The Iraqi “Al-Fiul” issue has resurfaced in discussions with Lebanon, marking a significant shift from previous agreements. On Monday, Lebanon announced a new agreement with Iraq to import crude oil instead of fuel oil, stipulating that payment for the shipments will now be made in cash and immediately, rather than through a platform. This agreement comes at a time when Lebanon has only managed to pay $118 million of the $2 billion debt accumulated with Iraq.
Official government sources indicated that a Lebanese delegation, comprised of Edal’s Chairman Mazen Suwaid and Brigadier Hassan Shukair, traveled to Iraq to negotiate a renewal of the supply contract for approximately 2 million tons of crude oil, replacing the previous arrangement for fuel oil.
It was confirmed that this contract amendment included changes to both the quality and payment mechanisms. Specifically, shipments will be paid for in cash, with transactions facilitated in dollars via transfers from Lebanese banks to international accounts.
The negotiating team from Lebanon faced significant challenges, as the Iraqi government sought assurances regarding Lebanon’s willingness to fulfill payment commitments, especially given past delays. An upcoming platform for these transactions is nearing completion, suggesting that Lebanon will find it increasingly difficult to justify any future payment failures. This ongoing non-payment has affected negotiations for the fourth contract.
Al-Fiul refers to a mix of oils left in refining units post-distillation (heavy fuel) which is typically used to generate heat or electricity.
Lebanon initially signed an agreement with Iraq in July 2021 to import one million tons of fuel oil, aimed at alleviating the electricity crisis in the country, with the first shipment arriving in Lebanon on September 16, 2021, carrying 31,000 tons of fuel.
Lebanon’s cumulative debts to Iraq exceed one billion dollars, encompassing crude oil payments due since 2021 as well as earlier debts from before 2003. Despite Lebanon’s failure to meet its financial obligations, Iraq has maintained its provision of oil, recognizing the dire economic circumstances in Lebanon.
By the end of 2024, with ongoing negotiations involving a new Lebanese government, Lebanon’s debt related to fuel shipments has continued to accumulate, with only $118 million paid against a $2 billion total. This debt refers to three consecutive renewal agreements between Lebanon and Iraq.
Notably, following the escalation of the Israeli conflict in September 2024, Iraq was quick to extend support to Lebanon. Prime Minister Muhammad Shia Al-Sudani announced on October 3, 2024, a donation of his and his cabinet members’ salaries for a month to aid relief efforts in Lebanon and the Gaza Strip. He has also initiated two accounts for collecting donations and accommodating displaced individuals, including integrating Lebanese students into Iraqi schools.
Oil expert Kovand Sherwani noted in an earlier analysis that Iraq has historically provided Lebanon with substantial food and fuel aid without charge since the Beirut port crisis. This arrangement later formalized into a barter system, wherein Iraq supplied heavy fuel oil necessary for power stations, in exchange for Lebanese food products.
However, clarity remains elusive regarding the pricing of oil products, with uncertainty whether they reflect global market prices or preferential rates. Lebanon has expressed a desire to secure oil derivatives at terms similar to those offered to Jordan.
Lebanon’s reliance on Iraqi shipments is critical; over the past four years, the country has sourced a substantial portion of its fuel from Iraq, complemented by limited purchases from other suppliers.
The current agreement with Iraq is structured as a swap deal, enabling Lebanon to receive an incomplete quantity of fuel for its electricity plants while facilitating exchanges with foreign companies for usable quantities. Traditionally, Lebanon has received one ton of effective fuel for every two tons sourced from Iraq, but price fluctuations and quality variations complicate this equation. Lebanon’s financial obligations are not solely limited to the shipment prices but also encompass interchange costs, though past payment mechanisms did not impose straightforward pricing.
Previous reports indicated that Lebanon has not cleared payments for oil received, attributed to ambiguous conditions within their agreement. The contract stipulates that Lebanon deposits funds into its dollar account, which Iraq can convert to Lebanese lira for local expenditures without a clear exchange rate, posing further complexities in the transaction.
The Iraqi-Lebanese deal became embroiled in controversy in September 2023, as sources disclosed troubling allegations regarding the shipment of Iraqi fuel oil to Lebanon, which purportedly included smuggled narcotics within a consignment of pomegranate fruit.
Renewing the contract with Iraq presents a formidable challenge for the Lebanese government, which must ensure that payments are processed through the Bank of Lebanon. The Electricité du Liban (EDL) reportedly holds around $300 million earmarked for fuel procurement through public tenders, yet Lebanon remains unable to operate its existing electricity plants. The core issue lies not in the organizational structures in place, but rather in the broader challenges facing the energy sector.