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Lebanon on the Brink: Failing the State As War Sirens Blare

As the fighting between Hezbollah and Israel worsens, it is central to understand Lebanon’s current political and economic context to produce meaningful proposals.

The ceasefire that concluded the last round of fighting between Israel and Lebanon back in 2006 has collapsed, with daily fighting and strikes on Lebanon’s southern border between Hezbollah and Israel. In the meantime, Lebanon’s caretaker cabinet, which resigned over a year ago, struggles to maintain any semblance of state legitimacy, as Hezbollah, the powerful militant non-state actor and the country’s strongest sectarian party, runs the show on the southern borders with Israel and decides the scope and nature of Lebanon’s involvement in the war. The Lebanese people hold their breath, knowing that the state is no longer functional in peacetime, let alone in a war. Consequently, the Lebanese frontline will prove to be a diplomatic challenge, and only a thorough understanding of the current Lebanese context can produce meaningful proposals.

Over the past three years, Lebanon has witnessed one of the largest destruction of wealth per capita in the world since 1850. Its real GDP contracted by at least 58 percent in two years and its currency lost at least 90 percent of its value. This is happening in tandem with a prolonged political paralysis which has left key public offices empty—including the presidency, cabinet, and head of the army—and state institutions dysfunctional, if not entirely out of service. The lion’s share of the losses has been incurred by the lower and middle classes, who lost the majority of their savings and the value of their wages. Those who have shares in crumbling banks have used a combination of threats, blackmailing, bribery, and lobbying to pass the bucket of the crisis onto society. Those who have shares in major trading companies have enjoyed the absence of the state to prey on whatever purchasing power is left for the middle classes through hoarding and selling expired products—including cancer medication—and monopolizing entire sectors, often in collaboration with political elites. This, naturally, accelerated migration trends and increased organized and petty crimes.

This is happening in tandem with a prolonged political paralysis which has left key public offices empty […] and state institutions dysfunctional, if not entirely out of service

Despite the emergence of new opposition elites, some of whom won seats in the parliament, there still is no viable alternative to Lebanon’s sectarian system, which allowed traditional sectarian elites to monopolize policymaking. But in this context, the political elite is not making policy. Warring parties which rule Lebanon, formally and informally, are dragging their feet, passing the blame and hoping, as always, that a new regional order would get Lebanon out of its misery through a combination of cash boost and a fresh power-sharing arrangement. In the meantime, sectarian parties continue to co-opt the role of the state, providing various quasi-state services and institutions to their sectarian subjects, funded by some of their mafia-like revenues.

Hezbollah in the driver’s seat

In response to Israel’s war on Gaza, Hezbollah began a measured involvement in the war—until further notice—on Lebanon’s southern borders with Israel. The Lebanese group, with region-wide branches, boasts around 100,000 dedicated and battle-hardened fighters equipped with tens of thousands of missiles, rockets, and armed drones. It relies on a complex international underground economic network to fund its operations, with one particularly crucial backer, Iran. 

Four months into the war, Hezbollah’s involvement is still cautious and measured. Its attacks may have breached rules of engagement which were established after the last war with Israel in 2006, but without forcing Israel—yet—to open another front. Both the scope and the intensity of the attacks reciprocated by Israel and Hezbollah remain limited to the most part. Hezbollah has mostly followed a strategy of attrition: It has used precise anti-tank guided missiles in dozens of daily attacks to break Israel’s surveillance infrastructure across the border, and forced tens of thousands of Israelis in the north out of their houses. Israel has responded to these attacks, in many instances using unlawful chemical weapons, killing mobilized Hezbollah members spotted from above, and, in other instances, directly targeting and killing journalists as well as civilians. With its war strategy focused on Gaza, it has yet to show any signs of a coherent response to Hezbollah. Yet, Netanyahu and other members of his cabinets are giving more attention to Lebanon in their statements, and are resorting to increasingly inflammatory threats

The terms of the last ceasefire between Lebanon and Israel, which lasted for almost two decades, have expired as a result of this round. All parties are aware that new terms have to be set, either through diplomatic means or through an intensification of the current round of fighting. Indeed, there seems to be a parallel diplomatic activity, led by France and the United States, to the one that is dealing with the war in Gaza, which hopes to achieve a new agreement on the Lebanese-Israeli front before a potential escalation. These proposals remain undercooked, and are grounded on the terms of the last ceasefire in 2006 which culminated in the UN Resolution 1701. These terms include a Hezbollah-free buffer zone in South Lebanon, which Hezbollah, as it stands, openly rejects.

War as opportunity

In the absence of any meaningful policymaking and crisis management, Lebanon’s traditional political rivals have been filling airtime by bickering about Hezbollah’s involvement in the war and by continuing to blame each other over the political and economic paralysis. But underneath the noise, there is anticipation by traditional sectarian political elites, who have lost much of their legitimacy as they failed to address the overlapping economic and political crises, that Hezbollah’s defining role in the war might eventually mean political and economic rewards (read spoils) for Lebanon. There is a belief among Lebanon’s political elites that a regional settlement that ends the war and builds the foundations of some degree of long-lasting peace could help end the country’s current stalemate. Usually, a peace settlement comes with financial and political incentives for warring parties. So, both Hezbollah’s allies and rivals in Lebanon are anticipating a prize for calm on the Lebanese front. Whether they publicly agree or disagree with Hezbollah’s activity, the hope among the elite is that this could be the last straw before Lebanon’s financial and political crises are taken care of by external actors whose objective would be a long-term ceasefire on the Lebanese-Israeli borders.

