Lebanon’s Economic Hardship is Yet Another Arena for Gulf States’ Rivalry

Although there is a history of Gulf nations utilizing dollar diplomacy in order to gain influence in Lebanon, recent Qatari and Saudi pledges of economic assistance to Beirut are an indication that the Gulf crisis is overshadowing the GCC states’ foreign policies. Consequently, previously harmonized policies have been replaced by nations’ individual efforts to carve-out bilateral regional roles. Since the end of the Lebanese civil war 29 years ago, Beirut’s domestic politics were overshadowed by two axes, each of which continues to be spearheaded by either Iran or Saudi Arabia. However, both Tehran and Riyadh are watching the roles of new influencers among other Gulf States rise in Lebanon’s political arena. This has been made possible by Beirut’s increased need of economic aid, and the simultaneous challenging of Iran’s and Saudi Arabia’s influence as a result of international pressure, sanctions, or foreign policy miscalculations.

Current Events:

Last January Beirut hosted the Arab Economic and Social Summit, a meeting that witnessed low-level attendance, with the Lebanese President and the Emir of Qatar being the only Arab leaders present. During the visit, the Qatari leader pledged $500 million in financial support to Lebanon via the purchasing of government bonds. Later that week, reports from Lebanon speculated of possible deposits of up to $1 billion by the Qatari government into Lebanon’s central bank.[1] This constitutes the first major foreign investment in Lebanon from a Gulf state in nearly five years, and the first aid package dedicated to structural programs as opposed to prior contributions meant to ease the pressure on governmental institutions provided services to the Syrian refugees. Immediately after Qatar’s pledge, the Saudi finance minister announced in Davos that Riyadh is committed to continuing its support and investment in Lebanon.[2] Later in February, the Saudi government lifted a 15-month travel ban to Lebanon, an important decision with positive consequences for the Lebanese tourism sector given that Saudi tourists make-up 14% (the largest share) of tourists that visit Lebanon.[3] [4]

Leading up to the summit, Saudi Arabia’s influence was impacted by the results of Lebanon’s 2018 parliamentary elections, where for the first time since 2005 control of the legislature was won by allies of the Tehran and the Syrian regime.[5] Their victory was a signal of a decrease in KSA’s influence and a drop in the Riyadh-backed blocs’ popularity in Lebanon. Furthermore, last week’s formation of the Lebanese cabinet (shaped by Hezbollah’s conditions) is yet another indication of the weak position of Riyadh and its allies, and is an actualization of Tehran’s assertation that it will invest in the recent election’s results. This was immediately followed by the Iranian FM’s visit to Beirut last weekend and the subsequent announcement of Tehran’s willingness to provide arms and collaborate with the US-supplied Lebanese military.[6] His statement shows that Iran is willing to expand its proxy battles with Trump’s administration to include new areas in the Middle East. A few days before Zarif’s visit to Beirut, Hezbollah’s leader, Hassan Nasrallah said in an interview that he is willing to persuade Iran to provide the Lebanese army with an anti-air and missile system, a symbolic message as opposed to a meaningful change in the Lebanese army’s capabilities.[7] The aid is meant to stop Israeli air strikes on Iran’s Islamic Revolutionary Guard locations in Syria which are carried out from Lebanese airspace. Yet, both Tehran and Hezbollah know that the Lebanese army would not replace the US-made weapons and technology with an Iranian air defense system. If they were to do so the Lebanese state and army would drag Lebanon into the Israeli-Iranian tension, a rhetorical conflict that is gradually escalating into an armed one.

Are Saudi and Iranian Roles Retreating?

