The way in which the Israeli government, under US pressure, rushed to reach a maritime border agreement with Lebanon raises the suspicion that there are other interests behind the agreement. What particularly made me think was the enthusiasm on the part of the US, and also of the French, in promoting it. This urgency did not stem only from the desire of these powers for stability in the region.
After an article was published this week in which I described the agreement as an Israeli gamble, I received a telephone call from a very senior person in the gas industry, specifically in the East Mediterranean. "In every casino, in the end, the bank wins," he said. "In the US and France, the energy companies have huge political power, power that has very much strengthened with the energy crisis that began a year ago and that worsened considerably because of the war in Ukraine and the shutting of the gas pipelines from Russia. Who do you think will receive the next concessions for drilling in Lebanon’s economic waters?" he asked.
Indeed, from conversations with US and Lebanese sources, a clear picture emerges. The maritime border agreement has far-reaching economic significance for Lebanon, and the US energy companies, as well as French giant Total, which is 50% owned by the French government, are also due to benefit. At stake are concessions on several more gas reserves that apparently exist in Lebanon’s economic waters (which under the agreement will be enlarged by 860 square kilometers of the area that was in dispute with Israel).
Lebanon has divided its economic waters into ten blocks. The Qana/Sidon gas field is in Block 9. The rights to it are held by Total, and Italian company ENI also has a share. Israel is negotiating with Total on royalties that it is due to receive for its part of the field, estimated at 17%. Total and ENI hold the rights in another block in the area. The plan is that once the Israel-Lebanon agreement is signed, auctions will take place with what one source described as "preference for companies already active in the East Mediterranean," meaning Total and other international energy companies such as Chevron.
This disclosure comes on top of the generous aid packages that the US has promised Lebanon, as "Globes" has reported. These packages, according to a senior US source, will come from Washington and Paris and from international agencies such as the IMF and the World Bank. The conditions will be strict, in an attempt to prevent the money finding its way to Hezbollah, and the packages will be earmarked for specific purposes (such as energy, health, and other sectors). According to the source, the aid will amount to tens of billions of dollars over the next few years, assuming that the peace is maintained and the political situation allows. This is where the problem lies. President Michel Aoun of Lebanon, who represents the country’s Christian community and is someone on whom the Americans rely, is due to stand down at the end of this month, and he has no replacement. The government is Lebanon has not yet been confirmed, and it is very shaky. The parliament is made up of many factions. And in the background is Hezbollah, the strongest military and political force in the country, which has welcomed the agreement, but which will demand a share of the royalties and the expected aid.
This means that the US, the official guarantor of the agreement, and its French partner will have to become deeply involved in events in Lebanon to prevent Hezbollah from influencing the choice of energy companies and channeling future aid cash. Experts on Lebanon believe that this mission is doomed to failure, and that Hezbollah, through the political parties, the ministers, the members of Parliament, and the senior officials that do its bidding will be capable of taking advantage of the flow of money for its needs. A senior US source said this week that his country had the means of monitoring and control, and that the Lebanese central bank and other financial bodies would undergo the required changes and would abide by close international supervision. He also admitted, however, that in practice there was no real possibility of preventing Hezbollah getting its hands on the money.
How much money is involved?
The agreement contains to precise definition of Israel’s share in the gas field that stretches from Lebanon through the area in dispute into Israel waters. It stipulates that Israel and Total will negotiate on the way in which Israel will receive its economic rights in the field, and that production from it, if any, will begin only after the negotiations are concluded. 17% of the field is estimated to be in Israel’s Exclusive Economic Zone, but the agreement with Total will not be based on area but on the amounts of gas found in the field. This means that it can only be determined after the results of exploratory drilling are obtained. Meanwhile, within two weeks, an agreement in principle will be signed on the mechanism for compensating Israel, on the basis of international norms and previous agreements.
When the agreement is completed and productions starts, Israel will be due to receive the first payment. The payment mechanism will not be connected to Israeli tax laws and royalties paid into the sovereign wealth fund, The Israeli Citizens' Fund. It will be based on the value of the gas found in Israeli waters. This value will be determined in the final agreement, in accordance with the prevailing price of gas on world markets. There will probably need to be legislation to determine how the royalties received will be divided between the Ministry of Finance and The Israeli Citizens' Fund.
Selling the agreement
In an attempt to sell the agreement, Prime Minister Yair Lapid said at a press conference this week that Israel’s citizens would gain billions from it. This is despite the fact that at the security cabinet meeting the amount was estimated at about NIS 500 million, if gas is produced at all. Lapid’s promise will be realized only if huge quantities of gas are discovered in the field. Lapid also said that Israel had refused to accept Lebanon’s demands, but here too he was less than accurate. Lebanon demanded and received tighter restrictions on the companies that can participate in gas exploration, and the start of drilling (although not of production) immediately after the signing of the agreement, irrespective of whether Israel and Total have reached agreement on royalties.
Government spokespersons have also not provided answers to material questions, among them questions about the reasons for the great urgency in completing the agreement. The explanation that it is because of the impending retirement of the Lebanese president does not hold water, because if, after he goes, the situation in Lebanon degenerates, will the entire agreement not be in danger?
Published by Globes, Israel business news - en.globes.co.il - on October 13, 2022.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.