Lebanon's economic free fall could get worse

Lebanon is at the center of a political spat in the Gulf region. Diplomatic tensions escalated on October 27, when Saudi Arabia summoned envoys due to comments by Lebanese Information Minister George Kordahi about the war in Yemen.

Kordahi, who is known to be close to the Iranian-backed Hezbollah militia, gave a television interview in August, two months before he was appointed minister. In the interview, which wasn't made public until October 25, he called the Yemen war "absurd" and "futile," and said the Iranian-backed Houthi rebels had not attacked anyone and had the right to defend themselves.

As a result, Saudi Arabia summoned its ambassador to Beirut, blocked all Lebanese imports, gave Lebanese ambassadors 48 hours to leave the kingdom and barred its citizens from traveling to Lebanon.

Hours later, the United Arab Emirates (UAE), Kuwait and Bahrain followed suit and expelled their Lebanese ambassadors. In addition, the Gulf Cooperation Council (GCC), including Qatar and Oman, condemned Kordahi's remarks.

It's not the first time that relations between Lebanon and the Gulf states have escalated. Ties between Lebanon and Saudi Arabia have had their share of ups and downs over the years, but the latest row may have severe political and economic consequences for Lebanon.

Experts see the latest Lebanon-Gulf conflict as a backlash of Saudi-Iranian regional rivalry.

Middle East analyst and commentator Ibrahim Al-Assil told DW that Saudi Arabia hoped its actions would increase the pressure on the Hezbollah militant group in Lebanon and Iran. "The crisis with the Gulf will further worsen the daily life of the Lebanese people. Saudi Arabia wants to show people in the region that the Iranian project will only lead to poverty and chaos," he said.

Exports, remittances are vital for Lebanon

As early as April, Saudi Arabia banned the import of Lebanese fruits and vegetables in a bid to combat drug trafficking. Although the ban severely hit the Lebanese agricultural sector, Lebanese companies tried to circumvent it by exporting to other countries.

However, Heiko Wimmen, project director at the International Crisis Group, told DW that the new Saudi ban on all Lebanese imports would accelerate Lebanon's economic free fall.

Lebanon is highly dependent on exports and diaspora remittances to generate revenue. The country exports a wide range of products to the Gulf states, including chemicals, machinery, precious metals and food.

Although exports have gone down over the past decade, the Saudi kingdom remained one of Lebanon's top export markets. Lebanese exports to Saudi Arabia fell from €518.3 million ($596.9 million) in 2011 to €128.2 million in 2020, according to Lebanese nonprofit Gherbal Initiative.

Over the past decade, remittances have averaged about 15%-20% of Lebanon's GDP annually — with about 43% coming from the Gulf states, according to the World Bank.

Sami Zoughaib, an economist and researcher at Beirut-based think tank The Policy Initiative, told DW the current diplomatic tensions should show Lebanon that it cannot rely solely on relations with other countries, and that it should speed up efforts to build a more resilient economy. "It is not the Gulf countries' responsibility to guarantee Lebanon's economic well-being," he said.

Every dollar counts

Karim Merhej, a researcher at The Public Source, a Beirut-based independent media organization, told DW that Lebanese expatriates had played a vital role in the Gulf countries' economies over the years. But in the last decade, their presence in the Gulf had declined, he argued.

"The Gulf states have been implementing policies to encourage their citizens to find employment in the private sector and reduce their reliance on migrant workers," Merhej said. "As a result, Lebanese workers lost their jobs in the Gulf, and remittances from the diaspora have been declining."

For cash-strapped Lebanon, every dollar counts , but the row could indirectly affect its recently resumed negotiations with the International Monetary Fund (IMF). Lebanon seeks financial support from the IMF in order to cope with its economic and financial crisis.

Wimmen said the current diplomatic crisis could become a political crisis in Lebanon. "This crisis may paralyze the cabinet's activities and may reduce its negotiating clout while sitting at the table with the IMF," he said.

Furthermore, internal calls for the resignation of Kordahi have polarized the political debate once more — a debate already heated up over the Beirut blast probe, which culminated in clashes in the city on October 14.

Saudi measures might backfire

Merhej told DW that Saudi Arabia's row with Lebanon aimed to target Hezbollah's reputation and encourage Lebanese citizens to back anti-Hezbollah parties such as the Lebanese Forces. Amid its rivalry with Iran, Saudi Arabia wants the Lebanese to view the Iranian-backed group as the principal source of their problems.

However, Saudi Arabia's disproportionately harsh punitive measures may have the opposite effect. It could strengthen support for Hezbollah and the latter's argument that Lebanon is under the siege of the Gulf states.

Middle East analyst Al-Assil told DW that Saudi Arabia had been trying to counterbalance Hezbollah for many years, but recently concluded that the cost outweighed the benefit.

"The best strategy for Saudi Arabia is to leave Lebanon to Iran to increase the economic and political burden on Iran," he said. At the same time, for Saudi Arabia, the war in Yemen is an issue of national security and it wants to make clear that it does not tolerate any such criticism from a government, he added.

While Lebanese President Michel Aoun has said diplomats are working on defusing the conflict with the Gulf states, Prime Minister Najib Mikati has hinted that Kordahi should resign to ease tensions. However, amid much praise from Hezbollah, Kordahi has insisted he will not step down.