Executive Magazine

A looming shadow

by Joe Dyke October 15, 2013

written by Joe Dyke

Lebanese politicians are the least trustworthy in the world, or so its people think — in last month’s World Economic Forum’s Global Competitiveness Report the country scored 148th out of 148 in the ‘public trust in politicians’ category. The oil and gas industry is among the world’s most secretive, with Middle Eastern countries among the least forthcoming with their information, according to the pro-transparency group Revenue Watch.

Put these facts together and it is perhaps no surprise that many Lebanese are confident that any gains the country makes from offshore hydrocarbons will end up not in the new schools and transport networks the country so badly needs, but in the back pockets of the political classes. Assuaging these fears may be difficult, but if Lebanon’s politicians and policymakers are serious about doing so then being open and transparent in the process is the easiest route.

While political meddling has temporarily delayed the march toward extracting offshore resources, so far Lebanon’s Petroleum Administration (PA) has shown an admirable commitment to transparency. All of the representatives on the six-member body — charged with negotiating Lebanon’s agreements with international oil companies — come with international hydrocarbons backgrounds and, transparency groups say, have begun their operations in an open manner. So far they have released on schedule the names of the companies that have applied to bid on Lebanon’s offshore resources, those that successfully pre-qualified and the terms of those qualifications.

Diana Kaissy, MENA coordinator for Publish What You Pay (PWYP) — an organization that campaigns for transparency in the extractive industries, sums up the PA’s record as “so far, so good.” “They have been leading a transparent process as far as the licensing agreements are concerned. So far everything is out in the open.”

A personal approach

But while the PA may have been striving for transparency, there are questions being asked about the process by which Lebanon’s negotiations are being run by caretaker Energy and Water Minister Gebran Bassil. Best practice in oil and gas negotiations is to remove politicians from the fray, with supposedly independent technocrats negotiating with the international oil companies to avoid politicizing the issue. The PA is meant to be that body.

Read the full interview with the minister

A senior source with knowledge of the negotiations told Executive that Bassil has controversially been contacting oil and gas companies, seeking to meet them personally. This is highly unusual and potentially suggests Bassil’s role in the process needs evaluation. “I have never seen this anywhere in the world, not even in deeply corrupt countries like Nigeria and Algeria,” the source said. Several of the largest companies in the bidding round have expressed their discontent at Bassil’s conduct, the source added. “The companies are saying that it is not the way it should be done.”

Lebanon’s 2010 Offshore Petroleum Law strongly suggests that until the bids have been submitted, the minister should not be negotiating with the companies. Article 17 states that: “after the closing date for submission of an application for Petroleum Rights, the Petroleum Administration shall proceed with an evaluation and propose a short list of applicants to the Minister.” It is only after this stage that the “Minister, assisted by the Petroleum Administration, shall negotiate with short-listed qualified applicants.”

Sami Atallah, director of the Lebanese Center for Policy Studies, which has been working closely on oil and gas, said it is important that politics are kept out of the process. “Ideally the negotiations should be run by technical experts with enough skills and financial resources to get the best deal. Politicians should be kept out of it.”

Johnny West, founder of the pro-transparency organization OpenOil, explained that best practice in the hydrocarbons sector demands that it is clear who is responsible for negotiation. “Informal contacts of any kind are going to greatly decrease transparency,” he said. “Best practice requires a clear understanding of who is responsible for negotiating, with as wide a consultation as possible.”

Another major concern for transparency is over the money raised from the sale of seismic surveys. In March Bassil announced that the government had raised $34 million from selling information about their potential reserves, and that number has risen significantly since. Senior figures had been under the impression the funds would be under the control of the PA in order to develop Lebanon’s hydrocarbons infrastructure, including investing in education programs for training young Lebanese. As yet the PA has not received anything.

Quizzed on this issue, Bassil was non-specific. “You know this [amount] is very small compared to what we will be gaining, so I don’t know why you are … there is no ambiguity at all. This money is put in an account on which everybody agreed, and the minister of finance has approved. Without their approval we could not have opened an account,” he said. Asked to specify why there was ambiguity, Bassil said: “You are asking questions I am not really aware of, about details that are not really important.”

This seeming breakdown between Bassil and the PA is also manifest in a dispute over staff — with the body struggling to reach agreements on employments. The body, like many in Lebanon, must legally be made up of the same number of Christians and Muslims, with the six men coming from different political backgrounds. Bassil has allegedly been applying pressure on the PA to appoint certain candidates, as have other politicians. The source said “all the members have pressure on them, but they are doing their best to remain independent.”

One way to reduce the perception of pressure behind the scenes would be to introduce more formal channels of reporting. Currently the Petroleum Administration reports primarily to the energy minister, but has had little oversight from parliamentarians more generally. To formalize a new structure the PA is seeking to establish a system whereby it will report to both the minister, the government in general, the prime minister and the president. It is understood that this body could be established by the end of the year.

This kind of oversight will be necessary if and when Lebanon gets to the extraction stage and begins to make revenues. Under Lebanon’s 2010 Offshore Petroleum Law any revenues from hydrocarbons must first be put in a sovereign wealth fund (SWF) before being spent. The Santiago Principles, an IMF-backed set of 24 guidelines for best practice in managing SWFs, declares as its fourth principle that “there should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the SWF’s general approach to funding, withdrawal, and spending operations.”

The 2010 law is vague on how Lebanon’s fund will be managed, declaring instead that a specific law will be established in due course to regulate it. It is essential that the process of drafting this law is transparent and includes input from all relevant actors, including civil society.

Environmental concerns

One further blotch on the government’s record is the failure to release the strategic environmental assessment (SEA). This document, legally required by the 2010 law, is meant to guide the government and the PA on the potential environmental impacts of any extraction, ranging from air pollution to more catastrophic scenarios such as spillages.

The minister has declared numerous times that the document will be made public, without putting a specific deadline on it. In March government officials declared that the SEA would be released on May 1. That day came and went, and the document is still not in the public domain. As such, the Lebanese public and civil society have little knowledge of the potential environmental damage that extracting hydrocarbons could have.

Bassil himself has proven rather unwilling to discuss the SEA. When asked by Executive why it had not been published on schedule, Bassil said: “I am not aware of this … I am not at all aware that we were supposed to publish on a certain date.” He did insist, however, that the environmental impact would be relatively limited. “I think people are trying to put some ambiguity about something that is really irrelevant.”

Few environmental experts would agree with this assessment. Kris van Orsdel was a senior policy analyst for American environmental group Ocean Conservancy in the period immediately after the devastating 2010 Gulf of Mexico oil spill. He is now a freelance consultant and has been paying keen attention to the eastern Mediterranean, with his environmental fears ranging from pollution to a catastrophic oil spill. Van Orsdel stressed that it is standard industry practice to publish the SEA and that the failure to do so was worrying.

