Jad Yatim: How the Invasion of Ukraine is Shaping Lebanon’s Economic and Political Crisis
“if it rains in China, we must open our umbrellas in Lebanon”, this saying that Lebanese repeat since ages, can tell how this small – but relevant- country in the Middle East is largely affected almost with every crisis or deal on the regional or international level. The invasion of Ukraine is not an exception.
Though this can look a bit strange, but the Russian invasion against Ukraine came in a critical moment that not only is complicating the economic fall but can also lead to bitter choices between starvation or bankruptcy, not to exclude postponing the parliamentary elections supposed to take place in May 15, 2022.
Economic and Social Consequences
With less than 10$ billion in Lebanon’s central bank, the governor – who is considered as part of the political corrupted powers ruling the country- decided to use part of this reserve to lower the Lebanese Lira rate from about 30000 LL/USD to around 20000LL/USD and keep this rate till the elections.
By doing this, the central bank has to intervene on daily bases and sell dollars to the market to keep the new rate of 20000/USD. This will help the current government to ratify 2022 budget and will keep the market stable so no sharp rise in the essential goods and life services will happen before the elections. Popular anger will go lower, and this will make the political powers able to renew their victories and dominate the parliament.
The plan is awful, taking no national interest into consideration. But with Russian invasion to Ukraine, a raise in oil and wheat prices was totally not within the Central Bank calculations.
Lebanon export around 80% of its wheat from Ukraine, and this wheat is “soft” and thus of good quality that fits in making Lebanese bread. Above all it is cheap.
After the war, maritime lines of shipments are almost halted or the cost of shipments became higher. In addition to that, Ukraine, being under invasion and occupation, is not able to keep stable imports of wheat.
Other markets are open to provide Lebanon with wheat like US, but that wheat is much expensive and needs more time to reach the country. Off note, that because of the crisis Lebanon’s strategic reserve of wheat that must not be less than 3 months, can only cover 1 month now.
So if the war will not come to an end soon, the Lebanese government, either has to buy the wheat with high prices and thus losing quickly the reserve in central bank (same applies for the fuel), or Lebanese may face starvation and severe shortage of essential food supplies.
Obviously, in both cases – starvation or losing the reserve- the political ruling system will not be able to sustain popular good mood till elections, and may trigger more protests again. This can lead to postponing the parliamentary elections.
Hezbollah: Fighting for Russia… in Lebanon
In addition to internal politics, Russian invasion against Ukraine affected Lebanon’s plan to start a long plane to control and extract its maritime resources of oil and gas.
Just before the war, Hezbollah’s General Secretary Hassan Nasrallah announced in a televised speech that his part doesn’t recognize the existence of Israel and thus will not interfere in drawing the maritime border between Lebanon and Israel as a result of the initiative lead by US.
In fact that was one of the hilarious propaganda or pragmatism that Iran and Hezbollah play well to twist facts and play real politics when it comes to serving their interests.
That was a green light for the Lebanese government to go on. A possible deal to draw the maritime border so Lebanon will be able to start exploring and extracting its resources seemed within reach.
After the invasion, US and western countries imposed harsh sanctions against Russia, and Vienna talks that was also about reaching a happy end by signing a new nuclear deal with Iran was halted.
As a response, Hezbollah didn’t – as expected- send fighters to Ukraine, but decided to involve in the maritime border issue, and refused the ongoing initiative and indirect negotiation lead by Americans.
But Hezbollah harsh position from US is not expected to be transferred to action on the ground against US or European interest or presence in south Lebanon, UNIFIL on top of it.
First, Hezbollah’s can change the position if Vienna talks will lead to a deal. And second, Hezbollah will not go so far by bringing additional sanctions against its institutions and members.
Second, in such an economic crisis, UNIFIL that enjoys long stay in south Lebanon succeeded to build a social network with the people and turns to be part of their daily lives on many levels.
In such economic crisis, UNIFIL role will be more vital through the medical and development projects that its directly executing or funding. In addition to that, UNIFIL members are a source of “fresh dollar” (a Lebanese term that emerges after the crisis and means spending dollars directly in the market) to the shop owners and municipalities that are partners in UNIFIL projects.
Russian inroads in Lebanon
Another issue, just surfaced after these harsh sanctions: Rosneft deal with Lebanese ministry of Energy to build and control around 15 oil and gas tankers in Tripoli coastal city in north Lebanon to use it as reservoirs for regional oil and gas.
The contract that was signed few years ago is thought to be illegal, never ratified by the parliament or being approved by any government.
Moreover, the contract is classified and hidden even from parliament and government members. What is known from it, is due to efforts of some investigative journalists in Lebanon.
Though it was activated for years, just last December the steps for activating the contract was resumed and a pre-qualification bid was launched.
But after these harsh sanctions, it doesn’t seem that any entity will accept dealing with a Rosneft project that was “won” without any bid and without any official ratification from Lebanon.
Ukraine was the last thing that was expected to add to the Lebanese fragile situation.
Though the start of this war opened the doors for political and economic winds in Lebanon, but how consequences will be shaped and how far will this invasion impact Lebanon, is related to how this war will end… and when.