While it is indisputable that since the Syrian army’s withdrawal from Lebanon in 2005 Tehran and Riyadh have had the strongest influence over Lebanon’s major political parties, both states are now at risk of facing challenges to their sway in Beirut. The retreat of Saudi influence has resulted from foreign policy mistakes in Lebanon and decreases in aid due to resentment from the growing influence of Iran’s allies in Lebanon’s state apparatuses as evidenced by their control of six ministries in December 2016.[8] In the same year, pressed by Riyadh, the six Gulf Cooperation Council states have categorized Hezbollah as a terrorist group.[9] This has pushed Riyadh to significantly drop financial aid to Beirut and simultaneously blame its allies for Iran’s growing influence, culminating in the public humiliation of Riyadh’s main ally and Lebanon’s Prime Minister Saad Al-Hariri. The move delegitimized Hariri’s power and independence from Riyadh’s decision-making when he was forced to resign from his position on Saudi TV, linking his resignation to the increased role of Hezbollah in Lebanon.[10] The controversy over Saudi interference in Al-Hariri’s decision has blatantly weakened the position of the western-backed PM and pushed the French President Emanuel Macron (another ally to Hariri) to fly to Saudi Arabia and intervene in order to secure Hariri’s release.[11] This ordeal probably contributed to the loss of Hariri-controlled parliamentary seats. Six months after his forced resignation in Riyadh, Hariri lost a third of his supportive parliamentary seats in the 2018 parliamentary elections. The elections’ results gave Hezbollah and other allies to the Iranian and Syrian regimes parliamentary control against Saudi Arabia, European and US backed blocs, (including the Hariri bloc). Another factor contributing to the retreat of Saudi influence is the drop in Saudi’s financial aid to Lebanon, a consequence of the Kingdom’s budget being drained by high internal spending and new economic plans and reforms, not to mention the ongoing war in Yemen. Saudi Arabia that funded nearly 7% of Lebanon’s post-civil war reconstruction between 1992 and 2004 is now unable to continue the financial support required to sustain Lebanon’s mismanaged economy.[12] This has probably pushed the Lebanese government to look for and invite new donors and lenders to the country.

On the other hand, if Riyadh’s decreased influence was linked to miscalculated foreign policies, Iran’s possible drop in influence is likely the result of international pressure. U.S. foreign policy in the Middle East is now centered around fighting Iran’s influence in the region by countering and tightening the finances of Tehran’s proxy militias in Iraq, Syria, and Lebanon. This was made evident by the recent expansion of U.S. sanctions on Hezbollah’s financing channels, and increased worries in Washington related to the group’s control of Lebanon’s cabinet, specifically the Ministry of Health.[13] It is feared by Washington that the new Hezbollah-affiliated Minister of Health could help Tehran evade U.S. sanctions or channel money to the group through the ministry’s budget.[14] Therefore, this decline (however marginal) in Tehran’s and Riyadh’s influence in Lebanon created a chance for Doha to offer support to Lebanon’s decrepit economy.

Lebanon Economic Crisis

The results of these continuous political crises have drastically impacted Lebanon’s economy and made the country the world’s third most-indebted country with the national debt is as high as 150% of its national GDP.[15] [16] Although Lebanon had no internal turbulence during the Arab Spring, Beirut has been enormously affected by the Syrian crisis. Since the Syrian conflict erupted in 2011 more than one million Syrian refugees (25% of Lebanon’s total population) have fled to the country, straining Lebanon’s public service sector, employment opportunities, and environment. Additionally, Lebanon’s political crises have put the country’s economy in continuous need for aid and loans as it is structurally weak and expected to worsen as instability is expected to continue.[17]

Qatar’s Role

Twenty months after the eruption of the Gulf crisis, Doha seems to have managed weathering its economic and diplomatic implications. With no apparent resolution to the crisis on the horizon, Doha’s previous approach to cautiously advancing a regional role so as to not anger Riyadh is no longer a binding condition for Qatari diplomats, who can now merely reciprocate the animosity declared on Qatar by the Saudi-led blockade. Therefore, Lebanon’s economic crisis and the Qataris’ ability to step in was a relatively easy calculation for Qatar’s foreign policy priority to increase its role in Beirut. At a time when Saudi Arabia’s aid for Lebanon is at its lowest, Doha seems quite capable and willing to fill the economic vacuum. The economic aid is inspired by Doha’s changing foreign policy approach in which it has been building economic partnerships outside the Gulf region. While this is the first major financial pledge in eight years to Lebanon; before 2011, Qatar had major investments in the country. For instance, in addition to sponsoring Lebanese peace talks, Doha funded the reconstruction of south Lebanon following the 2006 Israeli war with Hezbollah.[18]

The drop in Saudi assistance to Lebanon might have given Hariri and other Saudi allies in Lebanon the freedom to look for other partners to stabilize their positions in Lebanon and connections in the region. While Qatar does not enjoy the same level of influence as Saudi Arabia, the small gas-rich country is well known by Lebanese parties as a donor and successful mediator. In 2008 Qatari diplomacy managed to resolve a political crisis in Lebanon that had lasted for more than three years and almost brought the country to the brink of another civil war. The Qataris positioned themselves as a neutral side at a time when most of the of the Arab states and regional powers were already involved in the Lebanese dispute. Qatar was the only state that sustained connections with all Lebanese parties with their different sects (Sunni, Maronite, Druze and Shiite). The Qatari intervention came after a May 7, 2008 attempt by Hezbollah to control Beirut when the Iran-backed militia attacked and seized Sunni neighborhoods. This crisis in Beirut was meant to challenge governmental appointments for the position of Airport Security Chief and the government’s removal of an airport telecommunications network that was used by Hezbollah.

