'The worst is yet to come': Lebanon's manufacturers fret as Gulf crisis deepens

In July 2017, then Lebanese PM Saad Hariri stood next to US President Donald Trump in the Rose Garden and endured a few moments of awkwardness as Trump thanked him for being on “the front lines” of the fight against Hezbollah.

As Hariri’s grimace and foreign reporters indicated, he was far from the front lines in the fight against the powerful Shia militia. Instead, he depended on its support for his political survival.

"Lebanon is a victim of geopolitics – this issue will linger on"

Just a few months later, Hariri resigned from his position as PM while on a visit in Riyadh, a move he quickly rescinded upon his return to Beirut a few weeks later. The incident was largely seen as a somewhat ham-fisted attempt by Saudi Arabia to punish Saad for what it viewed as his inability to stand up to Hezbollah.

Today, Saudi Arabia is once again putting the squeeze on Lebanon’s government for its cosy relationship with Hezbollah. The ask – to remove Hezbollah from the Lebanese political equation – is perhaps even more difficult than it was four years ago when Hariri was standing in the Rose Garden.

A victim of geopolitics

Lebanon’s relations with four Gulf countries, most notably Saudi Arabia, have taken a sharp nosedive in the last two weeks.

The diplomatic crisis was sparked by an interview with Information Minister George Kordahi where he expressed sympathies with the Iranian-backed Houthi rebels in Yemen.

Since Kordahi’s comments, Saudi Arabia has recalled its ambassador and banned all Lebanese imports, with the UAE, Bahrain, and Kuwait undertaking similar measures. On 10 November, Kuwait announced it would no longer issue visas of any kind to Lebanese citizens.

The interview, filmed two months before Kordahi became minister, was not particularly inflammatory. It is well known that Kordahi is affiliated with Hezbollah, and other allies have issued stronger statements against Saudi Arabia’s role in the war in Yemen, with not nearly the same reaction from Riyadh.

As the Saudi Foreign Minister said in an interview with CNBC, Riyadh’s objections to the political status quo in Lebanon “is broader than just the comments of one minister”.

According to Hilal Khashan, a professor of political science at the American University of Beirut, the Saudi-led diplomatic rebuke of Beirut is less about Lebanon, and more about Iran.

“Lebanon is a victim of geopolitics – this issue will linger on,” Khashan told The New Arab.

Lebanese Prime Minister Najib Mikati has made a flurry of statements to try to appease the Saudis and their Gulf allies, with little result. He has all but called for Kordahi’s resignation, pleading for the minister to “follow his conscience” and “prioritize national interest”.

Kordahi, with Hezbollah’s backing, has refused to resign.

It is unclear if Kordahi’s comments would be enough to repair relations between Beirut and Riyadh, which have steadily declined since the 2017 diplomatic crisis kicked off.

Saudi Arabia has steadily disengaged from Lebanon since then, whether due to a lack of a partner on the ground capable of confronting Hezbollah or for lack of a perceived return on diplomatic investment.

“The question of Iran will be resolved in Vienna. Lebanon cannot resolve this problem,” Khashan said. He added that in his opinion, despite PM Mikati’s attempts to assuage Saudi Arabia, “the worst is yet to come.”

"The four Gulf states on the other end of the diplomatic spat with Lebanon – Saudi Arabia, the UAE, Kuwait, and Bahrain – represent a huge export market for Lebanon"

Economic repercussions

The four Gulf states on the other end of the diplomatic spat with Lebanon – Saudi Arabia, the UAE, Kuwait and Bahrain – represent a huge export market for Lebanon.

At their peak in the last decade, Lebanese exports to these four countries were over $1.1 billion, with Saudi Arabia and the UAE representing the vast majority of this trade. Almost $220 million worth of exports went to Saudi Arabia in 2020 alone, an amount which, if Saudi’s import ban to Lebanon continues, could disappear from Lebanon’s national account balance.

That money is sorely needed, as Lebanon is mired in an economic death spiral. Since Autumn 2019, its currency has lost over 90 percent of its value and poverty rates have skyrocketed to over 80 percent, according to the latest UN statistics.

The current row has Lebanese industry deeply worried.

“The industry is deeply affected because between 40 to 50 percent of our exports are to the Gulf,” Talal Hejazi, the General Manager of the Association of Lebanese Industrialists, told The New Arab.

“There had been a growth in exports to the Gulf. Last year and the year before were both growth [years], even with the Lebanese crisis,” Hejazi said.

According to Hejazi, the uncertainty surrounding the future of political relations between the two countries has forced Lebanese factories to slow down their production.

Noting that it took “years” to develop relationships with Gulf countries and businesses, he said that the only way forward is to solve the current political crisis.

"The industry is deeply affected because between 40 to 50 percent of our exports are to the Gulf"

Otherwise, Lebanese manufacturers would have to consider relocating to more stable locations, such as Cyprus or Turkey. Hejazi added that if manufacturers leave, their departures would likely be long term, due to the high up-front costs of moving machinery and setting up factories in another location.

The Association has been meeting with officials to try to hasten the resolution of the current diplomatic crisis, but with little results.

“Until now, we haven’t gotten any positive response from the government. They tell me they are working on it. But, working on what?” Hejazi said.

William Christou is The New Arab's Levantine correspondent, covering the politics of the Levant and the Mediterranean.

Follow him on Twitter: @will_christou