“The currents and species that move through the eastern Mediterranean or live there move through the drilling area. A robust and sound environmental assessment would look at not only what is at the drilling location but what is the impact to the entire ecosystem, on the water and coast,” he said. “These findings should not only be brought to the regulators and government, but be broadly shared and discussed with communities that could be impacted. The public should have an opportunity to decide if the assessment is complete.”

He cautions that a failure to develop proper environmental standards could lead to disaster. “Having lived in the Gulf of Mexico and worked through the Deep Water Horizon debacle, the largest problem that I fear for the region is a catastrophic event like that occurring,” he said. “Whether that event occurs by accident or is intentional, oil and gas activity comes with managing risk.”

While a spill is avoidable, the impact on Lebanon’s coastline is less so. With it looking less likely that Lebanon will share a liquefied natural gas plant with Cyprus, the country will require facilities for hydrocarbons processing, storage and delivery.

Ricardo Khoury, senior environmental engineer and managing partner at energy consultants ELARD, estimates that an area of 100,000 square meters may be needed for supporting off-shore development in Lebanon. The choice of location is, he says, crucial. “It will have a major impact on the country; it is going to change traffic schemes, labor trends [and] have important implications on waste management,” he said.

While it may be that the government has good advice on this issue, the fact that the SEA has not been published means it is impossible to know if environmental factors are being considered. PWYP’s Kaissy says that in terms of transparency, the failure to publish openly is worrying. “This is something to push for … It shouldn’t be a precedent for other things that will not eventually be published. Let’s get all our facts straight, get them out in the open, and start questioning why it hasn’t been published,” she said.

Voluntarily transparent?

The Lebanese are far from alone in wanting to know where their hydrocarbon revenues go, with a global trend towards transparency in the extractive industries. In April the European Union backed a law demanding that all payments over 100,000 euros ($130,000) made by oil companies to governments must be publicly declared. This follows the 2010 Dodd-Frank law, which issued a similar ruling for American firms (though it is currently being challenged in United States’ courts). Of the 12 firms that have bid to become operators in Lebanon, eight of them come under one law or the other, while a ninth — Norway’s Statoil — is also bound by transparency legislation. If Lebanon wants to signal its intent to meet the highest standards of transparency, one method would be to sign up to international treaties — the most prominent currently being the Extractive Industries Transparency Initiative (EITI). The EITI, launched in 2002 by civil society organizations but soon given the backing of the then-British Prime Minister Tony Blair, is a list of seven basic requirements for countries wishing to be declared compliant. Requirements include the conducting of independent audits, the publication by governments of revenues received, and the engagement of civil society througout the process. As such, there would be less space for ambiguity over the country’s spending of funds.

“There are other transparency initiatives that exist but what is unique about the EITI is that it has gained a lot of international support,” PWYP’s Kaissy said, including from the G8 countries. To be declared EITI-compliant countries must apply and then fulfill the desired criteria.

The Petroleum Administration is currently reviewing entry to the EITI, while Bassil indicated to Executive that he was in favor of joining. Asked if there were any potential complications that could prevent the signing of the EITI, he said: “I am not aware of any. Any global initiative which Lebanon can be part of, which abides by the UN regulations and laws and gives us the good image that we deserve regarding what we are doing in this sector, we can be part of it.” This would, at least, assuage some of the doubts.

Note: On November 25th 2013, the Ministry of Energy and Water contacted Executive to dispute this article. While Executive defends the contents above, we have agreed to publish the ministry’s response in full below as we believe in the principle of the right to reply.

From the Ministry of Energy and Water

The Article contains false allegations and accusations with no evidence and is based on information from unidentified sources. Such practice questions the author and the magazine’s credibility and integrity; and compels us to clarify the points below:

Point 1- Lack of Transparency and Monopolization

The interest of the 46 pre-qualified IOCs that applied to the 1^st licensing round in investing in Lebanon assures the trust they perceive in the management of the licensing round by both the Ministry and the Petroleum Administration (PA).

In addition, International Organizations and Embassies commended the transparency of the licensing round. During their visit to MEW on March 12, 2013, Deputy Assistant Secretary of State for Energy Diplomacy Amos Hochstein and Acting Deputy Assistant Secretary of State for Near Eastern Affairs Lawrence Silverman “praised the Minister of Energy for his efforts and hailed the ministry’s levels of transparency and professionalism in meeting the highest international standards.”

The Ministry and the PA are engaging with prominent international organizations including the Norwegian Oil for Development Fund, the World Bank, and UNDP, to put in-place an efficient and transparent management system while abiding by the best international practices.

Once the bids received, the Minister assisted by the PA, would negotiate with the short listed applicants and report the results to the Council of Ministers where the decision of the award is taken. Hence the Minister cannot monopolize control to the national process.

Point 2- Minister Bassil has controversially been contacting oil companies.

The article confuses between contacts which is part of MEW’s role in promoting attractiveness for investors and negotiations that would take place between the companies and the Lebanese side represented by MEW assisted by the PA as stated in article 18 of the law 132.

The Minister, being the competent authority for managing the petroleum sector, is executing his duties by providing assurances to the companies in relation to political delays. The Minister did not “controversially” contact any company. Any meeting held is based upon the request of the IOCs in accordance with the official channels.

Point 3- PA is seeking to establish a system …

The proposed new governance attributed to the PA in the article is not sought by the PA nor mentioned by any of the three layers of governance (the PA, the Minister of Energy and Water and the Council of Ministers) as per the law 132 ratified by the Lebanese parliament on August 24, 2010. Any change to the established governance structure, including reporting of the PA is not needed nor recommended and it requires an amendment to law 132 by the Lebanese parliament.

Point 4- Ambiguity regarding the financial returns

With regards to the budget of the Petroleum Administration (PA), paragraph 20.4 of Article 20 of Decree 7968 (The Petroleum Administration) stipulates that the Minister of Energy and Water needs to include the annual budget allocated to the PA, within the planned budget of the Ministry of Energy and Water submitted to the Ministry of Finance. In addition, Article 22 of the same Decree stipulates that the PA budget funds shall be deposited in an account at the Central Bank of Lebanon in the name of the treasury, and prohibits the PA from opening bank accounts in private banks or even opening a special account in the Central Bank of Lebanon.

Accordingly, the provisions of Decree 7968 do not entitle the PA to receive funds from any source.

