Can Lebanon Escape the Resource Curse?

BEIRUT – After two and a half years without a president, Lebanon’s Parliament has elected Michel Aoun to the post. Now, Lebanon can turn its attention to oil and gas production, with policymakers’ expectations running high – verging on irrational exuberance – that an energy windfall will jumpstart the country’s economy, which has suffered from poor political and economic governance and the spillover effects from Syria’s civil war.

Lebanon’s potential hydrocarbon wealth could indeed transform the country, as well as providing a model for other Middle Eastern energy producers to follow. But policymakers must be mindful of four major risks. For starters, oil and gas prices are volatile, and fossil fuels in general have an uncertain future. Oil and gas prices have declined by some 60% since June 2014, and it is unlikely that they will recover over the medium term. We are in the age of oil’s “new normal,” defined by plentiful alternative energy sources.

Second, the size of Lebanon’s recoverable energy reserves is uncertain. Equally important, even under the most optimistic scenarios, the country’s capacity to manage oil and gas extraction, production, and distribution is uncertain as well.

Third, ongoing territorial disputes in the region – and the absence of agreed maritime borders with Cyprus, Israel, and Syria – creates legal uncertainty about who owns and may exploit certain oil and gas blocks.