Through the 2008 Doha Agreement, Qatar garnered a legacy and influence in Lebanon by designing a deal that ended three years of political unrest in just two weeks.[19] In the deal, the Lebanese opposition ended an 18-month-long strike, the parliament immediately elected a president, formed a national unity government, and all parties agreed on a new electoral law. Each of these agreements made through the Qatari mediation would have required weeks of negotiations and could have provoked clashes among the Lebanese parties. A key part of the success of striking the deal was  Doha’s ability to de-escalate tensions by ending the media warfare between the two sides. This aspect of Qatari assistance was bolstered by the cooperation of Saudi Arabia and Iran, which both had good relations with Doha at the time.[20]

Returning to the recent past and Lebanese-Qatari relations have continued to warm in the aftermath of the Gulf crisis when Doha became the first GCC nation to include Lebanon on its list of countries that would have no visa entry requirements to Qatar. Later, both governments announced the inauguration of the High Strategic Lebanese Qatari Committee, a meeting expected to occur annually. These developments proliferated alongside visits by high profile officials to Doha, including those by Lebanese President Michele Aoun in January 2017, as well as Foreign Minister Gibran Basil and then-Defense Minister Yaaqoob AlSarraf in 2018. A major indication of Qatar’s interest and increased influence in Beirut came through the purchase of Lebanese government bonds valued at $500 million. This investment was desperately needed by the Lebanese government in order to increase international trust in Lebanon’s economy at a time when delayed cabinet formation postponed several critical economic reforms and decreased foreign investor interest in the country. Now, Lebanon in the short-term remains in need of financial aid and loans, as the country ranks among the least competitive economies both globally and regionally. According to the World Bank, the country’s risk profile is sharply rising as a result of negative local and regional factors, in addition to global monetary conditions.[21]

While Qatar and Saudi Arabia have actively sought a role in Lebanon by increasing their influence among Lebanese political parties, policies of Bahrain and the United Arab Emirates have been in line with Saudi Arabia’s position of fighting Iran-backed political parties and armed factions, mainly Hezbollah. However, unlike Saudi Arabia, the UAE has not pursued an interventionist policy in Lebanon against Iran’s allies. Rather, the UAE has tried to limit the group’s size and influence among the Lebanese expatriate community in the UAE, a diaspora that constitutes one of the country’s largest. On several instances, Abu Dhabi has deported Lebanese expatriates, most of whom were Shiite. Although not explicitly proven, such a step appears to be an attempt to limit Hezbollah’s presence in the UAE.  Later, as the UAE and KSA spearheaded the war in Yemen, Abu Dhabi became furious over Hezbollah’s support for the Houthi rebels, the UAE’s primary adversary in Yemen. The war has led Emirati officials to become even more critical of the Lebanese government’s inability to curtail the increasing regional role of the Iran-backed group. This ire has been exacerbated in light of Hezbollah’s General Secretary acknowledging the group’s support for the Houthis. [22]

On the contrary, Oman and Kuwait limited their interaction to diplomatic channels with government officials. Kuwait’s role was mainly linked to reconstruction, development, and fiscal support since the end of the civil war in 1991. Between 1992 and 2004, Kuwait’s contributions amounted to 10% of the total reconstruction fund pledged to Lebanon.[23] After the 2006 war and during the Lebanese-Israeli conflicts, Lebanon received the highest number of Kuwaiti grants to foreign governments amounting to $369 million.[24] In the same year, Kuwait made a $500 million deposit in Lebanon’s Central Bank to support the Lira’s value.[25]

