Lebanon and Iraq Agree on Crude Oil Import Deal
Lebanon has formally announced an agreement with Iraq to import crude oil, transitioning away from previous fuel imports.
A delegation from Lebanon recently visited Iraq and reached a consensus to renew a supply contract for approximately 2 million tons of crude oil, marking a significant shift from the earlier arrangement focused on fuel imports.
Changes to Contract Terms
An official source from the Lebanese government confirmed that this agreement includes amendments to both the quality and payment terms. Specifically, the new contract stipulates that the supply will consist of raw oil, diverging from the prior arrangement that involved refined fuel products. Additionally, the payment mechanism has been revised to require immediate cash payments in U.S. dollars, facilitated through bank transfers from the Bank of Lebanon, rather than utilizing a platform system.
Representatives from Lebanon encountered considerable challenges during negotiations, as the Iraqi government sought assurances of Lebanon’s commitment to fulfilling its payment obligations. This demand stemmed from an ongoing need to demonstrate Lebanon’s good faith, especially in light of past delays and outstanding debts.
Background on Fuel Imports
Historically, Lebanon has faced significant challenges with its energy supply, leading to an agreement with Iraq in July 2021 for the import of one million tons of fuel to mitigate the country’s electricity crisis. The first shipment, carrying 31,000 tons, arrived on September 16, 2021.
However, Lebanon’s financial situation regarding these imports is precarious, with outstanding debts to Iraq exceeding one billion dollars. These obligations include payments for crude oil supplied since 2021 and earlier debts dating back to pre-2003. Despite these financial difficulties, Iraq has continued to supply oil to Lebanon, acknowledging the challenging economic conditions the latter faces.
Financial Implications
As Lebanon navigates its economic troubles, the cumulative debt linked to fuel shipments has reached significant proportions. By the end of 2024, it is estimated that only $118 million of the $2 billion owed will have been settled, with the remaining amounts stemming from multiple renewed contracts between the two nations.
This agreement represents a pivotal moment for Lebanon’s energy strategy, reflecting a concerted effort to address its pressing energy needs while simultaneously managing its complex financial obligations to Iraq.