Point 5- Breakdown between Bassil and the PA is also manifest in a dispute over staff

It should be noted that the PA is still in the first phase of the recruitment plan, almost a year after operating with no staff members until recently where a very limited and basic number of employees were hired .A proper and necessary structure is being created to manage the PA. The recruitment is based on qualifications and expertise and will meet the highest standards.

October 15, 2013 4 comments

The Buzz

Business briefing: 15 Oct 2013

by Executive Staff October 15, 2013

written by Executive Staff

Economics and Policy

US Secretary of State John Kerry called on Monday for a peace conference on Syria "very soon" but said peace would not be possible without a transition government to replace President Bashar al-Assad.

LNG – Lebanese No Go?

by Joe Dyke October 14, 2013

written by Joe Dyke

One impact a serious delay to Lebanon’s oil and gas bids may have is to exacerbate a trend of the country falling behind its regional neighbors. In the early stages, something of a tug-of-war occurred between Israel and Lebanon, with both sides trying to attract Cyprus to establish a liquefied natural gas (LNG) plant with them.

While Israel’s better organization was perhaps always likely to lure Nicosia, it now appears that any hopes of a Lebanese-Cypriot deal have faded. In August Cyprus, Israel and Greece signed a deal to cooperate on energy policy, just two months after Cyprus had agreed a memorandum of understanding to establish a LNG plant with two Israeli firms and US-based Noble Energy, which works extensively in Israel.

It is unlikely that Lebanon will have enough hydrocarbons to make establishing its own LNG plant worthwhile. The average set-up costs are over $4 billion, according to Walid Khadduri, energy consultant at The Middle East Economic Survey, and with the relatively small size of the Eastern Mediterranean gas-fields it may well make sense economically for Lebanon, Cyprus and Israel to share an LNG plant. This, however, is politically impossible due to the ongoing war between Lebanon and Israel. As such, Cyprus’ decision to go with Israel limits Lebanon’s options.

Lebanon’s Energy Minister Gebran Bassil was bullish when quizzed about the failure to convince Cyprus to work with them. “We don’t need that LNG plant, I am telling you we can afford a better investment plan for the companies where we don’t need that LNG,” he said. “We will have other connections. No matter what Israel and Greece and Cyprus will do, we will be in a better position.”

Experts tend to agree that the loss of an LNG plant would not be catastrophic, but it would reduce the routes the country can use for exports. “It limits your options because LNG enables you to ship your gas to whoever you want, whereas if it is only by pipeline you are limited,” Khadduri said. “If you can put your gas in a tanker and move it to wherever requires it, you have more options.”

October 14, 2013 0 comments

Economics & Policy Lebanese oil and gas

Dripping away

by Joe Dyke October 14, 2013

written by Joe Dyke

A “minor delay” is how he put it. In the weeks before the September 2 deadline for the Cabinet to meet and ensure the bidding process over the rights to extract Lebanon’s offshore oil and gas stayed on track, caretaker Minister of Energy and Water Gebran Bassil seemed increasingly incredulous that the country looked set to miss its target, using desperate measures to encourage his fellow politicians to take action. In what appeared to be a faintly disguised bid to force their hands, he even made the implausible claim that Israel could start stealing Lebanon’s resources if the bidding process was delayed. But his efforts were to no avail, and in the end he tried to put a brave face on it, stressing that the bidding would only be extended from November until December and that he would keep searching for a deal. This was followed last week by another extension.

Related article: LNG – Lebanese No Go?

Serious concerns over transparency in oil and gas process

Educating the oil and gas generation

Gebran Bassil – Q&A

By Lebanese standards, Bassil had done well to get so far. From October 2012 to July 2013, he made rapid progress toward extracting oil and gas, hitting every self-set target in a feat rarely accomplished in the country. But the fall of the government in March left unsigned two decrees crucial to continuing the country’s path from energy importer to potential exporter.

After numerous debates, and a decision by the Shura Council — Lebanon’s highest legal body — in the end it was concluded that all that was needed for the bids to go ahead on schedule was for the caretaker cabinet to convene for “two minutes”, as Bassil put it to Executive, and sign the decrees. This was the first delay in the process to tap Lebanon’s offshore oil and gas since major international oil companies (IOCs) became involved.

No consensus

The reasons for the failure to meet are disputed, but most agree that colliding political interests were the root cause. Ever since the discovery of offshore oil and gas the energy ministry has become something of a prized possession. Control of the ministry has been the subject of a fierce battle, with Progressive Socialist Party leader Walid Jumblatt keen to get his affiliate Bahij Abou Hamze into the role and Free Patriotic Movement leader Michel Aoun, who happens to be Bassil’s father-in-law, resisting any changes.

More importantly, Bassil has become increasingly isolated from his fellow politicians. A senior source with knowledge of the negotiations told Executive that a deal was agreed with caretaker Prime Minister Najib Mikati to sign the decrees on September 18 but Bassil demanded an earlier date, leading Mikati to walk away from the talks altogether.

There are also concerns about the way in which he is running the bidding process, with critics alleging that he is trying to monopolize control of what should be a national process. “Everyone is agreed that we can go ahead when there is a new minister,” the source said. Bassil himself has, at least publicly, tried to avoid playing the blame game, knowing he will need the agreement of all sides in order to move forward. “We are not here to accuse,” he told Executive when asked who was responsible for the delay. But it appears clear that politicians of all colors are jostling for influence in the oil and gas process.

Counting the cost

This perhaps unsurprising intrusion of politics into the oil and gas process is highly disruptive, says Sami Atallah, director of the Lebanese Center for Policy Studies. “The delay that is being talked about is catastrophic,” he said. “We haven’t seen that the government has shown willingness to meet and sign the decrees. Why is that? Either simply they don’t want to, or they think it is for the next government to do, or there is something deeper where some think that if they postpone it they will have more of an opportunity to interfere in the process,” he said.

While the minister is hopeful the political impasse will be solved within the coming weeks, as Executive went to print there were as yet few indications that a breakthrough was forthcoming. The effect the delay will have depends on whether, as Bassil is hoping, a deal is reached by the end of the year, or the process stretches ahead indefinitely.
The most immediate concern is that major oil companies that are bidding for Lebanon’s resources may lose interest. In total, 46 companies were pre-qualified to bid, 12 of these as operators — the lead companies in the three-company consortiums. Among these were many of the world’s largest IOCs, including Shell, Total and Exxon Mobil.

Map of Lebanon’s oil and gas blocks – click to enlarge

Already there are signs that a number of them are looking at the political impasse and deciding against continuing their bids. An unnamed oil executive told a local paper in July that already there were a “a few companies that withdrew [from the round], others who are weighing options and others that lost a bit of interest,” due to the political crisis.

