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The Cradle
How the US controls Lebanon’s energy supply
Far from helping Lebanon solve its acute energy crisis, the US is leveraging Egypt’s gas supply to pressure Beirut over US-brokered maritime border talks with Israel
By Yeghia Tashjian
August 19 2022
https://media.thecradle.co/wp-content/uploads/2022/08/US-Ambassador-Dorothy-C.-Shea-and-the-Lebanons-energy-crisis.png

US Ambassador to Lebanon Dorothy Shea intervenes in all of Beirut’s energy decisions

Photo Credit: The Cradle

Consider the chaos in Europe today caused by a sudden reduction in Russian gas supplies.

Now imagine the catastrophic state of Lebanon’s energy sector after two years of fuel shortages, limited foreign currency with which to purchase new, urgent supplies, and US-sanctions on Syria impeding Lebanon’s only land route for imports.

After decades of stalled reforms, Lebanon is running out of time and money.

In June 2021, a lifeline was handed to the country in a deal struck with Baghdad to supply two Lebanese power stations with Iraqi fuel. The agreement, which was due to expire in September 2022, has recently been extended for one year.

But while there are short and long term solutions available to remedy Lebanon’s energy crisis, the two main options are both monopolized by US policymakers with stakes in regional geopolitics.

The first option involves transporting fuel to Lebanon via the Arab Gas Pipeline (AGP), whereby Egypt will supply gas through Syria. Although the proposal was originally an American suggestion, this fuel route requires US sanctions waivers that have not yet been approved by Washington.

The second option is for Lebanon to extract its own gas supply from newly discovered fields off its coastline. This too depends entirely on US-mediated, indirect negotiations with Israel to resolve a maritime dispute over the Karish gas field in the eastern Mediterranean Sea.

Accessing its own gas supplies will go a long way to guarantee Lebanon’s own energy security, while providing the state with much needed revenues from exports.

However, the success of either project depends largely on the status of US-Lebanese relations at any given moment. The two options are also inextricably linked to each other: Washington is pressuring Beirut to compromise with Tel Aviv on the maritime border dispute before agreeing to “green light” Cairo’s gas exports via Syria, which is in turn heavily sanctioned by the US’s “Caesar Act.”

While Washington is playing a leverage game, Lebanon is slowly collapsing.

Gas from Egypt

Under the agreement signed with Cairo, 650 million cubic meters of natural gas will be exported annually via the AGP. As it turns out, the actual supply of gas, as per the World Bank’s conditions, awaits US approval to exclude Egypt from sanctions imposed on the passage of goods through Syria.

The AGP is already a functioning pipeline that has supplied Lebanon with Egyptian gas in the past, but operations were halted in 2011 when Syrian pipelines were damaged during the country’s armed conflict.

Under the deal, Egypt will pump gas through the pipeline to supply Lebanon’s northern Deir Ammar power plant, which can then produce 450 megawatts of electricity – adding four hours of additional electricity supply per day. It is a modest but necessary improvement over the barely two hours of electricity currently provided by the state.

The World Bank has pledged to finance the deal on the condition that the Lebanese government implements much needed reforms in the electricity sector, which has created tens of billions of dollars in public debt.

The Syrian equation       

For the Syrian government, the arrangement is perceived as a diplomatic victory as it confers ‘legitimacy’ to the state and represents a step toward its international rehabilitation. The AGP deal was also hailed by Syrian Minister of Oil and Mineral Resources Bassam Tohmy as one of the most important joint Arab cooperation projects.

According to Will Todman, a research fellow in the Middle East Program at the Center for Strategic and International Studies, the agreement is “a win for the [Bashar al-]Assad government. The deal represents the first major move toward Syria’s economic integration with the region since Arab Spring protests shook Syria in March 2011, halting previous integration efforts.”

However, due to US Caesar Law restrictions, no concrete progress has been made over the past months. Amman and Cairo have both requested guarantees from Washington that they will not be subject to sanctions – to no avail. US President Joe Biden has yet to make a final decision on whether the plan will be considered a violation of sanctions on Syria.

Linking the Egypt deal with Israel talks

In order to create a certain interdependency in the region to minimize the possibility of new conflicts with Israel, the US is attempting to link the Egyptian gas deal with the ongoing, indirect, maritime negotiations between Tel Aviv and Beirut.

Amos Hochstein, the State Department senior adviser on energy security, who acts as chief mediator on the disputed maritime border between Lebanon and Israel, said after arriving in Beirut on 14 June that the US side will look at the final agreement between Egypt and Lebanon to evaluate the sanctions compliance of the natural gas project.

This means that Washington is linking the fate of the gas deal to the maritime dispute with Israel to exert additional pressure on Lebanon.

