,” says Robin Mills, the CEO of Dubai-based consultancy Qamar Energy.

For a country in Lebanon’s financial straits, it is a straw at which everyone around the political table wants to clutch, including—in another irony—Hezbollah, Israel’s sworn enemy. Given this tension, no formal peace talks will be held and even demarcation of the contested land border is off the agenda for now.

Difficult times

Lebanon has been through a tough streak in recent months even by its own standards. It was devastated by civil war in the 1970s and 1980s and has been paralysed by political divisions ever since. And the past decade has brought an influx of refugees and an overspill of chaos resulting from the Syrian civil war next door.

Inflation is out of control and capital controls have failed to arrest the depletion of foreign exchange reserves. The Lebanese pound has lost approximately 80pc of its value against the US dollar on the black market in the past year, and many of its citizens are stockpiling food and medicine.

“I am pessimistic because, if the Biden administration is in power in Washington, it may not take this position [of prioritising East Med gas development]” Ariel Cohen, Atlantic Council

Several attempts to form a working government have failed amid recurring popular protests against the political status quo. The pandemic and global economic crunch also took their toll. Then, in early August, much of the capital Beirut was gutted by a chemical explosion, one of the largest non-nuclear explosions in world history, in the city’s port.

This does not bode well for the parliamentary vote that nominated as prime minister Saad Hariri, who has held the role three times before and who actually quit last year at the start of the mass protests. Most Lebanese see Hariri as part of the problem rather than the solution to grinding political deadlock.

Getting a deal done

Hariri is expected to lead a technocratic cabinet, although he is anything but a technocrat. And some experts see his return as a positive sign for the talks.

“Hariri is a very close ally of the US,” says Musa Ucan, a Middle East expert at the Turkish National Strategic Research Council thinktank. “We can definitely expect a satisfying deal for Israel, and therefore for the US, now.”

It is a fashionable time for talks with Israel: in much of the Arab world the buzzword is normalisation. Incentivised by heavy US pressure and fear of Iran, over the past few months Bahrain, the UAE and, most recently, Sudan have struck peace agreements with Israel, and several other Arab countries are reportedly preparing to do the same.

It also makes sense to try to remove barriers to gas development at this point. In September, Egypt, Israel, Greece, Cyprus, Italy and Jordan formally established the Cairo-headquartered East Mediterranean Gas Forum (EMGF), a geopolitical alliance aimed at exporting gas from which Lebanon can ill-afford to be absent.

But to expect a gas bonanza that solves the country’s immediate economic problems is a pipe dream, not least because even in the best of times gas development takes years. And these are hardly the best of times for offshore E&P.

“I think there are more important issues [than the maritime boundary squabble] holding up exploration—the political and economic crisis in Lebanon, low oil and gas prices, Covid-19, the disappointing initial results from drilling in Lebanon, and the difficulty of access to gas markets,” says Mills.

Challenges ahead

Not to mention that the region’s geopolitics are awash with actors who can place further obstacles—the EMGF, for example, is a de facto alliance against Turkey’s maritime claims. And part of the Trump administration’s logic in pushing through the talks is to develop non-Russian gas reserves for export to Europe, especially if US producers can get a slice of them. This is likely to antagonise the Kremlin.

“[An agreement] might help to obtain some US financial aid, which I presume is the main reason for Lebanon’s going along with it" Mills, Qamar Energy

“Turkey already has concerns about Lebanon’s possible actions and alliance plans in the region,” says Ucan. “[The talks are] only going to make Turkey and Russia come closer. New transit pipeline projects to deliver Azeri, Kazakh and Russian gas to Europe via the Anatolian peninsula will probably upset the calculations and ruin the efforts. And I will not even talk about Iran’s possible role.”

Both Syria and Iran, as well as Russia—Syria’s main military patron—have sufficient influence on Hezbollah to wield a virtual veto power in Lebanon, argues Cohen. And even in the US, the political climate may change next month, further retarding Lebanon’s dreams of future gas sales.

“I am pessimistic because, if the Biden administration is in power in Washington, it may not take this position [of prioritising East Med gas development], either because it wants to put pressure on Israel or because it wants to emphasise renewables instead of gas,” warns Cohen.

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