From the companies’ perspective, they have already suffered significant losses due to delay. The government had promised to give them the full details of the 10 proposed blocks and which of them were going to be open for bidding on July 1. As such the companies arranged their top seismic experts, some of whom are among their highest earners, to focus on the file for a few months. When the day came and the information was not forthcoming they were left with numerous expensive staff twiddling their thumbs, whom they eventually had to assign to other projects. Getting them back if and when the government does release full data is far from easy, as many have since been allocated on medium-term contracts to other countries.

This, according to Bassam Fattouh, director of the Oil and the Middle East Program at the Oxford Institute for Energy Studies, is indicative of a wider problem of IOCs losing faith. “It is all really about confidence and trust. The problem is, if you are going to start delaying and not being able to fulfill what you promised, some of the companies may lose interest,” he said.

The need to hold on to these companies’ interest is potentially made more acute by the current global situation, as international oil companies are faced with more options for extracting natural gas. In the past decade, outside of the eastern Mediterranean, Australia, South Africa and Azerbaijan are among the countries that have announced major plans to extract large amounts of new gas, making it somewhat of a buyers’ market. “It is not like this is the only opportunity with gas, they are finding it almost everywhere,” Fattouh said.

Wading through

Bassil appears characteristically unperturbed. “They [the companies] will not lose interest because what will matter at the end of the day to these companies is if the resource exists — and it exists,” he boldly told Executive. This is not strictly true — though you would not know it from the government-sponsored billboards that pitch oil as Lebanon’s panacea, the coffer for its ailing transport sector and armed forces. There is as yet no absolute proof that Lebanon has any oil and gas, let alone enough to make it commercially viable for extraction. While the seismic surveys have been positive, until the companies drill down into the seabed it is impossible to know exactly how much Lebanon has.

But Bassil is perhaps right to point out that Lebanon does still have a relatively strong hand — the sheer number of firms that applied for the bidding process mean that a few dropouts would not be disastrous. Carole Nakhle, an energy economist specializing in hydrocarbons, agrees that the delay is not ideal but thinks that the companies are not yet likely to be heading for the door en masse. “It is common in developing countries to postpone licensing rounds. Lebanon is not unique … I feel that international companies do expect delays to take place in developing countries,” she said.

A government-sponsored advert reads “Our country now has oil to develop a transportation network”

So while perhaps oil companies may not yet be ready to abandon Lebanon’s hydrocarbons, the delay may increase their leverage in deal making. The fear is that when, eventually, a deal is reached to continue and the six-member Petroleum Administration begins its main task of leading the negotiations with the IOCs, the companies will try and push the cost of any further setbacks onto the government.

“It puts the Petroleum Administration or the government in a weaker position to negotiate with these companies,” Fattouh said. “[The companies] will look for better terms, in terms of revenue distribution. And also try to put force majeure clauses — if [a political crisis] happens and the companies are not able to deliver, [they are not responsible].”

A looming curse?

Perhaps the biggest danger of Lebanon’s politics seeping into its oil and gas bids is not in delay, but actually in extraction. In their seminal 1995 paper, “Natural Resource Abundance and Economic Growth”, Jeffrey Sachs and Andrew Warner showed that countries with natural resources often had lower growth rates than similar countries without hydrocarbons. This is because the effect of resources is to reduce competitiveness in the other sectors of the economy — the so-called resource curse.

This was backed up by a 2012 joint study between the World Bank and the Brookings Institute which concluded that resource-rich countries that lack proper governance tend to see an increase in corruption over time, as compared to non-resource producers. In effect, the evidence suggests that if politicians don’t work together oil and gas could make Lebanon worse, not better.

Martin Skancke, a global consultant who advises states with newfound hydrocarbons, believes that the most important way a country can avoid wasting their wealth is by building a broad consensus. “There should be an effort to reach out across different political bodies, parties, interest groups and religious groups to make sure you build something on solid ground and stability,” he said. Clearly this has yet to succeed in Lebanon, and without it the chances of the country using its resources in a logical fashion are slim.

When it comes to managing the sovereign wealth fund that revenues will initially be directed to under the 2010 Offshore Petroleum Law, best practice would be for all political parties to agree on how that money will be used in the long term.

Skancke said it was important that there was little political infighting in the process and that the fund is seen to be neutral. “If you have a sovereign wealth fund you need to be a long-term investor and a long-term investor cannot change every time there is a change of government,” Skancke said. He added that if there is political infighting “the risk of macroeconomic instability is much larger because investors will not know how spending will evolve over time if there is no broad consensus and no broad guidelines for it. The risk of mismanagement of the fund is large.”

Lebanon’s delay may only be minor right now, but it is perhaps emblematic of a worrying trend of political interests creeping into a sector that moved ahead impressively in the past year. If offshore resources, as with many of Lebanon’s policy issues, become a battleground for political interests, ultimately the chances of it helping the country will be reduced.

October 14, 2013 0 comments

Comment

Back in the eye of the storm

by Riad Al-Khouri October 14, 2013

written by Riad Al-Khouri

The quiet and largely peaceful Kurdish region of Iraq was last month thrust back into the spotlight by two events, firstly the somewhat contentious election results and secondly a rare Al-Qaeda attack. Coupled with an influx of refugees from Syria and continued acrimony with Baghdad, such events have once again highlighted Kurdish vulnerability amid the geostrategic games currently being played out in the Middle East.

The Kurdistan region’s parliamentary poll on the 21st saw a drop in support for the junior member of the ruling coalition, which led to cries of foul play and some rowdy protests.

The election resulted in an advance by the Kurdistan Democratic Party (KDP) the leading political grouping in Iraq's Kurdish region, while its coalition partner the Patriotic Union of Kurdistan (PUK) fell behind, overtaken by Gorran (Kurdish for “change”), a relatively new opposition movement. The KDP, led by the President of the Kurdish region Massoud Barzani, secured 38 seats in the 111-seat regional parliament, up from the 30 it won back in 2009. Gorran won 24 seats done one from 25) and the PUK, which ran in coalition in with the KDP in the last election but campaigned solo this time, won only 18 seats, down from 29, with the rest going to Islamists and smaller parties, as well as minorities that have a quota of 11 members of parliament

Prior to this election, the KDP ruled in partnership with the PUK but the latter has been overtaken by Gorran as the second-largest party. Including some PUK defectors in its ranks, Gorran has benefited from anger at alleged corruption. President Barzani may now work with not only the PUK, but other partners, including possibly Gorran, to form a majority.

