Commentary on Political Economy

Saturday 24 February 2024



As Lebanon teeters on the edge, a war with Israel would be catastrophic

Retired members of Lebanon's security forces, calling for pension increases, burn tires in Beirut to keep ministers from entering a Feb. 8 cabinet session. (Wael Hamzeh/EPA-EFE/Shutterstock)
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BEIRUT — Wages for Lebanon’s soldiers have fallen so low that many now have second jobs driving for Uber or working as parking valets. A GoFundMe campaign has been launched to support the country’s emergency response services. Angry depositors in Beirut have attacked the headquarters of a major bank with fireworks because it wouldn’t release their savings.

Even before the Israel-Gaza war, Lebanon was in economic crisis: Since 2019, the country’s gross domestic product has fallen by 50 percent, and poverty now plagues 80 percent of the population.

A wider war, long feared amid ongoing skirmishes between Israeli forces and Iranian-backed Hezbollah along Lebanon’s southern border, would be catastrophic.

Lebanon is no stranger to disaster, having survived a 15-year civil war and a conflict between Israel and Hezbollah in 2006. But this time, according to Simon Neaime, an economics professor at the American University of Beirut, the Lebanese are exhausted.

“The situation is totally different today. In 2006, during the last war with Israel, we had a fully functioning economy, we had a functional banking system supplying credit to the private sector and contributing to growth, we had a government in place, we had a president,” Neaime said.

The signs of disintegration are everywhere. The country has been without a president for a year, and a functioning government for almost two, and the currency has lost more than 90 percent of its value since 2019.

Lebanon’s insolvent banks won’t allow depositors to withdraw their money in full, which the rating agency S&P Global has called a selective default. The Association of Banks in Lebanon has said the institutions do not have enough liquidity to pay back depositors.

On Jan. 8, travelers through Beirut’s airport saw the arrival and departure screens suddenly flash a new message addressed to the powerful leader of Hezbollah: “Hasan Nasrallah, you will not have any supporters if Lebanon is drawn into a war for which you will bear responsibility.”

The message underlined the deep fear that Hezbollah’s current confrontation with Israel could explode into a new war — and showed how easy it was to hack vital transportation systems.

Neaime says that in 2006 Lebanon received support from Arab countries, particularly oil-rich Persian Gulf nations, for reconstruction after the end of that war. This is not the case today, with ties to the gulf monarchies strained by Hezbollah’s increased regional presence, and the tension compounded by a general lack of interest in Lebanon among younger gulf leaders.

Supporters and relatives of Hezbollah commander Ali Al Dibs carry his coffin in a funeral procession in the southern city of Nabatiyeh on Feb. 16. (Wael Hamzeh/EPA-EFE/Shutterstock)

In fact, one of the only remaining elements of Lebanon’s traditional formula for survival is the Lebanese themselves — or rather those living abroad. A 2023 U.N. study estimated that remittances from the diaspora, averaging $6.5 billion a year, account for more than a third of GDP.

“This is what has kept the economy running; this is the major source of foreign exchange today besides meager tourism revenue. We don’t export much — we import a lot,” Neaime said.

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But if a full-blown war breaks out, he said, “it will become very difficult for the Lebanese diaspora to continue sending remittances from abroad.”

According to the Policy Initiative, a local research center, foreign investment indicators have been trending downward since the war started in October, reflecting a lack of investor confidence in the country. The fighting has also harmed the nation’s tourism sector and agriculture, much of which is based in the south and accounts for a significant portion of exports.

Public services and the people that staff them have borne the brunt of the financial crisis, with salaries becoming nearly worthless after the currency lost most of its value. Many of these services, like hospitals and emergency response, would be crucial in a war.

“We do not have equipment to rescue anyone from under the rubble. We do it manually using our hands and with primitive instruments,” said Hussein Fakeh, head of civil defense in the south. A GoFundMe page was set up in January to support the organization, which includes firefighters and EMTs — though it has denied any link to it. “A wider potential war with Israel would certainly impact our work with the limited capacities,” he added.

Lebanon’s overburdened health-care system will also be unable to cope if the war spreads. Shut out by the skyrocketing costs of private health care, most people are forced to seek treatment at underfunded public hospitals in a country whose health care was once the pride of the region.

According to Doctors Without Borders, rates of individuals relying on treatment from aid agencies are on the rise. In areas near the country’s border with Syria, the organization has observed a 67 percent increase in clinic visits since the financial crisis started.

Talent is also in limited supply. According to Caline Rehayem, medical coordinator for Doctors Without Borders Lebanon, “with the overlapping crises, a number of health-care professionals — doctors and nurses — have left the country.”

“War could be devastating on the medical services in the country because of the low staff and the lack of medical supplies and equipment,” said Lorda Helow, a nurse at a Beirut hospital, whose salary of $500 a month barely lasts her a week.

And then there is the military, where increasing numbers of soldiers are moonlighting to pay the bills. The United States is pushing for Hezbollah to move its troops well north of the Israeli border to de-escalate tensions, and this hinges on a strong Lebanese army having an increased presence in the area.

Retired members of Lebanon's security forces clash with army soldiers during the Feb. 8 protest outside the government palace in downtown Beirut. (Wael Hamzeh/EPA-EFE/Shutterstock)

The army is already relying on substantial foreign funding to pay, feed and medically treat soldiers. Although it has received military aid from the United States totaling more than $3 billion since 2006, the needs are still immense.

The United States sent $72 million in 2023 alone for temporary financial support of salaries. That same year, Qatar donated $30 million in fuel and, in 2022, sent $60 million for salaries, as well 70 tons of food. France has provided medical equipment.

“I couldn’t feed my family. I used to earn $1,500 [a month] from the army, and then all of a sudden, it was just $60, and I have a daughter who was only 2 — she was still on diapers and baby formula. So I had to work at night,” said one former soldier, who drove for Uber while still reporting for duty during the day.

“We joined the army so that we could raise our children, but it got to a point where we could not afford to do that,” he added, speaking on the condition of anonymity because of the sensitivity of the topic. He eventually took early retirement and left the military, saying soldiers were being humiliated.

Even if war doesn’t eventually break out, said Neaime, economic and financial collapse are still possible.

“No reforms have been introduced since the financial crisis erupted in 2019. Nothing has been done to deal with the crisis. So let alone what’s happening in the south, the economy is still on a collision path with a full collapse.”

Israel-Gaza war

Israel-Gaza war: Israeli Prime Minister Benjamin Netanyahu released a postwar plan for Gaza that pushes for indefinite military control over the Palestinian enclave. The U.S. opposition to an immediate cease-fire in Gaza came under repeated criticism during a two-day meeting of the chief diplomats of the world’s 20 largest economies.

Middle East conflict: Tensions in the region continue to rise. As Israeli troops aim to take control of the Gaza-Egypt border crossing, officials in Cairo warn that the move would undermine the 1979 peace treaty. Meanwhile, there’s a diplomatic scramble to avert full-scale war between Israel and Lebanon.

U.S. involvement: U.S. airstrikes in Iraq and Syria killed dozens of Iranian-linked militants, according to Iraqi officials. The strikes were the first round of retaliatory action by the Biden administration for an attack in Jordan that killed three U.S. service members.

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