Gassing up against Uncle Sam

Iraq-Iran-Syria pipeline a potential kaleidoscope of geopolitical complexities

Amidst the fog of war in Syria, the clamor of sanctions and the threat of conflict in Iran, some transnational business deals in the region have slipped quietly. That was certainly the case in July 2011 when the Western press largely ignored the announcement by Syria, Iran and Iraq that they were to build a gas pipeline to transport Iranian natural gas from the South Pars Field in the Persian Gulf through Baghdad to Damascus.

At the time the saber rattling over the Iranian nuclear program was in full swing and protests in Syria were turning to armed conflict. Many, as a result, thought that the project would prove to be stillborn. But the announcement on Monday that Iran has already commenced building the first stage of the project — running from Kuhdasht in western Iran to Baghdad — has come as a wake up call to many, even though several of the original objectives of the scheme may never be met.

The project proposes a 110 million-cubic-meter-per-day (mcm/day) pipeline that originates in Kuhdasht and traverses some 1,500 kilometers end-to-end. The pipeline is tipped to cost some $10 billion in total, and the initial agreement sees guaranteed stock purchases of some 25 mcm/day by both Iraq and Syria. The first phase, costing $3 billion, will see a 225-kilometer pipeline come to Iraq (apparently through Baghdad) to supply its power plants. Rates and payment structures of the project have not been made public and the entire project is supposed to be completed by mid-2013.

The likelihood at this stage that the pipeline will ever reach Syria is small. Building a pipeline is a serious construction effort and the route needs to be secured — something the Assad regime will have a hard time doing in the midst of a civil war.

What is more likely is that the gas reaches Iraq and stays there. For starters, Iraq desperately needs the natural gas imports. The country’s estimated natural gas consumption is rapidly increasing and has grown almost a third this year — from 1,084 kilotons of oil equivalent (ktoe) to 1,423 ktoe — and is forecast to rise by a further 18 percent next year, according to the Economist Intelligence Unit. Of that consumption much will go to electricity generation, predominately in gas-powered electricity projects that are currently in development. Already two 1,750-megawatt power plants have been contracted out and are tipped for completion in 2013, and another tender was launched for a 1,500-megawatt project in May.

Thus, Iraq needs gas, and quickly. And as the United States continues to draw down its resources and influence in the country this pipeline project would tie Baghdad ever closer to Tehran. Depending on the type and efficiency of the plants and networks, the pipeline could cover much if not all of Iraq’s projected demand for gas, especially if the pipe never reaches Syria.

There is a litany of possible complications, however, from simply securing the pipeline route through a still volatile Iraq, to the contradicting alliances and animosities between the US, Iraq and Iran. How exactly will it play out with the Americans attempting to enlist allies — among them Iraq — to tighten the sanctions noose on Iran and squeeze its energy export revenues at the same time that Iraq is entering a billion-dollar energy deal with Tehran? Interesting times await indeed.

Baghdad is becoming well practiced at playing multi-faced international diplomacy, however, having thus far maintained both its alliance with Washington and helping to prop up the regime of President Bashar al-Assad in Damascus while Washington backs the opposition seeking Assad’s removal. But the discovery by the Financial Times last month that Iraq has agreed to export 60,000 tones of fuel oil for power generation and industry to Syria suggests Baghdad remains willing to help the Assad government stay afloat.

Whether Iraq will be able to continue playing on so many sides remains to be seen. What is clear, however, is that a pipeline project that was quickly dismissed last year as a public relations stunt could turn into one of the most sensitive and controversial geo-political issues in tomorrow’s Middle East.

First published in Executive’s online edition on November 22, 2012

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Smiling through our pain

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What was that? How much?

Honesty and transparency needed at the top to build confidence

An economy that can serve the interests of all our people requires confidence. The necessary conditions for that economic confidence are both security and straight talk from those who are entrusted to protect our nation’s growth. That is why it is so damaging that no one called out the president or the prime minister for inflating Lebanon’s economic progress to the public and international community last month.

According to our Prime Minister Najib Mikati’s office, “estimated results” for last year’s economic growth have come to 5 percent and growth in the first quarter of this year increased by “leaps and bounds”. If that makes you think that one of his speechwriters has a substance abuse problem, you are not alone. No one — from the international financial institutions, to local academics, or even the humble journalists who monitor our economy — thinks growth last year exceeded 1.5 percent, not to mention those who believe the economy has been contracting since the third quarter of 2011.

Not to be outdone, at a United Nations conference last month President Michel Sleiman heralded the achievements of the agricultural sector, claiming it now makes up 6.5 percent of the economy while it had previously made up 5 percent. Of course, he neglected to mention that value added in the sector fell in 2010. There are no national accounts for 2011 and certainly not for 2012.

The relatively productive agriculture minister, Hussein Hajj Hassan, who flanked the president at the conference last month also trumpeted his ministry’s development platform for the sector, issued in 2009. A paper was issued in 2009 that contains a laundry list of issues facing the sector, followed by bullet points and badly drawn Microsoft Word Tables stuffed with the keywords governments love to use: “enhance” this, “develop” that, “reduce costs”, “create jobs”. Naturally, the only real targets in the document are those aimed at increasing staff (read: patronage) within the ministry. Since then none of the laws he proposed have passed parliament and the strategy ends next year anyway.

Instead of trumpeting overly rosy figures and touting their outstanding visions, perhaps some more humility would befit a political class that has not managed to have a census in more than 80 years, or even knows what the country’s gross domestic product, employment or inflation rates really are. The statistical, administrative and monitoring frameworks needed to accurately calculate these things are still some way off. In the meantime, there are real indicators that can be monitored in a much easier fashion to appraise the government.
Take, for instance, another half-nation of around five million hard-nosed people with limited government ability to make decisions: Scotland. In a surprisingly successful effort to reform government, the Scots have come up with a system that, on the surface, reads very much like the agriculture ministry’s ‘strategy’. Their ‘National Performance Framework’ starts with a purpose (basically ‘increasing sustainable economic growth’), drills down into five purposes of equally loose language: ‘safer & stronger’, ‘healthier’, ‘smarter’, ‘greener’, ‘wealthier & fairer’. Each category then has indicators (such as improved levels of educational attainment) and measurement criteria (such as gaps in student performance between Scotland and countries from the Organization for Economic Cooperation and Development), with progress reports posted online and updated regularly. The government doesn’t meet all of its targets, in fact they maintain the status quo much of the time, but people believe them when they succeed and listen to them when they explain why they fail. This approach to governance was a contributing factor to ruling Scottish National Party winning an outright majority in 2011 in an electoral system that was designed not to allow that to happen.

Lebanese politicians should take heed: honesty and transparency in governance builds confidence — from international institutions and partners, from the business community, and from those who are supposed to be paramount in all this, the Lebanese. When our economy is suffering, smiling to us and telling us everything is fine will not make it easier to pay rent or get a decent job. Rather, what is needed is an honest appraisal of where things are failing and what is lacking — at least then we will know where to begin to fix things.

First published in Executive Magazine’s November 2012 print issue