For its part, Gorran, which is seen to be closer to Iran, appears to be seeking a coalition with the KDP. Meanwhile, Turkey, the Kurdish region's other big neighbor, was also pleased by the election result. This was largely as the elections are seen as an assurance of stability, but also because of the KDP’s success, which means that its leader Barzani will retain his dominance.

Barzani has initiated and supported moves to peacefully resolve the Kurdish problem in Turkey and the two sides are also edging towards common ground for a solution to the crisis in Syria. In addition, he backs Turkish investments in the Kurdistan region, and has been the impetus behind Kurdistan oil exports to and through Turkey.

So, though calming signals are coming from Kurdistan's two powerful neighbors to the north and the east, dangers from other directions are beginning to press closer. The bombing attacks in Erbil last month were allegedly claimed by the Islamic State in Iraq and the Levant, the same Al-Qaeda affiliated group that has recently been running amok in Baghdad and elsewhere in central Iraq, targeting anything that appears to be close to Iran. Also active in Syria, these Islamists, among others, are fighting not only the Damascus government, but Kurdish groups in the country's north-east. The Kurdistan Regional Government (KRG), wary of being sucked into the Syrian conflict, has tried to stay above the fray, while at the same time granting asylum to 200,000-plus mostly Kurdish refugees from Syria. However, Syria's government would welcome help in fighting rebels, and Iraqi Kurds if they aren't careful could be sucked into defending their brethren in Syria.

Yet the KRG's greatest challenge remains disputes with the government in Baghdad over territory, natural resources, and power sharing. These are not expected to be solved soon no matter what new government is formed. However, the September poll for the Kurdistan parliament, by being mainly orderly, was an assurance of stability. As a result, and given the increasingly skillful and elaborate diplomatic co-operation of the KRG with Kurdistan's neighbors, a stable Kurdish region appears more likely, whatever the tensions and pressures of the neighborhood.

Riad al Khouri is senior consultant to the Institute for Democracy and Election Studies (IDES) at the University of Jordan, Amman

October 14, 2013 0 comments

Economics & Policy Industry 2013

Industry’s surprising success

by Joe Dyke October 11, 2013

written by Joe Dyke

If Lebanese industrialists are seeking a quantum of solace, it is that those around them are in a worse position. From tourism, to retail, to construction, many of Lebanon’s businessmen are more in the mire than industrialists. As Jacques Sarraf, chairman of Malia Group and former head of the Association of Lebanese Industrialists, put it to Executive, “if we look at different sectors within the environment of Lebanon, industry is still on the safe side.”

If 2012 was a year of shock, 2013 has partly been one of readjustment, with confidence slightly up. The industrial sector’s balance of opinions, a measure of the difference between the proportion of managers who consider that there was an improvement in the industry and those who feel it has declined, was at -8 in the first quarter of the year, static from the previous quarter but up from -24 during the same quarter of 2012. The time lag on the data makes it difficult to assess the impact of the recent decline in the security situation, but Sarraf told Executive that security concerns had not affected Malia Group’s strategy at all.

Industrial exports totaled $1.74 billion in the first six months of 2013, a 13.3 percent increase from the same period last year, according to the Ministry of Industry. Mineral products accounted for $317.7m, or 18.2 percent, followed by base metals with 17.6 percent and machinery and mechanical appliances with 15.2 percent. Imports reached $166m, up 14.4 percent from the same period of 2012.

The syria effect

One positive for industrialists was a major stimulus package, introduced by Banque du Liban (BDL), Lebanon’s central bank in January. While the majority was aimed at the housing sector, 14.1 percent of the $1.46 billion was directed to the productive sectors. Of the $101.3 million of subsidized loans that went into the economy in the first half of the year, $53.8 million, or 53.1 percent of the total, went to industry. In early September BDL Governor Riad Salameh announced plans for a supplementary round of stimulus, something that has got industrialists purring. Sarraf told Executive that in the absence of a government, Salameh was doing the job of the industry minister, minister of economy and the minister of finance.

The crisis in Syria has continued to loom large over the sector, with prices of export overland continuing to rise. The Association of Insurance Companies in Lebanon has estimated insurance policies on exports through Syria have increased 500 percent from the pre-war period, and Sarraf and other industrialists Executive spoke to said that it was increasingly not cost effective to take goods through Syria overland. This has led to an increase of trade at the Port of Beirut, with revenues growing by 26.1 percent year-on-year to $126.7 million in the first seven months of 2013. This route, however, is still considerably more expensive than travelling overland was before the Syria crisis. Gay Mandour, marketing manager at food firm Al-Wadi Al-Akhdar, told Executive that importing products from Jordan via the port of Aqaba was around 30 percent more expensive than their travel arrangements before the 2011 uprising.

This negative impact of the Syria crisis was partly offset by Lebanese industrialists seeking to fill gaps in the Syrian market — with industry in the country estimated to have been over 80 percent destroyed. While the regulatory framework for doing so remains challenging, Lebanese exports to Syria rose by 0.15 percent of GDP in 2012 to reach 0.7 percent, their highest level since 2008. Caretaker Industry Minister Vrej Sabounjian highlighted it as a source of growth in the coming months: “There is definitely an upward trend and we expect to continue seeing increases in industrial exports,” he said.

In the midst of all this, the traditionally malleable Lebanese industrialists have developed coping strategies to stay afloat. Many have streamlined, adjusting their organization structures to maintain their logistics bases in the country but moving their production and manufacturing bases to countries with more easy trade routes. Others have cut back. A study by American Express Middle East on corporate spending trends found that 55 percent of firms had become more financially conservative in recent years. Seventy-one percent said they had reduced costs.

For an industry used to surviving in an unstable region and with little support from the government, adjustment is par for the course.

October 11, 2013 0 comments

The Buzz

Business briefing: 11 Oct 2013

by Executive Staff October 11, 2013

written by Executive Staff

Economics and Policy

Lebanon may not get sufficient funds from the donor states to cope with the huge influx of Syrian refugees to the country, caretaker Finance Minister Mohammad Safadi has said.

Racing down the virtual aisles

by Livia Murray October 10, 2013

written by Livia Murray

Online shopping in Lebanon bears the burden of slow internet, slow delivery speeds, and a lack of overall coordination on the online front. Repeated delays have plagued the passing of a law on e-signatures, which would make online transactions more secure. Shoppers in Lebanon have little faith in making purchases online. Only 1.44 percent of Lebanon’s internet users — who constitute around 60 percent of the population — shop online, according to a 2012 Ipsos poll. Compared to twice that in the United Arab Emirates and 6.65 percent in Kuwait, the market for online shopping in Lebanon is still immature.

