Complex Made Simple

Lebanon in crisis: No fuel and no money to buy it

Lebanon’s fuel crisis has created huge queues at gas stations, knife stabbing, and violent tempers at pumps, amidst a quickly deteriorating economic situation

Lebanon approved a new refinancing of energy imports, effectively reducing fuel subsidies Lebanon’s total power generation capacity was about 2,200 MW Lebanon’s GDP slid from nearly $55 billion in 2018 to an estimated $33 bn in 2020

Lebanon’s fuel crisis has created huge queues at gas stations, knife stabbing, and violent tempers at pumps, amidst a quickly deteriorating economic situation where the price of consumer goods is no longer within reach for more than half the population.

The fuel shortage in Lebanon has raised fears that the country could become paralyzed. Even private generators, used by the Lebanese for decades, have to be switched off for hours to conserve diesel.

“We are really in hell,” tweeted Firas Abiad, director-general of Rafik Hariri University Hospital, which decided last Monday to turn off the air conditioning, except in medical departments.

Fuel subsidies are reduced 

Despite Lebanon needing to preserve its last remaining foreign currency reserves for any possible economic recovery, the central bank had continued to subsidize fuel, medicine, and wheat, draining the state’s coffers of some $5 bn annually.

Subsidized fuel was often smuggled to neighboring Syria helping create a fuel shortage even before the recent acute crisis of disappearing gasoline. 

But last week, Lebanon approved financing energy imports at a rate higher than the official exchange rate, effectively reducing fuel subsidies as prices shot up 35% which will put the cost of fuel out reach for many in a country where over half the population are living below the poverty line.

Lebanon will now start importing fuel at LL3,900 (Lebanese Lira) to the dollar, as opposed to the official rate of LL1,500. 

The price of 20 liters of gas will now cost LL61,000 ($40 at the official rate), up from LL45,200, while 20 liters of diesel will cost LL46,100, up from LL33,300.

“These price increases will surely affect our ability to secure fuel while also increasing our costs and, as a result, the cost on patients,” Dr. Mohammed Khodrin, head of Akkar Governmental Hospital, told Arab News. 

The Lebanese pound (Lira) hit fresh lows recently with the black market rate trading at 18,000 Lira to one US dollar. The currency has lost over 90% of its value since 2019.

Lebanon’s GDP slid from nearly $55 billion in 2018 to an estimated $33 bn in 2020 and the World Bank forecasts the economy is expected to contract by a further 9.5% in 2021.

Read: Lebanon can beat Saudi in manufacturing electric vehicles, and UAE’s EV buyer market

Read: Lebanon’s economic doom and gloom reaching record levels

Power gridlock

Turkey’s Karpowership, one of the world’s largest operators of floating power plants, recently resumed electricity supply to Lebanon from its two power ships. 

Karpowership used to supply 370 megawatts (MW), or about a quarter of Lebanon’s supply.  

A Reuters report in mid-May said arrears exceeded $100 mn and that the government had not sought talks to resolve the arrears despite the firm’s repeated appeals to avert a shutdown.

An industry source cited by Reuters said Lebanon’s total capacity was about 2,200 MW, including the barges, but was only generating 1,300 MW, including the Turkish supplies of 370 MW.  

“If we don’t receive diesel . . . we will close down,” said Fady Abboud, an industrialist and former minister whose factory produces takeaway cartons and wrappers. “I’m going crazy.” He had just six hours of diesel left for his generators when he spoke to the Financial Times recently. 

Maroun Chammas, chief executive of Medco, a fuel importer, said “We are low on stock but there are ships waiting to discharge [fuel].”  

Chammas blames long delays at the central bank for having to wait as long as 20 days to unload vessels because of what he believes is the central bank’s tardiness.