In reality, and in the absence of any meaningful political life, decentralization has become a euphemism for cartel-like governance of the country’s regions

Some anti-Hezbollah actors, particularly some of the traditional Christian parties, want the prize to include redrawing of the Lebanese regime in a manner that mainly separates their regions from Hezbollah’s. In that pursuit, they are advocating different versions of decentralization, and floating ideas of confederalism and federalism. Some are more serious about it than others. In reality, and in the absence of any meaningful political life, decentralization has become a euphemism for cartel-like governance of the country’s regions. With the central state’s inaction, local authority is up for grabs for those with guns and money. A dragging banking crisis meant that economic activity became increasingly in cash, and politically-backed trading companies for strategic imports—fuel, food, medication, and gas—became de facto monopolies in their respective sectarian strongholds, colluding with traditional political elites in these areas. 

This, in turn, is an attractive environment for money laundering. Those who want to launder their money seek expensive (and value-stable) assets, such as cars, yachts, luxury brands, and cigars. A report from Statista’s Consumer Insights on spending habits in 2022 found that the Lebanese spent the most on cigars per capita in the world at $36.70, over a dollar more than those living in the United States. A similar trend is emerging for yachts, luxury cars, luxury services, and fashion. It is no surprise that some of Italy’s most notorious mafiosi are showing up in Lebanon.

The distortions resulting from the way these crises have been handled are not just increasing the gap between the rich and the poor. The current war led to a sudden increase in consumption (and economic activity more broadly) in certain parts of the country where the war is not expected to reach, and where tens of thousands of residents in South Lebanon were displaced to. This is inflating regional variations. Consequently, this war’s concentrated impact on South Lebanon is already contributing to a gap in socio-economic realities between the south and the north. South Lebanon, particularly towns and villages within close proximity to the borders, has seen significant displacement, and consequently, economic stagnation. Tens of thousands of people moved out of their villages, either renting in other villages and cities, or staying with family members in other areas. 

The diaspora factor

If it were not for the investments, remittances, and seasonal visits of a disproportionately large diaspora, Lebanon’s economy would be in a significantly worse position. Millions of expats are young skilled workers who only found reasonably waged jobs overseas, and end up sending fresh dollars back home to their families to cover their household deficits. Some come back home in holiday seasons, contributing to the survival of segments of the country’s tourism sector.

This dynamic has existed for decades, but after the economy shrank drastically, diaspora’s contribution became more than half of the country’s GDP. As a result, every holiday season is tailored for, and priced for, the visiting diaspora, squeezing the local middle class even further in the process. The private sector keeps coming up with marketing and advertising campaigns to lure more expats, and sell both locals and diaspora the illusion of normalcy to encourage more consumption in what remains a heavily import-reliant economy. In this sense, seasonal tourism has contributed to the country’s readjustment to economic collapse, and its shift toward dollarization (at the expense of its local currency) and cash (at the expense of its banking sector). 

Bleak prospects

Those who lived through the Lebanese civil war between 1975 and 1990 reiterate that, despite the difficulties and the tragedies, there was a collective sense that when it all ends, there will be a better time. This is not the case today. The Lebanese people, including the youth, have no hope for a better future. None of their struggles today can be seen as meaningful in the long term, except maybe that of Hezbollah. Hezbollah and its large support base across the country continue to find meaning in their fight against Israel. For them, the losses they have incurred up to this day have materialized in the liberation of South Lebanon from Israel in 2000, and an unprecedented peace since 2006. 

With these multiple and overlapping crises, and the approaching war sirens, what is left of the Lebanese state is on the verge of disintegration

However, Hezbollah’s base, much like the rest of society, has been suffering from the country’s many crises, and, in various ways, are worried about how this round of fighting will unfold in the midst of all the other crises. Although their party, much like other sectarian parties, provides quasi-state services, it does not make up for the shrinking national economy and ailing state. 

With these multiple and overlapping crises, and the approaching war sirens, what is left of the Lebanese state is on the verge of disintegration. The ruling elites are banking on a regional plot twist which would include a solution for Lebanon; yet, they are standing against time, an increasingly desperate population, and unpredictable war outcomes. In the meantime, the country remains afloat thanks to its cash dollar activity, constantly topped up by its large diaspora. However, increasingly organized and consolidated criminal economic activity, some of it legalized under the pretense of mitigating the crises, uses this uncertainty to fortify the political and economic elites’ position. When the dust settles, there will be little left of the state. 

Ibrahim Halawi is a Lecturer in International Relations at Royal Holloway, University of London. His current research focuses on political opposition, social movements, and states in the Middle East.


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