Despite these barriers, a small but growing segment of the Lebanese population is beginning to enter the world of online shopping. In 2012 online purchases in Lebanon reached $200 million, according to MasterCard and Visa data compiled by Bank Audi. This was a 40 percent increase from the year before. “Even though e-commerce is still considered in its infancy compared to other countries, we are pleased to notice that there is a drive and readiness from Lebanese consumers in general and young crowds in particular, encouraging businesses to tap more and more into this electronic market,” says Randa Bdeir, group head of electronic banking and card services at Bank Audi. As consumer interest in online shopping blooms, investment in e-commerce is also on the rise. Roughly half of the major banks in Lebanon are making significant investments in e-commerce, according to Visa Lebanon country manager Ramzi Sabboury. Bank Audi launched eMall at the end of June, a platform which enables Lebanese merchants and artisans to set up an online store. They already have 125 registered merchants and hundreds more applications, according to Bdeir. Banks’ investment in e-commerce platforms would create a push to encourage stores to enter the online market and help diversify the range of products available.

But boosting the number of online shoppers is not just a matter of investment. Online stores need to adapt to the burgeoning market to recognize what sells and what doesn’t. According to Carla al-Rayes, chairman general manager at online payment gateway NetCommerce, many Lebanese stores that have gone online have had a limited life span. “We have experienced a lot of Lebanese merchants that have experienced Lebanese e-commerce and then dropped out,” she says. “They opened a shop online, invested in technologies, and they don’t sell. They don’t sell for many reasons. One, they don’t have the right products at the right price. Two, they’re not innovative. They put their catalogue up online but they don’t have sales every day.”

Trust remains an issue for Lebanese online shoppers

What online shoppers want

The Lebanese pioneers of online shopping are receptive to unique items and unique deals. According to Karim Saikali, founder of BuyLebanese.com, as well as e-consultancy and online marketing company E-comLebanon.com: “in order to be able to sell something online, you have to offer something which is really unique in terms of pricing, in terms of product. You need to offer an added value service to your consumers.” Saikali says that group-buying sites have done very well in Lebanon for this reason. Group-buying sites give buyers access to deals provided they are purchased in large groups — of 20 or 30 — which makes it possible for the seller to give a significant discount. The group-buying model offers deals for high-quality goods and services that wouldn’t normally be found offline.

A concept similarly tailored to online spending is flash sales, wherein shoppers have access to items and services at large discounts for a limited window of time, pushing them into speedy purchases. One such platform is Jordanian-based MarkaVIP. Established in 2010, it is now among the top online sellers in four regional countries surveryed by Ipsos in 2012, and well-known in Lebanon. According to Eddy Farhat, the company’s chief strategy officer, Lebanon is MarkaVIP’s most important revenue stream after Saudi Arabia and the UAE. So much so that they have their own warehouse and drivers in the country to deliver their products — a service they have not yet made available in every country in the region. “Lebanese consumers are highly fashion-aware, and brand-aware,” says Farhat. “And the growth is healthy. The repeat purchasing behavior in Lebanon is interesting. Customers who like MarkaVIP are really loyal and they keep coming back.”

Flash sales offer unique prices to customers that are not readily available offline. Flash sales with a high-end flair have also been adopted by Lebanon-based Mistile. According to its chairman and CEO Fadi Dabbagh, having an online-only platform enables the company to keep overhead costs minimal, which creates better deals for the consumer. Dabbagh explains that Lebanese people “are quite knowledgeable when it comes to fashion and they always like to have the latest models. They really jump on it once they see an item they know that is the latest trend and discounted online — it’s a good catch for them.”

The bulk of online purchases in Lebanon are made in retail, booking travel arrangements, and services. According to Bank Audi 24 percent of spending is made in retail, 36 percent in travel and entertainment, and 40 percent in services. This distribution is likely to change as the market matures and new shoppers start buying online.

Trust issues

It has not always been easy to convince shoppers in Lebanon to make purchases online, and this is cited as a massive barrier to online shopping. According to the MasterCard Online Shopping Behaviour Study 2012, 49.5 percent of Lebanese respondents felt that payments made online were not secure. “The key element today preventing people from buying is the trust element,” according to MarkaVIP’s Farhat. Louise Doumet, co-founder of Lebanon’s online platform for designers Lebelik, has also cited trust as an issue. “They don’t trust the system because they’re not used to buying online. They have this thing that if they use a credit card online their heart will stop and their bank account will go dry. And then they’ll have to sell their house because they’ll be over-indebted.” While she notes that this trend is gradually starting to diminish, it is still the dominant sentiment in the shy Lebanese market.

John Abou Jaoude, co-founder of ShopinLeb, an online platform for merchants, explains that while some customers are buying with credit cards without a problem, others are very reluctant and even at times confused with the process of buying online. He claims that 30 to 40 percent of the customers from ShopinLeb merchants are calling the stores to help them through the procedure of buying online. “The customer in Lebanon doesn’t know the procedure of online shopping. Many of the customers are calling us saying ‘I want this item,’” Abou Jaoude explains. “This is a good thing. They are trying to buy online.”

Bank Audi’s Bdeir sees trust as an issue that will dissipate with time. “Just like what happened in America and Europe, it becomes so practical to buy online where the practicality of buying things online overrules the trust. It takes time,” she says.

The learning curve

Shoppers in Lebanon are slowly becoming more used to buying online, as they gain their first e-commerce experiences. “The tough part is to get them to buy once,” says Lebelik’s Doumet, “Because once they buy once, our rate of recurring customers is very high.” MarkaVIP’s Farhat says that there is still a big job to be done in educating customers about the security of online shopping websites. “It’s not a system where you have 20, 30 MarkaVIPs. We are still pioneers in the region,” he says. “You always have this first experience. Any customer that has a negative experience on any of our competitors may opt not to buy again. We have a responsibility. Whenever a customer has a negative experience, they will be more reluctant to trust in other companies.”

One method stores have used to ease customers into the system is the payment-on-delivery model. ShopinLeb’s Abou Jaoude says that 35 to 40 percent of their merchants’ customers pay for their online purchases on delivery, and these are generally the people who have the least trust and struggle the most with the system. Lebelik has also incorporated a payment-on-delivery option. “This has helped us a lot,” says Doumet, referring to the increase in online purchases that this brought the company. While MarkaVIP has the payment-on-delivery option, they are trying to orient customers toward paying with a credit card online. “Some customers used to pay cash-on-delivery, after a few experiences they started to pay online,” says Farhat. “Sometimes people need just a bit more incentive,” he adds. “We tried to reinforce the online payment by hosting events only on credit card.”

