Recent attempts in Lebanon to weigh the idea of importing refined oil products from Iran or fuel oil from Iraq were influenced by geopolitical factors rather than a lack of fuel supplies.
Recent attempts in Lebanon to weigh the idea of importing refined oil products from Iran or fuel oil from Iraq were influenced by geopolitical factors rather than a lack of fuel supplies. The latest acute power outages in Lebanon do not appear to have been triggered by a lack of sources for fuel shipments, based on vessel tracking data, but rather by decades-long mismanagement and political wrangling.
Geopolitics and Oil
In a televised speech on June 16, Hezbollah’s secretary general Hassan Nasrallah lashed out at Washington, saying that the Caesar Syria Civilian Protection Act (the Caesar Act), which carried with it fresh sanctions on Damascus, “targets Lebanon in the same way it targets Syria, and seeks to starve Lebanon just as much as Syria.” Later that month, US ambassador to Lebanon Dorothy Shea denied Nasrallah’s claims, accusing the group of destabilizing the country and jeopardizing its economic recovery, as Lebanon faces its worst financial crisis. Hezbollah is considered a major player in Lebanese politics.
Nasrallah has proposed that Lebanon reach out to Iran or other countries that would be willing to provide it with essential products, particularly fuel supplies. The payment, however, would not be in US dollars but instead in Lebanese pounds—a currency that has lost about 80 percent of its value since October 2019- or through bartering. Unsurprisingly, the proposition elicited a warning from Washington on July 9. Even if the shipments of Iranian oil were delivered clandestinely to Lebanon, the movement of vessels from Iran to the Mediterranean can be detected. For instance, Iranian oil shipments to Syria have been closely watched and analyzed by TankerTrackers.com, a company that uses AIS data and satellite imagery, among other tools, to study crude oil exports and production.
Lebanese energy minister Raymond Ghajar, meanwhile, has said that there were no negotiations with Iran over fuel imports, adding that discussions were taking place with Iraq. This option, however, is also unviable and will likely come under scrutiny.
Iraq has produced an average of 265,000 barrels per day (bpd) of fuel oil since 2009, far in excess of local demand (between 140,000 bpd and 190,000 bpd), according to a 2018 study by the Oxford Institute for Energy Studies. However, if Lebanon truly wanted Iraq to become a supplier of fuel oil, it could have reached an agreement with Baghdad in recent years instead of looking to other countries (see below). Moreover, Iraq is facing its own financial crisis due to the fall of oil prices. Therefore, it is not the ideal country to “assist” Lebanon as it has its own budgetary problems due to lower oil revenues.
The Fuel Crisis is Due to Mismanagement Not Supply
Lebanon has suffered recently from acute power outages especially after a shipment reportedly carrying tainted fuel was uncovered in March, prompting arrests and an investigation. This led to delays in discharging oil products bound for the state-run Electricité du Liban (EDL). Lebanon has been receiving its fuel shipments through the London branch of Sonatrach, the Algerian state-run oil company, which has denied its involvement in the tainted fuel case. The business arrangement between Lebanon and Algeria is based on a vague deal for fuel oil and gas oil supplies. But here’s the rub: Algeria mostly exports light sulfur straight-run fuel oil which is not what Lebanon uses to run its power plants (high sulfur fuel oil), explains Homayoun Falakshahi, a senior analyst at the data intelligence firm Kpler. The agreement between Lebanon and Algeria has been in place since 2005.
The agonizing power outages over the past few weeks were partly attributed to the delays caused by the reportedly contaminated oil shipment. Based on Kpler’s data, Lebanon’s fuel oil imports fell by around 58 percent in May and June compared to February. So far this month, fuel oil imports appear to be higher than the past two months standing at around 22,000 bpd. Meanwhile, imports of diesel in the past three months remained within normal levels compared to the same period in the last two years. In June, Lebanon imported an average of 73,000 bpd of diesel, and this month imports are around 100,000 bpd so far, based on Kpler’s data.
Amid a gradual improvement in power supply, more than seven tankers carrying fuel oil, diesel/gas oil, and gasoline have been seen in Lebanon so far in July, according to vessel tracking data. The Margarita (IMO 9426594) loaded at Mina Abdullah in Kuwait according to Kpler, TankerTrackes.com, and Lloyd’s List Intelligence. This tanker left Kuwait laden with 252,000 barrels of gas oil later discharged in both Zahrani in southern Lebanon and Tripoli to the north, according to Kpler’s data. The Donald (IMO 9353125) loaded 222,000 barrels of fuel oil from BP Rotterdam in the Netherlands and was seen calling on Lebanon’s power plants in Jiyeh and Zouk, according to Kpler. The SW CAP FERRAT I (IMO 9231614) offloaded in Tripoli 253,000 barrels of ultra-low sulfur diesel picked up from Malta. The Rolls I (IMO 9296119) arrived in Lebanon carrying gas oil loaded at the ISAB refinery in Italy, based on Kpler’s data. Moreover, data from MarineTraffic shows some oil tankers signaling for Lebanon as of July 27, including Lucky Sailor (IMO 9464352) and Maria M (IMO 9301885), another sign that tankers are heading to the country.
In general, Lebanon receives oil shipments from various places, including Europe and the US (fuel oil), according to Falakshahi. Interestingly, and according to a report from the Lebanese finance ministry, “the US ranked first in 2019 with a share of 9 percent of total imports of which 49 percent are minerals fuel and oil.”
Oil tankers that call on Lebanese oil facilities are either shipments imported by EDL or private distributors of oil products, according to Jessica Obeid, an energy consultant. She noted in a conversation last week that "private groups are hoarding a lot of diesel," and these include owners of private diesel generators. A recent report from the World Bank says that “the electricity sector has been at the heart of Lebanon’s fiscal imbalances for decades,” noting that the government transferred $2.2 billion to the EDL in 2012. However, the report points out that despite such subsidies, the EDL “supplied only 55-64 percent of Lebanon’s electricity needs in 2018” while the rest has been covered by private generators.
“Apparently, and for 30 years now, there have been efforts to keep the power crisis ongoing, while maintaining a parallel and informal system for generating electricity, such as the network of private diesel generators that has been growing," said Adham Hassanieh, a Lebanese political activist with the LiHaqqi political movement. The status quo benefits the owners of the generators who reap financial rewards from subscription fees.
Although some figures in Lebanon have used the financial meltdown to justify the fuel crisis that hit Lebanon recently, it does not appear to be related to a lack of money. “The fuel crisis is not related to a shortage of US dollars,” said Obeid. “The problem now is political bickering and delays,” and this involves the issue of the reportedly contaminated fuel shipment–given that the arrested people were the ones in charge of fuel testing, Obeid added.
Power outages in Lebanon have become the norm as Lebanon’s successive governments have failed to keep the lights on since the end of the Lebanese civil war. Lebanon does not need Iranian or Iraqi fuel supplies for power generation, however. Instead, its leaders need to take full responsibility for a crisis of their own creation and engage in serious reforms, especially in the power sector.