Lebanon in crisis

Lebanon is heading for a long, hot summer. Low snowfall during the winter will cause water shortages, piling further pressure onto a country already facing political instability, a garbage crisis and electricity cuts. The presence of perhaps 1.7 million refugees, straining the already stretched infrastructure further, is the most visible consequence of the five-year war in Syria. Neither is the Lebanese economy set to receive the boost that has been brought in over the past summers through tourism and real estate investments.

Loud alarm bells were ringing in Beirut in February as Saudi Arabia canceled a $3-billion package for purchasing French weapons and another $1 billion for supporting the country’s internal security forces. The bad news continued as the UAE withdrew embassy staff and Saudi Arabia, the UAE, Bahrain, Kuwait and Qatar issued their strongest warnings yet to citizens not to visit Lebanon.

The Gulf states’ actions prompted fears that they might also take action against Lebanese migrant workers, whose annual remittances of $5.5 billion account for 69 percent of Lebanon’s total remittances and nearly 11 percent of GDP. Remittances were already under pressure, having dropped 27 percent in 2015.

What probably prompted the Saudi move was Lebanon’s refusal to condemn the attacks on the Saudi embassy in Tehran. Compounding the situation is the bitter rivalry between the Sunni-led ‘March 14’ movement and the rival ‘March 8’ bloc, led by Hezbollah, the Shia party allied to Iran. Both factions have ministers in the government, but analysts wonder how long that will remain possible. The two blocs have failed to agree on a new president – the post is filled through a vote in parliament – since the time Michel Sleiman stepped down in 2014. Meanwhile, opposing initiatives from former Prime Minister Saad Hariri and Lebanese Forces chief Samir Geagea to nominate rival candidates have been put on hold because of regional tensions.

Lebanon has survived many crises since the end of its civil war in 1990, but there is growing weariness, even resignation, among many Lebanese, coupled with a sense that the situation is moving inextricably out of control.

Unpredictable economic situation 

Michael Young, author and opinion editor of the Beirut Daily Star newspaper, believes the economic situation in Lebanon is precarious. “Lebanon has an economic reliance on the Gulf states and the remittances from migrant workers there have helped fund Lebanon’s high debt and upheld the banking sector, the pillar of the national economy,” he told TRENDS. “Anything that seriously threatens this can potentially cause an economic collapse.”

Riad Salameh, the internationally respected governor of the Central Bank, moved quickly after the Saudi announcement to reassure the markets, although he did also urge the government to mend relations with Riyadh, “as Lebanon has always been an economic partner with the kingdom”.

Nassib Ghobril, chief economist at Byblos Bank, concedes that the Saudi support remains central to the standing of the Lebanese currency, which has been successfully pegged to the American dollar for decades. “Saudi Arabia has repeatedly supported Lebanon in times of need,” he told TRENDS. “During the 2006 Israeli war, Saudi Arabia deposited $1 billion at the Central Bank to shore up the level of foreign currency reserves, which helped the Bank successfully defend the peg of the Lebanese pound against the US dollar. Kuwait also deposited $500 million at the time for the same purpose.”

“For now, the [Saudi-led] measures are bearable, though they have caused panic in Lebanon and exposed the country’s vulnerabilities,” Young noted. “That could be the aim, with the Gulf states refraining from going further. But that’s not yet clear, and we still have to see where or how it ends.”

Impact of Saudi move

“Saudi action in Lebanon is, to some extent, part of its larger strategy to confront Iran and, partially, is a reaction to Hezbollah leader’s continuous attacks on the Kingdom and its militias’ involvement in Yemen,” said Saleh Alkhathlan, professor of political science, King Saud University, Riyadh. “The policy should succeed as long as there is no further escalation, whether in action or in word, that provokes a backlash. A firm Saudi position should help strengthen the Sunnis in Lebanon, but will not make them strong enough to confront Hezbollah, due to their internal divisions and weak leadership.”

“The cutting of Saudi economic aid to the Lebanese army is consistent with Saudi Arabia’s new, more assertive foreign policy,” added Fahad Nazer, senior political analyst at US-based intelligence consultants JTG Inc and former political analyst at the Saudi Embassy in Washington. “While the Saudis have not abandoned their signature behind-the-scenes diplomacy, the current leadership wants its ‘friends’ in the region to adopt clear positions on the myriad conflicts around the region. As far as the Saudis are concerned, this is not the time for ambiguity.”

Nazer added: “Lebanon’s refusal to condemn the storming of the Saudi embassy in Tehran, which was widely condemned internationally, was the last straw. At a time of reduced revenues and budget deficits, it is not unreasonable for the Saudis to closely evaluate the efficacy of their foreign aid. The consensus view in Saudi Arabia now is that the money is better spent elsewhere or, better yet, inside Saudi Arabia.

“In the short term, this decision could potentially weaken Saudi Arabia’s leverage in Lebanon and, by extension, increase Hezbollah’s influence. However, it’s also clear that the move spurred a number of prominent Lebanese leaders, representing a wide array of interests, to address Saudi Arabia’s concerns and to publicly criticize Hezbollah for adversely affecting relations with Saudi Arabia and for cutting a crucial source of financial aid. That by itself could be viewed as a moral victory.”

Young, too, believes the Saudi move may strengthen rather than weaken Hezbollah’s influence. “The UN, the US and France are reportedly trying to mediate on the issue, warning that a collapse in Lebanon would represent a major threat and would probably also push the country, de facto, into the Iranian camp,” he said.

“Certainly, in the chaos of the past five years – since the Arab uprisings began – Hezbollah has pursued its own agenda with no consideration of how this might affect the interests of the country,” Young added. “This has been disastrous and has contradicted the Lebanese government’s efforts to remain neutral in the Syrian conflict.”

Washington’s approach

Even without the uncertainty of the looming US presidential election, Washington’s approach to Lebanon may have sent mixed messages. The Obama administration believes its Middle East policy is balanced, while its critics would call it ambiguous at best. Over the past eight-and-a-half years, Lebanon has received military aid worth $1 billion from the United States, according to David Hale, the US ambassador to Lebanon, and this support could be stepped up as part of Washington’s campaign against ISIS.

But, despite last July’s nuclear agreement with Iran and the easing of US, European and UN sanctions against Tehran, Washington continues to refuse to deal with Hezbollah ministers in Beirut. Congress voted in December to step up pressure on Hezbollah by sanctioning banks involved in its financing.

Ibrahim Warde, professor of international business at Tufts University, Massachusetts, told TRENDS that the legislation resulted from opposition to the Iran nuclear agreement from Republicans, Israel and, “to a lesser extent”, the Saudis and allies. The consequences of the new legislation are unclear but Warde believed that this might contribute to insecurity in Lebanon.

“Over the past few months, a number of Lebanese Shia were relisted and a few more names added,” he said. “Beyond that, I am not sure. In a political sense, the greatest effect [of the new legislation] will be on Shia businesses perhaps, on the wider Lebanese banking sector.”

On the other hand, the Europeans, already facing an influx of refugees from the conflict in Syria, are more wary of the dangers building up in Lebanon. Following the Saudi decision over military aid, Hugo Shorter, the British ambassador-designate, was dispatched to reassure the Lebanese Prime Minister of London’s continuing support for the army and security forces “to protect Lebanon’s borders”.

Shorter noted that Britain was, “of course, talking to Saudi Arabia and the Gulf countries about the best way to support a strong and sovereign Lebanon and to ensure Lebanon gets the help it needs in these difficult times.”