Farhat found that a key element to building consumer trust in Lebanon had to do with operating their own fleet in Lebanon — with MarkaVIP trucks that came to buyers’ doors. “It enhanced the trust with the customers a lot to deal with MarkaVIP the whole way through. Even our drivers know the customers. Getting closer, and maintaining the contact all the way through was very beneficial for us in Lebanon,” he says. With their fleet of trucks and warehouse in the country, MarkaVIP customers were more likely to trust online payment and shop again from the platform.

With trust an important barrier to online shopping, the consumer market in Lebanon still has a long way to go before it reaches maturity. But the Lebanese pioneers of online shopping have shown that they are willing to relinquish their credit card information if they see an added value to buying online.

October 10, 2013 0 comments

Society

Syrian artists revitalize Lebanon’s creative scene

by Nathalie Rosa Bucher October 10, 2013

written by Nathalie Rosa Bucher

The presence of Syrian artists in Beirut is far from new, due to the city’s international connections, and the higher prices artworks fetch. “Syrian artists have always been part of the Lebanese art scene for as long as I can remember,” gallery owner Joanna Seikaly says.
However, currently more work by Syrian artists is being showcased in Beirut than ever before, as Damascene gallerists and artists have shut up shop and relocated to avoid war in their homeland. Seikaly has featured five Syrian artists over the past year.

Of all the Syrian creatives now in Beirut, it is visual artists who have found their place in the city’s art galleries and on the stage of international culture, as well as its open and internationally recognized cultural scene, which affords creative minds more opportunities and liberties than elsewhere in the Arab world.

Syrian art has long been held in high regard by collectors and galleries in the region and further afield. Prompted by his connections to the Syrian art world, coupled with a shortage of space for the art he had acquired over the last 20 years, collector Antoine Haddad opened Artlab in late 2012. For the first nine months, the gallery only featured Syrian artists. “Syrian artists have given the local art scene a boost,” he says.

According to the sculptor Mustafa Ali, Syrian art has become more open. The volume and focus of the artistic output since the uprising, itself marked and driven by a widespread use of creative media, has indeed fundamentally changed. Before the uprising, art that consistently challenged the regime, such as the cartoons of now-exiled Ali Ferzat, were the exception rather than the rule. But the mold is changing.

In late 2012 Houmam al-Sayed expressed his rejection of violence against children in his “From Damascus to Beirut” exhibition at the Mark Hachem Gallery in Minet el-Hosn. Tackling injustice, confronting the status quo and condemning violence on a wider scale are adding new dimensions to Syrian art in an unequivocal manner.

Focusing on work with the war raging close by can be painful and challenging. “You’re thinking about people, how they live, how they take this. You feel guilty,” says Fadi al-Hamwi, who painted a large portrait of a friend who had been arrested. “It’s not a quiet situation in which we find ourselves.”

“Before things got messy, before they started to use guns and threaten us, my only way to express my opinion freely was through my art,” Heba al-Akkad says. “[Now] it is my duty to talk about it [the war] in my art.”

Akkad's work is infused with the artists memories of the war in her homeland

Akkad’s show of mixed media work, “Things are still the same,” shown at Galerie Tanit this summer, is a powerful message of hopes dashed. Her colorful yet macabre, naïve yet highly symbolic and evocative body of work turns out to be an obituary to a still-born infant: the revolution. Some of Akkad’s recent work was produced during a month’s stay at Raghad Martini’s Artist Residence in Aley (ARA), a creative hub established to help Syrian artists connect with local galleries and collectors.

On the terrace of his home studio, painter, videographer and installation artist Hamwi points to works similarly influenced by current events in Syria. For a 2012 installation in Damascus titled “4am”, Hamwi painted the walls of the 5x5m gallery room black, put grass on the ground and placed his bed in it, with bricks aligned to look like a mattress. “People would enter my dream. I was not telling a story but putting you in a situation,” he says.

Symbols of hardship

This year, Hamwi painted dinosaurs, each wearing a gas mask while holding a single flower, and human skulls and machine guns in X-ray vision. “A Bone In The Head”, the first in the ‘transparent’ series, features a pistol inside a brain, as the artist tries to get inside the heads of killers and tormentors.

Hamwi's installations and paintings invoke the mindsets of both tormentors and the tormented

“This is the change that came to my work when I was in Syria. How do they think when they shoot a human being? When they cut a body part? Many people are prepared to do these kinds of things,” he says.

Akkad gave birth to her first child in Lebanon last year. Already pregnant, and with her husband facing the draft, leaving Damascus became inevitable. Her 10-month-old son has no birth certificate, a consequence of her husband’s refusal to join the Syrian army.

Without papers to prove her son’s identity, Akkad used her art to provide him with one: “Black & Yellow and vice versa” is dominated by a large male head at the center symbolizing her son. It also bears witness to friends and family she has lost, featuring in one corner a beautiful sketch of a woman sitting cross-legged, drawn by her teenage brother. Akkad recently found out that he’d been killed in tragic circumstances.

With her husband studying, Akkad became the sole breadwinner. Syrian artists can make up to three times what they would in Damascus for their work, in line with prices for other goods, but they have to contend with much higher living expenses and renew their visas every six months. Though she has sold art in both Lebanon and Jordan, Akkad has also been forced to take on low paid casual work.

While some Syrian artists struggle to get by in Lebanon, others are making the city work for them.

Artist and musician Samer Saem el-Dahr lives and works with Waraq, an artists’ collective located in a traditional house painted bright yellow and turquoise in Ras el-Nabaa.
Last year, he contributed to a collective exhibition and managed to sell two paintings. He subsequently approached Seikaly who encouraged him to put together his first solo exhibition: “This is not politics!” — which included 26 new expressionist paintings — was held in early 2013.
The 23-year old artist left Aleppo in September 2012. “The plan was to stay here for one month but then things got worse,” he says. “I’m comfortable here now, because I’m producing a lot. For now Lebanon is good for me, for another couple of months. There is the stress though of what’s coming up next, what if Lebanon doesn’t want us? Where will we go? All over the world, we’re not wanted.”

“For sure I feel homesick,” says Hamwi, who left much of his art behind. “I left the old memories as well. All the small details, my whole life — it’s there.”

Nostalgia infuses some of the personal projects the artists undertake, notably Hamwi’s painting of the logo of Derby — a Syrian chips brand — which created a buzz on his Facebook page, or Dahr’s Hello Psychaleppo, an electronic-classical Arabic music collaboration with Lebanese music producer Nabil Saliba.