On 14 October, 2020 – just two months after the Beirut port blast which severed the primary transportation route for seaborne Lebanese imports – Lebanon and Israel began the long-awaited US-mediated talks to demarcate their maritime borders, under the supervision of the UN.

The framework agreement announced by both countries at the time was the most serious attempt to resolve the maritime dispute and secure gas drilling operations through diplomatic means.

However, there are many challenges that can slow or even derail these negotiations.

According to Lebanese estimates, the country has 96 trillion cubic feet of natural gas reserves and 865 million barrels of oil offshore, and is in urgent need to begin drilling to save its ailing economy.

Israel is also in hurry to resolve this dispute as it wants to finalize the negotiations before September 2022, when the Karish gas rig is expected to begin production. The concern is that if a deal is not signed by then, Hezbollah may take action to halt Israel’s extraction altogether – until Lebanon is able to extract its own fuel from those waters.

Resolution or conflict

Last month, Hezbollah Secretary General Hassan Nasrallah reiterated warnings against Tel Aviv in the event that Lebanon is prevented from extracting its own resources in the Med. “When things reach a dead-end, we will not only stand in the face of Karish… Mark these words: we will reach Karish, beyond Karish, and beyond, beyond Karish,” he cautioned.

Initially, Lebanon took a maximalist position on its maritime borders with Israel: the main dispute was around the percentage both countries should share in the disputed 860 square kilometers, which covers Lebanon’s offshore gas Blocks 8, 9 and 10.

It is worth mentioning that Lebanon does not enter these negotiations from a position of strength and is in dire economic need to unlock foreign aid and begin the flow of potential gas revenues.

Meanwhile, the arrival this summer of the British-based Energean, an oil and gas exploration company, which will begin a drilling operation close to the Karish gas field, has sparked tensions between both countries, prompting US envoy Hochstein to race back to the region on 13 June.

In order to provide Lebanon with some much-needed leverage and accelerate negotiations, Hezbollah dispatched three drones towards the Karish gas field on 2 July. The operation sought several results: to test Israeli military responses to the drones, to scare off the private company contractors working on the rig, and to motivate both Tel Aviv and Washington to step up and strike a deal.

The operation achieved its goals. Israel’s military now can’t rule out the possibility that the Lebanese resistance movement will launch additional attacks on the gas field in the near future, or provoke Israel in a different manner – if the maritime dispute is not ironed out, and soon.

Beyond the Mediterranean Sea

The negotiations have also been impacted by international developments, chiefly, the war in Ukraine and the growing energy crisis in Europe. Sweeping western economic sanctions on Moscow’s economic interests have dried up Russian exports to the continent, driving Europe to seek alternative sources of energy, few of which are readily available.

In May 2022, the US and EU unveiled a plan to reduce Europe’s dependence on Russian fossil fuels and in June, the EU and Israel signed an agreement to export Israeli gas to Europe. These external factors have further motivated the US and Israel to hasten the negotiation process with Lebanon, all of which are overshadowed by the aforementioned US pressure on the Lebanese government.

Energy expert Laury Haytayan believes that linking Lebanon to regional energy projects makes it harder for Lebanon to go to war with Israel. Haytayan told The Cradle: “Lebanon needs gas, Israel needs stability, and the US wants to give both what they want.”

It is important to recognize that a final maritime demarcation agreement also means defusing the tensions on the Lebanese-Israeli border, which may require a broader US-Iranian agreement, something that is unlikely in the short term.

If the gas deal is successful and the US approves the Egyptian energy exports, the move will only increase US leverage over Lebanon when it comes to future negotiations on energy security.

It is in Lebanon’s interest to ensure that one party, the US, does not continue to hold all the cards related to its vital fuel needs. A recent offer from Iran to supply the country with monthly free fuel was tacitly accepted by Lebanon’s prime minister and energy minister, but needs work. Other states have offered to build power generation plants to enhance the nation’s infrastructure and efficiency.

But with Lebanon so deeply affected by Washington’s whims – and punishments – it isn’t at all certain that the country can steer itself to these more independent options.

The US and Israel have never been this highly incentivized to solve the maritime dispute. If the deal fails, Hezbollah may proceed with military action, especially before the conclusion of political ally President Michel Aoun’s term this Fall.

Furthermore, the gas issue may turn into a contentious domestic political issue ahead of Israel’s November parliamentary elections. In that instance too, a military conflict between Israel and Hezbollah may be triggered.

The only solution is to strike a deal, get gas flowing, and avert war. Will saner minds prevail, or will the region’s high-stakes geopolitical competition continue to escalate blindly? More importantly, can Washington bear to allow Lebanon the breathing space after three years of severe economic pressure to control Beirut’s political decisions?

The views expressed in this article do not necessarily reflect those of The Cradle.
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