Lebanon and Iran – breaking the bond

by Neville Teller

Lebanon is “hurtling toward total collapse”, according to one commentator.  The World Bank believes that the country’s financial and economic crisis is one of the severest the world has witnessed in the past 150 years.  A number of factors have contributed to Lebanon’s disastrous situation, but a major cause of its troubles is the dominant position that Iran has managed to acquire in the nation’s political life, by way of its proxy Hezbollah.  But now that Iran is undergoing a severe economic crisis of its own, a window of opportunity may have opened for its malign influence over Lebanon to be weakened, if not entirely eliminated.

Lebanon is on the verge of a political, economic and social catastrophe.  It has been without a government for eight months. Food and medicines are in short supply, electricity cuts last for much of the day, while people are queuing for hours at gas stations and, as they clash over who gets to fill their tank first, fist fights have turned into shootings.  Now criminal gangs are moving in to exploit the situation. A representative of the union for fuel distributors and gas stations in Lebanon said: “Individuals claiming to be in charge of security at gas stations are using extortion… The owners of over 140 gas stations are refusing to accept deliveries of gasoline because they have been exposed to extortion and beatings.”

On June 22 the acting administration raised the price of bread for the fifth time in a year.  The latest increase — 18 percent from the last raise in February — was the result of the decision to end subsidies on sugar and yeast, which both go up in price in consequence. 

On June 1 the World Bank issued a report on the rapidly deteriorating situation.  It believes that more than half of Lebanon‘s population may have been pushed below the poverty line.  While the official rate of exchange for one US dollar is 1,507 Lebanese pounds, the banks do not permit currency conversion or foreign fund transfers and so dollars are simply not available at the official rate.  On June 25 the rate on the black market was 16,450 Lebanese pounds.  The country’s gross domestic product, close to $55bn in 2018, plummeted to some $33bn last year.  Foreign currency reserves are at an all-time low.

The World Bank pulls no punches in its criticism of Lebanon’s political elite in which Hezbollah features so strongly.  It accuses them of deliberately failing to tackle the country’s many problems, which include the economic and financial crisis, the Covid pandemic and last year’s Port of Beirut explosion.  The inaction, says the report, is due to failure to agree on policy initiatives but also a continuing political consensus that defends “a bankrupt economic system, which benefited a few for so long”.

Following the explosion in Port Beirut in August 2020, Saad Hariri was named by the Lebanese parliament as prime minister designate, and charged with forming a new government.  So far, because of an ongoing dispute between him and President Michel Aoun over the composition of the new administration, he has failed to do so. 

Hariri wants to assemble a technocrat cabinet dedicated to enacting the reforms long demanded by the World Bank, the International Monetary Fund and donor countries such as the US and France. In March he stormed out of a meeting with Aoun, telling reporters that the president had sent him a proposed list of ministers and asked him to sign off on them. Hariri had rejected the request as unconstitutional.  Aoun is a strong supporter of Hezbollah, the Iran-backed Shi’ite group that dominates Lebanese politics and underpins his presidency. According to Hariri, Aoun was pushing for a third of all cabinet seats for his Hezbollah allies and their supporters, which would give them veto power over government decisions.

The shoeing into power in Iran on June 18 of a hard-line extremist, Ebrahim Raisi, as its new president can be seen as a desperate effort by the ruling élite to shore up the power of a regime in economic freefall.  The value of the rial, the national currency, has halved over the past two years, inflation is running at 50 per cent and the country is experiencing mass unemployment. Popular protests are bursting out in major towns and cities all over Iran.

Hezbollah’s popularity among the Shia population owes much to the vast sums it has spent in its social and health programs.  The collapse of the Iranian economy means that the regime is no longer able to pay its Hezbollah proxy in dollars.  Its financial support is now provided in the rapidly depreciating Lebanese currency.

Bahaa Hariri, the brother of Lebanon’s designated prime minister Saad, is a billionaire businessman.  He is reported to believe that if Iran cannot continue with its payments, support for Hezbollah will quickly collapse. “Some die-hard supporters will maintain their allegiance to Hezbollah,” he is reported as saying, “but many others will no longer be prepared to support the movement if the payments stop.”  

One failing economy is attempting to support another while simultaneously trying to maintain the political status quo.  That is scarcely a sustainable situation.  If Iran’s deteriorating economic position results in Hezbollah losing power in Lebanon, this might provide the opportunity for Hariri to assemble his technocrat cabinet and institute the economic reforms necessary to pull the country back from the brink of disaster.

Neville Teller is Middle East correspondent for Eurasia Review. His latest book is: “Trump and the Holy Land:  2016-2020”. He blogs at www.a-mid-east-journal.blogspot.com.

He was made an MBE – The Most Excellent Order of the British Empire in 2006 “for services to broadcasting and to drama.”

Read more articles from Neville Teller