Visions of home

Dahr’s career took off in Beirut but he sees his future in Syria. “I will be going back to the country, [but now] it’s a war zone. There will be nothing. Then there will be a lot. We’re the youth. If it’s not us, nobody will do it.” For Mustafa Ali, who was born in 1956 in Latakia, relocating to Beirut was fairly easy. Dividing his time between Paris, Damascus, and Beirut where he took an apartment in early 2013, he is among those who still regularly enter Syria, but has sent his small children to school in Paris. Working primarily as a wood and metal sculptor, based in Damascus since 1974, he has exhibited widely and received prestigious commissions, notably from the Institut du Monde Arabe in Paris.

While he has moved work to Dubai, Paris and Beirut, Ali still has his main studio and most of his art in Damascus; his large sculptures are simply too heavy to be moved. His cellphone is filled with images of his work, of openings or events at his Damascus gallery that used to attract a thousand people. Besides his gallery in the old city, he has three workshops; the largest in Al Ghouta, which he has been told has been partially destroyed.

Though better connected in Beirut than younger Syrian artists, Ali heads to Damascus to work. Dahr on the other hand, consciously refrains from drawing inspiration from his surroundings. “That way I’m not dependent on it or on being in Syria.”

“I don’t like to take advantage of what’s happening,” Dahr says. He refers to a sketch he did of the artist Youssef Abdelke who was held captive for a month between July and August 2013. “For this one I did it…He came twice to my studio; I’ve known him since I was very young. When I heard he was arrested, to spread the word, in favor to someone I know personally, I did this sketch.” Syrian artists are aware that their work has now become fashionable and generates considerable media interest, a fact that is not without its complications. “People want to buy the story,” Hamwi commented. “We have the story. We’re now the ‘world victims’. This is very clear to us. Some artists play into that, but it shows. To do archiving of this era you need to be super sane and stay objective.”

October 10, 2013 0 comments

Finance

Knocking back the sanctions

by Benjamin Redd October 10, 2013

written by Benjamin Redd

Unlawful. Such was the UK Supreme Court’s verdict on sanctions against Iran’s Bank Mellat this June. And by ruling the UK Treasury’s actions illegal, the court hinted at a deep vulnerability within the international sanctions regime against Iran — such restrictions may not be compatible with Western respect for justice.

“The Supreme Court has really broken the back of the sanctions for the UK and EU,” claimed Sarosh Zaiwalla, senior partner at Zaiwalla & Co Solicitors, the litigators in Bank Mellat’s case. The EU General Court — the Union’s second highest court — struck down similar European-level restrictions on the bank earlier this year.

The reasons the UK court gave were particularly problematic for those hoping to impose further sanctions on Iranian interests — or even keep existing ones in place. Not only did the court say that singling Bank Mellat out was arbitrary and unjustified, it crucially ruled that the way the UK Treasury had gone about it was an affront to the rule of law.

The court particularly condemned the fact that the bank was given no notice of the Treasury’s decision and had no recourse to challenge it. In other words, the Treasury’s procedure for designating the bank was unlawful.

The Treasury had barred individuals and companies from doing business with the bank under the Counter-Terrorism Act 2008. Handing down the ruling, Lord Jonathan Sumption said, “unless the Act expressly or impliedly excluded any relevant duty of consultation, it is obvious that fairness in this case required that Bank Mellat should have had an opportunity to make representation before the [Treasury’s] direction was made.”

Speaking to Executive, Zaiwalla was adamant on this point. “Justice requires that evidence be produced, and the defendant must have an opportunity to look at the evidence and comment on it if it’s right or wrong,” he said.

Zaiwalla wasn’t given this opportunity, even at trial. Following lower courts’ procedures and pleas from the government, the Supreme Court held an extraordinary closed session without Bank Mellat’s lawyers to consider secretive ‘sensitive’ evidence. Despite this challenge, Zaiwalla and the bank still won — underscoring the strength of potential legal challenges to sanctions. But Zaiwalla was nevertheless unhappy that the court had established a new precedent of sitting in closed session. A defendant must have the right to review evidence, he said, but “in a secret court, he does not have that opportunity.”

Bank Mellat’s favorable rulings at both the UK level in June and the EU level in January paved the way for similar victories by other Iranian-linked firms operating in Europe, many of whom had been blacklisted by the same 2010 Council decision naming the bank — the EU General Court handed down eleven decisions relating to Iranian sanctions just last month, most of them in favor of protesting companies. While sanctions are still in place pending appeal, the rulings bode well for the winners — and poorly for those who favor further tightening sanctions.

Despite the recent victories, sanctioned companies still face a series of hurdles, especially outside of Europe. Both the United States and the United Nations still consider Bank Mellat or its subsidiaries complicit in illegal activities. Zaiwalla appealed both listings, and was “cautiously optimistic” about clearing his client’s name at the UN.

But he was less enthusiastic that the Office of Foreign Asset Control (OFAC), the bureau that manages sanctioned entities for the US Treasury Department, will delist Bank Mellat anytime soon. “There is no rule of law [with OFAC listings] at all,” he said, adding that while a company can apply for delisting, the backlog of such applications means any decision will be very slow. “For the last year, we haven’t had a reply.”

Warmer relations

Bank Mellat’s victories in the UK and EU came after years of sanctions and litigation against Iran. The bank was originally blacklisted by the UK government in 2009, and then by the EU Council the following year. These sanctions were part of a concerted push by the West to isolate the Islamic Republic amid concerns the country was developing nuclear weapons.

While Iran vehemently denied any such activities, questions about disclosures to the International Atomic Energy Agency, the global nuclear watchdog, as well as defiant rhetoric by the country’s former president, Mahmoud Ahmadinejad, weakened European faith in negotiations, pushing the EU towards adopting more comprehensive and coordinated sanctions.

With the election of a new president this year, these circumstances may have changed. In what’s being called Iran’s “charm offensive”, President Hassan Rouhani gave a flurry of conciliatory interviews to US media outlets and a carefully crafted speech to the United Nations General Assembly last month. Remarkably, he also spoke to US President Barack Obama directly by telephone — the first such contact since the nation’s 1979 revolution. The message: let’s resolve the dispute over sanctions and nuclear programs.

This new public engagement and softer style has prompted hopes that the nuclear and sanctions crisis surrounding Iran may finally be headed for resolution, fueled by speculation that the economic strictures have finally brought Iran to the table.

Whether this is the case or not, the recent European court rulings regarding Bank Mellat and other Iranian entities may provide an incentive for the West to resolve the Iran file now, while sanctions are still in effect and its hand is perceived to be strongest. As EU foreign policy chief and lead Western negotiator Catherine Ashton’s spokesperson said last month, “We are fully aware, as are the [EU] member states, of the consequences deriving from these judgments…[and] the need to come to a swift conclusion on the approach regarding these cases.”

October 10, 2013 0 comments