Syria and Lebanon: Energy Challenges and Chances Remain High

Syria’s energy landscape is slowly taking form after eight years into the conflict. Despite the fact that the Islamic State (IS) terrorist organization has lost control of almost all territory that it once held, Syrian, non-Syrian actors and foreign powers are not ready to discuss creating a political deal. Instead, they continue to compete for control over energy infrastructure and trade in order to gain political leverage.

Oil middlemen facilitate fuel trade between the Syrian government and the Syrian Democratic Forces (SDF). In light of the American declared position to withdraw military forces from northeastern Syria, the SDF and local interest groups in the oil producing areas have allegedly reached an understanding with the Assad government that allows reinstitution of regime control over oil and gas fields in exchange of security guarantees and a revenue-sharing arrangement that is beneficial for both sides.

It is estimated that the American-supported SDF produces approximately 50-70 thousand barrels of oil per day. From this, 40 thousand barrels are destined for the local market, and the rest are funneled to the Syrian regime.  The lack of investment however in the rehabilitation of energy infrastructure in northeast Syria impedes the increase of oil production. The absence of American investment in the U.S-controlled areas in northeast Syria is attributed to Washington’s reluctance to actively engage in nation-building and long-term construction. This reality has prompted China to dynamically pursue its Belt and Road Initiative throughout Syria and diversify Chinese foreign asset holdings in the context of new geopolitics of global infrastructure development countering American influence at regional and international levels.  In fact, Chinese investors have returned to Syria and inspect gas installations they held before the outbreak of the Syrian civil war, while the China National Petroleum Corporation has stakes in the largest Syrian oil companies namely the Syrian Petroleum Company and Al Furat Petroleum.

In general, foreign production sharing contractors go back to Syria to inspect either oil facilities that are under the control of the SDF or gas facilities that are mostly under the control of the Syrian government. French Total and Royal Dutch Shell are two major oil production sharing agreement holders in facilities under the complete control of the American-supported SDF.

The U.S. leverage over Syria’s oil and gas fields through the American-supported SDF is important. This situation provides Washington a golden opportunity for strong bargaining power in negotiations with the Assad regime for Syria’s political future. Equally important, the energy industry—from equipment and sales to crude transportation—is heavily sanctioned by the United States and the European Union. U.S. sanctions on Syria’s energy industry predate the crisis, but their renewal has sent the signal to state and non-state actors that revenue generation from the black-market oil and gas trade will not be tolerated. European sanctions imposed in 2011 prohibit trade on equipment and technology for the oil and gas sectors including exploration and production, refining and gas liquefaction.      

In this complex setting, the Russian factor cannot be ignored. Russian companies like Gazprom contribute to the restoration of destroyed infrastructure and have upgraded the Banias refinery located in western Syria. Russian companies seem to lead investment in revitalizing Syria’s oil and gas sector. However, due to sanctions, it will be difficult for Damascus to find partners to buy its crude exports. 

Under the circumstances, it is estimated that the U.S. should implement its advanced technology to rehabilitate critical energy facilities in northeast Syria as a means to solidify control over vital infrastructure; this will grant Washington a major foothold in Syria and provide a bargaining power in future political negotiations with the Assad regime. Also, the U.S. in coordination with the EU should set up a governing body to ensure that the potential international safe zone in northern Syria does not exceed 10 km in depth. This would allow oil and gas facilities in northeast Syria to continue production without interruption and not deter investors from participating in the rehabilitation of the Syrian oil industry.

Coming to neighboring Lebanon, the Lebanese government launched the second international licensing round for geopolitically diverse blocks 1, 2, 5, 8 and 10. The country’s energy sector and regulatory framework have advanced with the adoption of the Petroleum Tax Law and the model Exploration and Production Agreement (EPA), as well as the 2017 decree that divided the Lebanese Exclusive Economic Zone (EEZ) into ten blocks.

Notably, the Lebanese regulatory framework is still underdeveloped despite the fact that the first licensing round was unexpectedly transparent. For this reason, a sovereign wealth fund law and onshore exploration law should be enacted to ensure transparency and confidence in the Lebanese petroleum investment framework.  Transparency can be built on the standards set by the Extractive Industries Transparency Initiative that is a global standard promoting accountability in managing oil and gas revenues, and reforms for greater transparency. The recently enacted Law 84 is a step towards the right direction in that it aims to enhance transparency and fight corruption in the Lebanese oil and gas sector.

Overlapping maritime claims between Israel and Lebanon over an 854-square kilometer (km) maritime boundary continue to be a major challenge due to the high risk of escalation if exploration of block 9 were to proceed in the disputed area. American mediation led by then US Deputy Assistant Secretary of State and now ambassador to Turkey David Satterfield after years of failed initiatives to help resolve the Israeli-Lebanese maritime dispute has been critical. According to leaked information, Lebanon has sought to ensure that Hezbollah’s arms are not linked to the maritime boundary demarcation negotiations and has rejected Israel’s proposal for a 6-month timeframe of talks.

Negotiations are currently stalled but it is with no doubt that they have so far been complex and difficult due to implications on the national security of both Israel and Lebanon. It is estimated that negotiations will likely start again in the coming months as Lebanon considers the process to be viable according to a statement made by the Lebanese prime minister during his August 15th official visit to Washington DC.

On another note, the newly founded East Mediterranean Gas Forum (EMGF), which aims to create a regional gas market, facilitate the use of existing ones, and construct new infrastructure is a significant development. Interestingly, the exclusion of Lebanon from EMGF has prompted the country to not seek alternative membership in any new Russian or Iranian supported like-minded energy Forum. Instead, Lebanon advocates for the speedy development of three Floating Storage and Regasification Units (FSRUs) to secure swift access to new gas supplies and at relatively low cost. 

In terms of policies to be pursued, the US should continue to act as mediator and facilitator in the discussions to demarcate the disputed maritime area between Lebanon and Israel, allowing the two neighbors to embark on trans-boundary gas sharing initiatives on exploration and production. The resolution of the maritime boundary dispute will be immensely beneficial to Lebanon and the broader region.  Also, a sovereign wealth fund law and onshore exploration law should be enacted to ensure transparency, efficient management of gas revenues, and confidence in the Lebanese petroleum investment framework so that international energy companies are attracted to the country’s oil and gas sector.  

Evidently, Syria and Lebanon are players in a high-stakes energy game unfolding in the East Mediterranean. The way that both countries address challenges and explore chances will determine their engagement or exclusion from broad energy cooperation that increasingly defines the region and the policy agendas. In this respect, time is of the essense.

Antonia Dimou
Antonia Dimou
Antonia Dimou is Head of the Middle East Unit at the Institute for Security and Defense Analyses, Greece; and, an Associate at the Center for Middle East Development, University of California, Los Angeles