Lebanon was most likely a marginal topic on the sideline of nuclear discussions in Vienna, but the nuclear agreement between Iran and the P5+1 group is expected to have direct implications on local Lebanese politics. Since the deadlock in Lebanon is largely a reflection of regional deadlock, it would be reasonable to expect a possible regional appeasement to contribute to unlocking the situation in Lebanon. The immediate post-Iran deal period is expected to be a period of hesitation and testing until the time is ripe for broad arrangements. While the overall regional balance is expected to tip in favor of the Iranians, in Lebanon, arrangements between Iranian-backed factions and Saudi-backed factions are inevitable, both at the political and business levels.

While the world prepares for investments in Iran, a Lebanese-centered approach considers how the deal could free up Iranian investments in Lebanon, particularly in the energy sector, long limited by sanctions, and a certain reluctance from some Lebanese. In the past, Iran expressed repeated interest in the Lebanese energy sector. Tehran offered to rehabilitate the country’s two refineries (currently inactive and used for storage only), build a power plant under favorable terms, and supply Lebanon with oil and natural gas. These projects faced a number of challenges and their feasibility was not always ensured.

Supplying Lebanon with gas and/or oil

Supplying Lebanon with gas faces a number of challenges. Gas can be exported either by pipelines or chilled to a liquid form and transported by specialized tankers. The first scenario, (exporting gas to Lebanon via pipeline), requires building the pipeline which has to pass through some of the most unstable countries in the world. With regards to the second scenario, Iran had several projects for building liquefied natural gas (LNG) plants and even started working on one, but work was suspended due to sanctions. Developing LNG capabilities is costly and it is going to take Iran several years to build the necessary infrastructure, even if Iran is considering a floating LNG platform. Supplying Lebanon with gas is not feasible in the short term, but could become a possibility a few years down the road. On the other hand, supplying Lebanon with oil and other petroleum products would be less problematic.

Electricity

Lebanese demand stands at approximately 2,500 MW per day (with peak demand exceeding 3,000 MW), while the available capacity is limited to 1,500 MW, causing severe shortages, covered mostly by private diesel generators. The 2010 Policy Paper for the Electricity Sector proposes measures to improve performance, and, more significantly, cut the energy bill by $1.5-2 billion per year. The paper suggests achieving this by reducing dependency on expensive imported oil, and gradually converting existing power plants to operate using natural gas. At a conference in December 2014, an LPA board member estimated that 65 percent of the power generation capacity could be generated using gas. Power plants in Deir Ammar and Zahrani are fit and ready to receive natural gas. With some minor modifications, two other power plants, in Tyre and Baalbeck, could be made to receive natural gas. LNG import terminals and a coastal pipeline are planned to support the implementation of the conversion process. The pipeline is set to supply major power plants along the way, in addition to factories and industrial plants.

Tehran has repeatedly proposed to supply Lebanon with electricity over the past few years (Iran exports around 25,000 MW per day and has a surplus of production estimated at around 6,000 MW), and build additional power plants at favorable conditions.

Participation in exploitation of potential oil & gas resources in Lebanon

In 2013, the only Iranian company that sought to pre-qualify for Lebanon’s first licensing round, the National Iranian Drilling Corporation, failed to do so. Also, notably absent from the list of companies that pre-qualified for the tender are any Qatari or Saudi companies. The indifference Saudis and Qataris demonstrated towards the sector at the time was likely part of a broader policy to ostracize a government they perceived as dominated by Hezbollah, a Shiite, pro-Iranian political party. Qataris and Saudis seemed largely focused on the composition of the government back then and did not take into consideration the possibility of a cabinet reshuffle or a change in the balance of power in the country, which ultimately happened with the resignation of then-Prime Minister Najib Mikati, and the appointment of Tammam Salam as Prime Minister.

The idea of a second pre-qualification round is being considered. While it may be justified on certain technical grounds – the initial pre-qualification round was organized in February-March 2013 – it is believed that one of the undeclared reasons justifying the organization of a second pre-qualification round is to make room for new companies hailing from friendly countries. This was best illustrated by Mohammad Qabbani, a Future Movement MP and head of the Parliament’s Energy Committee who told Al-Manar TV in December 2014 that organizing a second pre-qualification round would allow companies “from Kuwait, Saudi Arabia and Qatar” to participate in the tender and “help us exploit our resources”.

Similarly, it would not be far-fetched to imagine an Iranian company applying to pre-qualify, more likely as a non-operator. In a meeting with Energy Minister Arthur Nazarian on September 8, Iranian Ambassador to Lebanon Mohammad Fathali expressed the readiness of Iranian companies for cooperation in the exploration and exploitation of potential oil and gas resources.

Refineries

In the past, Iran has offered to rehabilitate Lebanon’s two refineries. But it remains to be seen what Lebanon intends to do with them. Previous feasibility studies on the repair and modernization of the refineries questioned the utility of the project, from an economic point of view.

Backed by an extensive and influential network of Lebanese-Iranian businessmen, Iran perceives Lebanon as a platform for developing its business presence in the Eastern Mediterranean, a region of rising strategic importance for Tehran. As usual, here too, there is competition. Iran’s Deputy Foreign Minister for Asia and Pacific Affairs Ibrahim Rahimpour visited Cyprus on September 20, a visit that followed Cypriot Energy Minister Georgios Lakkotrypis’ visit to Tehran in February 2015, highlighting both countries’ determination to strengthen cooperation. Rahimpour reiterated Iran’s offer to help Cyprus in the field of exploration, drilling, refining of oil and gas, and training of specialists. Timing is of essence, and as the experience with the first licensing round shows, Lebanon does not take into consideration the time factor.

In the past few years, few projects of cooperation between Lebanon and Iran were able to materialize, for political and legal reasons. With the lifting of sanctions, one of these obstacles has been removed. But, without a legal argument, it is going to be much harder now to justify automatically rejecting cooperation with Iran. In today’s context, dealing with Iran could be met with a form of suspicion by certain Lebanese. The energy sector, unlike other more “sensitive” areas of cooperation (such as military), can represent a good start.

Iran may even surprise the reluctants in Lebanon by adopting a non-confrontational approach. Iranians are more likely to diversify their business partners in the country (whether Lebanese or non-Lebanese, depending on the project), and will probably seek to initiate projects that would be perceived as benefitting the country, and not just a particular segment of society. The opposite would indeed be counter-productive.

In the past, there is no doubt that Iran’s determination to break the embargo could have motivated much of its overtures towards Lebanon’s energy sector. Once sanctions are removed, will Iranians be as motivated to be involved in Lebanon’s energy sector as they were before? If the answer to this question is uncertain, it is on the other hand certain that the competition at the geopolitical level with Saudi Arabia will encourage Iranian initiatives directed towards Lebanon.