The causes of the fuel crisis

Hisham Ashkar

17.08.2021

It’s like being hit by a bullet. A non-fatal wound. And as soon as you regain consciousness, another non-fatal bullet hits. And then another. And another. And repeat. Ad infinitum. Ad nauseam. For at least two years, we have been overrun by a non-interrupted flow of crises and tragedies. There seems to be no end in sight. A mixed sense of panic, hysteria, anger, and frustration can be felt everywhere. A common affect is emerging (or rather has emerged) among those living in the Republic of Lebanon, an affect of revenge, bloody revenge. The number of those not posting a hangman’s noose on social media is diminishing by the minute. But it is understandable. At the turn of every tragic event – with the latest being the fuel tank explosion in Akkar – these sets of affects, and especially the main common one, are cemented. As if we are left with nothing but affects. For sure, they are important, as they drive us to take action. However, an action solely guided by affects would not lead to change. A real change. Yes, burning someone’s house, ransacking a ministry, or even killing someone can lead to satisfaction. But this won’t make any difference to the general situation. It’s not that the structure and the system are inherently sound, and what is needed is to purge the corrupted ones, starting with the political elite. No! The situation goes far deeper. To the bone. Along with affects, a certain reasoning or rationale is needed. I’m not peddling the old dictum opposing a rational elite to an emotional demos, cherished by our modern democracies since 1789, if not earlier. No, the main issue is l’Après, the After, is what to be done after, or at least imagining it. And here I’m talking about radical thinking, a radical thought (la pensée). And a thought cannot be but radical. Thought and Reform are not compatible.

In order to imagine the after, or more adequately what kind of society we want to live in, and what kind of future we would like to have, the starting (and anchor) point is the reality we live in. A lucid reading of this reality. Sometimes a very simple reading can be enough. And instead of being swept by cascading events (and bullets) piling up and expelling each other, one must keep causality right, front, and centre.

So where to start? From the present. From last week. From queues of cars in front of petrol stations. From the drastic reduction in electricity production. From the fuel crisis. A manufactured crisis no doubt, like many others in this series of the crises of the past two years. Much was written of the anger, the frustration, the shooting incidents, the development of precarity, and the endangerment to life that this crisis is causing (with one of its culminations the recent explosion of a fuel tank in Tleil, in Akkar, with the number of casualties exceeding the 100).

This crisis started nearly one year ago. As the Lebanese pound depreciated, fuel prices remained fixed in the local currency, since they are subject to subsidies, and hence the State had the power to regulate the price. Not surprisingly, the main discourse and debate centered around, first, the issue of subsidies, more precisely to lift them or not, and second the smuggling of fuel to Syria, thus the creation of shortages (and of course the usual narrative on greed and corruption). In other terms, the solution should be found in further (neo)liberalisation and in xenophobic nationalism. The fault lies with state policies attempting to ensure a commodity (in this case a necessity) has a somehow affordable price to all those living on its territory, as well as it lies with the Other, the Foreigner, who’s trying to take advantage of our debacle, of Us. Typical! As usual, the attention turned into dealing with the consequences rather than the causes. However, when looking at the causes, it mainly boils to one word: profit.

As the value of the Lebanese pound plummeted in face of the U.S. dollar in the black market (yes! The official exchange rate remains at 1,507.5 LBP to the USD), prices of most commodities, especially the imported one, inversely followed suit, increasing by around 15 fold. However, prices of subsidized goods, mainly fuel and medicaments, are still fixed by the relevant ministries according to the official exchange rate (recently those prices rose according to the fictitious exchange rate of 3,900LBP for the USD, in comparison 1 USD is exchanged on the black market for around 20,000LBP). The fixed prices had a direct impact on the profits of the importers and distributors of these goods, since their profit is a percentage of the selling price. At the moment, the profit that fuel companies, or petrol stations, or drug companies, or pharmacies, are making has plummeted to 10% in comparison to their profit-making in 2019 or 2018 (in USD). And this loss of profit led the main importers of these goods, as well as the distributors, to put pressure on the State through creating these shortages, in order to increase the selling price. The issue was never about subsidies but about the price attached to these subsidies. But of course they will not demand a price increase. They don’t want to look greedy. They are not stupid. So they, and nearly everyone else in the political sphere, talk about subsidies: State’s intervention to ease some of the social equalities is bad. It hurts the economy. Gotta love the neoliberal discourse.

When the price of these goods is increased to a level that the importers and distributors deemed acceptable, the market will flow with fuel and medicaments regardless if subsidies are lifted or not. Fuel and medicaments will flow à gogo, but tagged with hefty prices. Until then, severe shortages will persist. And no matter how much cheap or free fuel is imported from Iraq, the crisis will persist. Ironically, this crisis can be easily alleviated if the Republic of Lebanon took the initiative of directly importing these goods, thus circumventing the importers. But the Republic is economically liberal, this is even inscribed in its constitution. So those kinds of actions would be blasphemy against orthodox economy, or even worse, a crime against property.

Still, and in the chain of causality, this crisis is a direct result of the official exchange rate being stuck at a rate of 1,507.5 LBP to the dollar. A main duty of Banque du Liban is to preserve the value of the local currency. And see, our central bank is very diligent in accomplishing its duty, and that’s why, officially the Lebanese pound hasn’t depreciated yet. It still has the same magical exchange rate of 1,507.5 to the dollar since 1998. At first sight this looks an act of denial, especially coming from a central bank that since its establishment in 1963 has adhered completely to liberal (though at that time most capitalist economies were Keynesian) and then to neoliberal economics. This looks absurd. An act of meta-politics one would say! But it isn’t. It is the fallacy of orthodox economy, the (neo)liberal perspective of economy, that is unravelling before our eyes. And of course with dire consequences to the majority of the population.