While the deal was needed for Lebanon’s economy and Doha’s regional role, it might not necessarily signal that Qatar is actively working to compete with KSA’s influence in Lebanon. Purchasing government bonds is a careful investment that may give Doha a fast-financial return, as opposed to previous Saudi aid to Beirut that came in the form of direct investment or nonrefundable aid. Therefore, the purchase could be a message that Qatar is ramping up its efforts to gain influence through financial investment and aid in Lebanon and other states facing economic problems in a post-2011 environment where many other GCC states have been boycotting Lebanon economically or pressuring it politically. Also, the investment in government bonds rather than in the private sector could be an easier decision for the Qataris since they understand that other European and Gulf states are reluctant to invest in Lebanon due to its political instability. This is evidenced by Saudi investments in Lebanon that have become a lost cause for Riyadh. Beirut has drained KSA’s financial aid since 1991 without resulting in any tangible benefit to the kingdom. Still, as it stands now, Qatar and KSA are the only two Arab Gulf states actively working to gain any influence in the Levant –Syria, Lebanon, and Gaza – at a time when the rest of the GCC states have decided to limit their interactions to a minimum.

References:

[1] Khraiche, D & Abelsky, P. “Qatari Gift Still a Mystery But Lebanese Search for Cash Goes On”. Bloomberg. January 20, 2019.

[2] “Saudis will support Lebanon ‘all the way’: finance minister”. Reuters. January 23, 2019.

[3] Toumi, Habib. “Saudi Arabia lifts ban on Lebanon travel”. Gulf News. February 14, 2019.

[4] http://www.databank.com.lb/docs/Tourism%20sector%2C%20Blominvest%2C%202018.pdf

[5] Perry, Tom. “Factbox: Hezbollah and allies gain sway in Lebanon parliament”. Reuters. May 22, 2018

[6] Karam, Zeina. “Iran FM extends support for new Lebanese government”. abc News. February 10, 2019

[7] Ahronheim, Anna. “Nasrallah: I am willing to ask Iran for anti-craft weapons for Lebanon”. Jerusalem Post. February 7, 2019

[8] “Declaration of New Cabinet: 30 Ministers, 5 Innovative Ministries”. NNA. December 18, 2016.

[9] Aboudi, Sami. “Gulf Arab states label Hezbollah a terrorist organization”. Reuters. March 2, 2016

[10] Ignatius, David. “Saudi Arabia forcibly detained Lebanon’s prime minister, sources say”. The Washington Post. November 10, 2017.

[11] “France’s Macron makes surprise Saudi visit amid Lebanon crisis”. BBC. November 10, 2017

[12] Dibeh, Ghassan. “Foreign Aid and Economic Development in Postwar Lebanon”. Research Gate. June 2007.

[13] Kajjo, Sirwan. “Iran-backed Hezbollah Sanctioned by US Senate”. VOA. October 22, 2018.

[14] Mroue, Bassam. “US warns Lebanon’s Hezbollah not to funnel ministry’s money”. Associated Press. February 1, 2019

[15] Khraiche, Dana. “Lebanon Debt on ‘Unsustainable Path’ as World Bank Cuts Forecast”. Bloomberg. October 4, 2018

[16] “Lebanon Government Debt”. Trading Economics. Retrieved on February 25, 2019 from: https://tradingeconomics.com/lebanon/government-debt

[17] “The World Bank In Lebanon”. The World Bank. October 11, 2018. Accessed on February 25, 2019.

[18] Slackman, Michael. “Ruined Towns Look to Beirut, Mostly in Vain”. The New York Times. Oct 1, 2006

[19] “Letter dated 22 May 2008 from the Permanent Observer of the League of Arab States to the United Nations addressed to the President of the Security Council”. Security Council Report. June 10, 2008. Accessed December 3, 2017.

[20] Ibrahim, Alia. “Despair to Dancing in Qatar.” The Washington Post. May 26, 2008.

[21] “Lebanon Economic Monitor”. The World Bank. Fall 2018

[22] Rose, Sunniva. “Hezbollah is flaunting its support for Yemen’s Houthis”. The National. September 16, 2018

[23] Dibeh, Ghassan. “Foreign Aid and Economic Development in Postwar Lebanon”. Research Gate. June 2007.

[24] “Highlights of Kuwait Fund Operations”. Kuwait Fund for Arab Economic Development. Accessed on February 25, 2019.

[25] Shihab-Eldin, Ahmed. “Lebanon’s Economy Thriving Thanks to Arab Neighbors and Conservative Capitalism”. The Huffington Post. January 25, 2009