Israel drills as US sanctions loom over Lebanon

A new, unprecedented US sanctions bill targeting parties engaged in economic activities deemed beneficial to Damascus could threaten the ability of neighboring Lebanon to exploit offshore natural gas reserves.

Israel, already lightyears ahead of Lebanon in drilling and inking deals with fellow Eastern Mediterranean states, stands to benefit most — especially along a disputed maritime boundary.

Unlike previous sanctions limited to Syrian entities, the Caesar Act allows for the targeting of third parties, whether businesses, foreign government agencies, or non-Syrian individuals – something which a group of Republican lawmakers hopes to apply to Lebanon’s ruling party.

The bill, which went into effect this week, is due to bring on additional rounds of sanctions over the summer.

While the initial announcement focused on individuals and entities inside Syria, including President Bashar al-Assad’s wife, the following rounds will sanction “Lebanese or Lebanon-based personalities or entities”, Mouaz Moustafa, who heads US-based lobbying group the Syrian Emergency Task Force, told L’Orient Le Jour.

The Caesar Act notably allows for the targeting of those who provide support to paramilitaries operating in Syria, including Lebanon’s Hezbollah.

A Republican task force has already been clamoring for the Donald Trump administration to use the Caesar Act and other sanctions to punish Lebanon’s Free Patriotic Movement (FPM) for its longstanding alliance with Hezbollah.

Led by Gebran Bassil, the son-in-law of President Michel Aoun, the FPM has controlled the energy portfolio for the better part of the past decade.

US legislation should “go after Hezbollah’s strongest allies from outside of the organization for their support of Hezbollah, such as Foreign Minister Gibran Bassil and head of the Amal Movement and the Speaker of the Lebanese Parliament Nabih Berri,” the Republican Study Committee said in a 120-page strategy paper released this month.

Lebanon’s Bassil, who served as foreign minister before mass protests prompted Prime Minister Saad Hariri to torpedo his cabinet of rivals in October of last year, has long touted Lebanon’s destiny as a petroleum state. Berri, who leads the Shiite Amal party, has been a leading figure in facilitating US-mediated talks over Lebanon’s maritime border with Israel.

While there is great skepticism that the average Lebanese will benefit from future oil and gas revenues due to endemic corruption, the sector could be crucial in allowing the country to tackle its gargantuan public debt and electricity shortages as it faces its biggest financial crisis in decades.

With Lebanon’s dollars dwindling and banks cutting off depositors from their savings, the mere prospect of US sanctions threatens to become a potent new pressure card at best, and a barrier to international investment at worst.

Costly delays

The continental shelf stretching from Israel’s southern border with Egypt up to Lebanon’s northern border with Syria, and west to the island of Cyprus is believed to hold more than 122 trillion cubic feet of gas and 1.7 billion cubic feet of oil, according to an assessment by the US Geological Survey.

Lebanon and Israel are in dispute over their shared maritime boundary. US mediation which saw intense shuttle diplomacy in 2019 has since stalled.

Israel, in the meantime, has made steady progress. Prime Minister Benjamin Netanyahu’s government in January signed a gas pipeline deal with Cyprus and Greece. Israel’s Tamar platform, built by Texas-based Noble Energy, now supplies 70% of the country’s power, according to the company. Noble also began pumping gas from another offshore field, Leviathan, in December.

After declaring its first block a non-starter, Lebanon has repeatedly postponed bids for a second offshore oil and gas exploration licensing. That awaited round, characterized as “inflammatory” by Petroleum Economist, an energy industry trade publication, will include remaining blocks contested with Israel as well as Syria.

Given these challenges, how much could the Caesar bill threaten future investment in Lebanon?

“A lot,” says Diana Kaissy, executive director of the Lebanese Oil and Gas Initiative, an NGO promoting transparency in Lebanon’s nascent energy sector.

“Investor appetite is linked to the degree of risk. If there’s more risk, it increases the liability,” Kaissy added. That’s especially true if the project is in a country where exploration and drilling activities are prone to be put on hold.

