Lebanon’s fuel crisis has worsened over the last week as the country experienced a 24-hour blackout over the weekend, following years of instability in the energy sector. Lebanon’s population of 6 million faced a total 24-hour blackout starting Saturday as two of the country’s major power plants, Deir Ammar and Zahrani, run out of diesel fuel meaning they were unable to supply the electricity the country needed.
Power was only restored on Sunday after the central bank provided the energy ministry with $100 million of credit to purchase the fuel needed to get back up and running. If it hadn’t have been for the intervening of the central bank, the outage might have lasted several days. In addition, this credit will only contribute to short-term power restoration, with the country relying on a fuel shipment from Iraq later this month to keep it going.
Power outages are not uncommon for the Lebanese population, which deals with power cuts on a daily basis. While the rest of the world is currently battling with petroleum and gas shortages, this has been an ongoing challenge in Lebanon for years, with the shortcomings of state electric company Electricité du Liban. However, these cuts used to be managed by the energy sector to ensure enough power was provided throughout the day and night. Now, energy companies are losing control due to high fuel prices and scarcity.
Outages have been so frequent that residents fear buying perishable foods because their fridges have become useless without power. Food poisoning is a serious risk. Hospitals have had to suspend operations due to the uncertainty of a stable power supply. In addition, shop keepers have to close during power cuts or operate in the dark, with only the lucky few having access to generators as a backup. Now those that could afford generators are facing the same problem as the energy companies – severe fuel scarcity.
Related: Canada’s Oil Stocks Are Trading At Bargain Basement Prices One of Lebanon’s major challenges in access to fuel is its heavy reliance on energy imports, with fuel making up over 20 percent of the country’s import bill. Fuel scarcity and increasing energy prices have hit the Lebanese population hard. There is also a prevalence of smuggling fuel from Iran through Syria to sell on the black market at higher prices, mainly by the militant group Hezbollah. In addition, the central bank has fallen into trouble as its stockpile of dollars is depleting, meaning it has had to restrict imports of subsidized fuel. Moreover, Lebanon’s fluctuating currency means that the price of fuel is only guaranteed in dollars.
In August, Lebanon raised gasoline prices by 66 percent in an attempt to tackle the country’s fuel shortages, reducing government subsidies on fuel. By September, the government had been forced to raise prices even more, at one point increasing the price of fuel twice in just five days. The government has, until now, offered subsidies for fuel purchase in a country that is facing increasing levels of poverty. According to the UN, around 78 percent of the Lebanese population has fallen into poverty, following years of political instability, the 2019 financial crisis, and last year’s bombing in the capital of Beirut.
While we are just now seeing the dramatic effects of Lebanon’s poor energy management, the issue has been mounting for years. Ineffective energy spending and poor organization have plagued the country for decades. In 2020, the government estimated that the electricity sector constituted around $1.6 billion of public funds, with some saying these costs are nearer $2 billion, or around 3 percent of the total Lebanese economy. For a country ridden by debt, the mismanaged energy industry is a huge burden, making up almost half of the public debt.
Yet no real progress seems to have been made in reforming the sector, mostly due to political corruption and vested interests. This has been such as significant challenge to change that both the World Bank and IMF have so far declined to interfere for risk of mismanaged funds due to rampant corruption.
Lebanon voted a new government into power this September, a year after the resignation of the previous government following the fatal explosion in Beirut in August 2020. The government will be led by President Michel Aoun and veteran politician Najib Mikati as Prime Minister. Upon his inauguration, Anon stated that he intends to resume talks with the IMF to fund a recovery program for the country’s economy. He also vowed to tackle corruption, the root of many of the country’s problems.
But some worry that if this fuel crisis is not resolved it could push a country with rising poverty levels and insecurity into civil war. With all hopes resting on the new government, this may be the last chance that the political sphere has to get it right before Lebanon spirals into destruction.
By Felicity Bradstock for Oilprice.com
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