What does the Iran deal mean for Lebanon’s energy sector?

LAU experts discuss the possible scenarios the Iran nuclear deal opens up for Lebanon.

August 18, 2015

Iran’s desire to invest in the Lebanese energy sector has never been a secret. In the past years, Tehran has repeatedly offered to rehabilitate the country’s two refineries, build a power plant under favorable terms and supply Lebanon with oil and natural gas.

With the lifting of the economic sanctions projected to transform Iran into a major regional economic player, these projects may finally become reality.

Imad Salamey, professor of Political Science at LAU, analyzed the impact of the nuclear deal in his contribution to the report “Iran and the Arab World after the Nuclear Deal,” recently published by Harvard’s Belfer Center. According to Salamey, the sectarian nature of Lebanon’s political system will make it difficult for the country to exploit the new economic opportunities.

“While the post-Cold War era polarized Lebanese in support of either the East or the West, the contemporary regional struggle has been shifting inward, pitting Shia against Sunnis,”says Salamey.

The prevailing wisdom on the consequences of the Iran deal sees either a rapprochement of these two parties, brought together by the fading threat of the nuclear bomb, or the escalation of regional tensions due to an increase in Tehran’s ability to support proxy groups.

According to Salamey, Iran’s emergence as a regional actor will give international powers more legitimacy as mediators and greater leverage to sway events. On the internal level, however, he is persuaded the deal will be beneficial for Lebanon: “The Shia are no longer playing a secondary role in the country,” he says. “Therefore, in order to balance sectarian relations and increase their share of power, Iran is likely to be invited to constructively intervene in Lebanese affairs along with Saudi Arabia and Western states.”

Were this to happen, according to professor of Management Amine Abi Aad Lebanon would “improve part of its infrastructure and begin to solve the problem of an underperforming electricity sector which is badly affecting Lebanon’s economic growth.”

From an economic perspective, however, Iran’s offer to do business with Lebanon under favorable terms is no guarantee. “If Tehran gave us a better deal, then other countries would demand similar treatment … This might lead to a price war that would negatively affect Iran,” says Abi Aad.

Engineering professor Raymond Ghajar, who is also the senior energy advisor to the minister of energy and water, sees obstacles lying on the way of Iranian investments. “Lebanon is not able to tender any projects such as the building of power plants, because it hasn’t got the proper legal framework or the money,” says Ghajar. “A law for the establishment of an external regulator for the energy system has existed for thirteen years, but has never been implemented,” he adds.

A recent study conducted by the World Bank analyzed how political and confessional cleavages are preventing reforms that have long been on the table from materializing. More than that, the interests behind businesses like generators (whose revenues are estimated at USD 1.7 billion, or four percent of the GDP) are shadowing those of the public community (the underperformance of Electricité du Liban accounts for about 40 percent of Lebanon’s public debt).

“Electricity cannot remain in the hands of the public sector if we want to attract foreign investments,” says Ghajar. “Beirut is a city able to compete on the international level, but it still lacks 24-hour power provision. This will only end if the energy sector is not in the hands of those who profit from its inefficiency.”

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