The prospect of delays and risk of sanctions translates into greater financial costs at a time when a global pandemic and economic recession have stunted demand for petroleum products.

“The whole atmosphere is not encouraging. The leading party here, the Free Patriotic Movement, has the presidency and this sector is in the hands of the FPM, so there will be a political deadlock,” she told Asia Times.

Kaissy says the environment echoes 2013, when political deadlock in Lebanon at the height of the Syrian civil war led to a four-year standstill over the licensing process.

“It cost us a lot. Markets were lost. Oil was $105 then,” she said. In the meantime, Israel was able to procure two contracts “for very low hanging fruit” – nearby Egypt and Jordan. And oil has dropped significantly, now at around $45 per barrel.

“When you stall and delay, markets get taken away,” said Kaissy.

Approaching Israel

The Lebanese government’s position has been complicated by the April announcement that Block 4, the first area to be explored, is dry.

Drilling, concluded on April 26, found a promising geological area, according to Energy Minister Raymond Gajar, but no reservoir that could be commercially viable.

“Traces of gas were observed confirming the presence of a hydrocarbon system, but no reservoirs were encountered,” Total said.

The French Total-led consortium in charge of the drilling, which includes partners ENI of Italy and Russia’s Novatek, is currently analyzing the results from Block 4 and is expected to issue a final report at the end of June.

Total and its partners are also contracted to explore the controversial Block 9, which straddles waters claimed by both Lebanon and Israel as part of their Exclusive Economic Zones. Already, Israel has sharply contested this work, with former Israeli Defense Minister Avigdor Lieberman in 2018 saying participating companies would be making a “grave error.”

A Lebanese individual involved in oversight of the latest round of drilling alleges Block 4 is indeed viable, but that the threat of the Caesar sanctions has obstructed further exploration and extraction.

The individual, who spoke on condition of anonymity, says he believes the exploration of Block 9 will be indefinitely delayed unless Lebanon makes significant concessions to Israel.

Lebanon’s former energy minister, Cesar Abi Khalil, last year told Saudi newspaper Asharq al-Awsat that Israel was working to obstruct or pressure Total to delay operations in Block 9, a message he says was relayed to him by the chairman of Total.

Thus far, the French oil giant has remained committed to the project, and the Total-led consortium is expected soon to announce coordinates for its Block 9 exploration. For Hezbollah, France’s commitment to Lebanon is crucial, since the United Kingdom and Germany designated Hezbollah’s political wing a terrorist group earlier this year.

But in the words of Kaissy, “announcing coordinates is one thing, drilling is something else.”

The international consortium may choose to back out of its obligations and pay a $40 million fine. Total could also invoke force majeure due to the novel coronavirus pandemic.

Perhaps sensing the gravity of the moment, Lebanese President Aoun in recent weeks reportedly expressed his desire for the US to restart mediation over the demarcation line with Israel.

Aoun’s new tone is likely a strategy to buy precious time, says Hanin Ghaddar of the Washington Institute for Middle East Policy.

“It is a way to have the US say, ‘Let’s see what Lebanon has to offer before we punish them,'” she told Asia Times.

At stake is the prospect of tightening US sanctions and armed conflict with Israel. Both could ward off investors. Lebanon’s pursuit of a $10 billion bailout from the Washington-based IMF is also in question.

“What the US is hoping is for the allies of Hezbollah to change their behavior,” Ghaddar said. For Aoun and Bassil, however, she believes it may be too late.

Photo: Greek Prime Minister Kyriakos Mitsotakis (C), his Israeli counterpart Benjamin Netanyahu (R) and Cypriot President Nikos Anastasiadis attend the signing of an agreement for the EastMed pipeline project designed to ship gas from the eastern Mediterranean to Europe in Athens on January 2, 2020. (Photo by ARIS MESSINIS / AFP)

Link: https://asiatimes.com/2020/06/israel-drills-as-us-sanctions-loom-over-lebanon/