Iraq renews fuel agreement with Lebanon

Deal was first signed in 2021 to alleviate Beirut's acute power shortage

A Lebanese power plant in the industrial district of Zouk Mikael, north of Beirut. AFP

Iraq will renew an improved deal with Lebanon to provide Beirut with vital fuel supplies as the country struggles to generate enough electricity during an economic crisis that began in 2019.

In July 2021, Iraq offered the cash-strapped Lebanese government a million tonnes of heavy fuel oil a year in exchange for services including health care for Iraqi citizens.

In its weekly meeting, the Iraqi cabinet approved a 50 per cent increase to 1.5 million tonnes of heavy fuel oil, Prime Minister Mohammed Shia Al Sudani's office said.

The renewal is scheduled to come into effect from November 1, Lebanese Energy Minister Walid Fayyad told The National.

Iraq also approved a commercial deal to provide two million tonnes of crude per year, Baghdad added,

That deal includes a deferred payment mechanism for six months from the date of receipt. Those payments will have no interest added, Mr Fayyad said.

The new deal will probably require approval from the Lebanese cabinet "because they will still require letters of credit opened by the Banque du Liban for the deferred payment. When they supply the fuel they will ask for a letter of credit from the BDL, which means the Ministry of Finance and BDL are involved, which means we need the Council of Ministers", Mr Fayyad said.

The minister said that the two deals combined meant that Lebanon's state electricity could be capable of providing up to 12 hours of power a day – a significant increase from what it provides now.

“In accordance with the brotherly ties between Iraq and its Arab brothers, and in standing by to supporting them in various crises and circumstances, the council of ministers has agreed to meet Lebanon’s needs of oil products to operate power plants,” Mr Al Sudani's office said.

The deal comes after Mr Fayyad visited Iraq for meetings with top officials there.

Since 2021, Lebanon has swapped the heavy fuel oil for gas oil that it can use at its power stations, which have operated for decades at partial capacity but almost shut down during the financial crisis.

The deal was meant to alleviate Lebanon's acute power shortage, which reached crisis levels in the summer of 2021 when the government was unable to subsidise fuel imports.

Lebanon subsequently removed those subsidies and domestic fuel prices rose steeply. Russia's invasion of Ukraine then further bumped up international prices.

The Lebanese power grid was already under pressure before 2019, but since the economic crisis the situation has deteriorated.

With the government unable to provide fuel to public power plants, most homes in the country have been left without state electricity for much of the day. Those who can afford it are forced to rely on expensive private generators.