Middle East in Focus
Pressure on Lebanese leaders by international partners to form a government and to implement urgent reforms comes as the country’s economy continues its death spiral. The worsening economic conditions and the ongoing devaluation of the country’s currency is also having an adverse effect on thousands of youth studying abroad. Amid such dire circumstances, some have turned their attention to the development of Lebanon’s natural resources. However, given the uncertainty surrounding Lebanon’s maritime borders with Israel and Syria, such projects are still far from certain at least in the short to medium term. Meanwhile, domestic instability has made Lebanon vulnerable to infringements on its sovereignty, with Israel using the country’s airspace to carry out attacks in Syria.
Writing for the Daily Sabah, Ferhat Tutkal suggests that the downturn in Lebanon’s economic and political fortunes is due to multiple factors and unlikely to end anytime soon: “The absence of state authority, an economic crisis, corruption, hunger, blackouts and inadequate inoculation are only a few issues when you consider the current situation in Lebanon. According to most people, Lebanon is facing its worst crisis since the civil war in the country that spanned from 1975 to 1990, and the situation is getting worse.... The corruption, clientelism, the COVID-19 outbreak, the devastating Beirut explosion, the resignation of Prime Minister Hassan Diab’s government and the escalated economic crisis have pushed Lebanon amid national unrest.... There has also been a deadlock in the government since August 2020. Each unsuccessful trial for forming a new government has escalated the tension and instability. People's patience is diminishing daily with the accumulated burdens of the economic crisis and national disasters.”
The instability and unpredictability in the currency markets, according to a report by Asharq Al-Awsat, has had a disproportionate impact on the thousands of Lebanese studying abroad: “[a]s Lebanese banks forbid depositors from transferring their own money abroad.... One student activist said parents had also sold cars and gold jewelry to help their children. Many pin blame for Lebanon's worst financial crisis since the 1975-1990 civil war on political mismanagement and corruption. As the country's foreign reserves plummet, and amid reports of mass capital flight despite currency controls since 2019, they accuse the ruling class of having plundered their savings. A law passed last year is supposed to allow parents to access $10,000 per student enrolled abroad in 2019 at the much cheaper official exchange rate.”
With little faith left in the ability of the fractious Lebanese political establishment to bring the current stalemate to an end, a letter published last week by The Arab Weekly and signed by a number of Lebanese public figures and activists calls on the international community and in particular French president Emmanual Macron to “freeze suspect assets held by Lebanese officials in France to break a “political-economic mafia” that has plunged Lebanon into crisis and misery, an open letter said Tuesday.... Analysts have said that sanctions such as asset freezes could be the most effective lever for Paris to pressure Beirut, even if France has so far not explicitly indicated it is ready for such a measure.... It argued that a ‘political-economic mafia is responsible for the misery, hunger and insecurity from which more and more Lebanese suffer’.... It was signed by lawyers, doctors, journalists and activists, including prominent political scientist Karim Emile Bitar, former Lebanese culture minister and UN Libya envoy Ghassan Salame, and former MP and TV host Paula Yacoubian.”
Looking to map out a possible local solution to Lebanon’s economic and financial crisis, Dania Koleilat Khatib suggests in a recent op-ed for Arab News tapping into the country’s underwater gas reserves. This might be enough to “save Lebanon from bankruptcy…. Refinancing Lebanon’s debt is necessary for the country to regain the confidence of its people and of the international community.... Even if it takes seven years to start extracting gas, the fact there are proven reserves would mean Lebanon could refinance its government bonds and raise capital, allowing it to return people’s savings.... Futures, forwards and call- and put-options are financial instruments whereby parties enter into a contract to buy or sell a certain commodity at a certain price on a certain date. The key is to have a clear estimate of the amount of reserves Lebanon has, in order to know the derivatives that will be most appropriate to use. This can bring in immediate funds for the state, either by generating cash from the sale of future gas production or by hedging a debt instrument such as gas-linked financing.”
The National’s Elias Sakr notes that the issue of gas exploration has gained greater urgency in light of a recently concluded offshore oil exploration and extraction agreement between Russia and Syria which may affect Lebanon’s rights in the Mediterranean: “The Lebanese Foreign Ministry is preparing a road map for the country to engage in negotiations with Syria over the demarcation of maritime borders.... The official recommendation will be made once the ministry finalizes its review of an agreement under which Damascus recently awarded a Russian company the right to offshore oil and gas exploration in areas that overlap with Lebanon’s exclusive economic zone.... The ratification of the agreement sparked concerns [about] another maritime border crisis after Lebanon’s indirect negotiations with Israel under US and UN supervision stumbled in late 2020. The negotiations came to a standstill after Lebanon demanded an additional area of 1,430 square kilometres that overlaps with part of the Karish natural gas field off Israel’s coast.”
However, the contested nature of the maritime borders are not the only concerns for the Lebanese caretaker government, with the Ministry of Foreign Affairs condemning Israeli strikes against Syria, which it considers a breach of international law and Lebanon’s sovereignty: “While denouncing any attack on the sovereignty of brotherly Syria, and refusing to use the Lebanese airspace to target it, the Ministry expresses its full solidarity with Syria in the face of the repeated attacks carried out by the ‘Israeli enemy,’ the statement read, calling upon the international community to ‘intervene to stop the repeated Israeli attacks on the sovereignty of Lebanon, which constitutes a clear violation of international law, the Charter of the United Nations, and resolutions of international legitimacy’.”