Lebanon's economy in very 'dangerous spot' as it prepares for wider war, minister warns

Economy Minister Amin Salam says fuel reserves are low and current diesel supplies would only last for around a month

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Lebanon's cash-strapped economy is in a “very dangerous spot”, its Economy Minister told The National, as the government prepares for war, a siege and billions of dollars of destruction and losses.

“A full-scale war in Lebanon would, in my opinion as Minister of Economy, destroy what is left of this nation,” said Amin Salam.

Tension in the region has escalated over the past week following the killing of Hamas leader Ismail Haniyeh in Tehran, blamed on Israel, and the Israeli air strike on a southern suburb of Beirut that killed senior Hezbollah commander Fouad Shukr.

Hezbollah and Iran have promised retaliation against Israel for these attacks, raising fears that the multiple fronts fighting in parallel to the Gaza war could escalate into a full-blown regional conflict.

The Lebanese cabinet convened on Wednesday for an emergency meeting to assess the country's readiness for a full-scale escalation, focusing on food security, energy, healthcare and education.

Ministries are preparing an emergency plan, which would cost the country tens of millions of dollars to keep crucial sectors running in case of escalation, Mr Salam said.

However, the minister added, a full-scale war would cause destruction and losses, estimated in billions.

Low fuel reserves

The emergency plan, in case of a siege, appears to be lacking when it comes to fuel reserves.

During the 2006 war between Israel and Hezbollah, Israel imposed a land, sea and air blockade on Lebanon after destroying its transportation infrastructures.

Mr Salam said that, according to estimates, current diesel supplies would last for only a month to six weeks in a similar scenario.

“It is not enough,” he said.

Lebanon has become heavily reliant on diesel generators since an economic crisis in 2019 dealt the final blow to its failing electricity sector.

If the flow of diesel is disrupted, “supermarkets will not be able to run refrigerators, hospitals will not be able to function properly, and telecoms will be impacted … this would be a disaster,” he said.

Faced with this emergency, fuel providers have promised fast shipments to Lebanon within the month or the next few weeks, Mr Salam added.

While fuel shortages are a major concern, food security is not immediately threatened, with stocks possibly lasting three to four months in the markets.

Medical supplies are also not an immediate concern: several shipments of medical aid have arrived in Lebanon in recent days, including 32 tonnes of emergency supplies from the World Health Organisation received on Monday to prepare hospitals for potential war injuries.

While the government has managed to cover the cost of the emergency plan so far, Mr Salam says the country will “definitely and absolutely need the international community” if the situation escalates, because Lebanon's already dwindling foreign reserves will barely be sufficient to keep crucial sectors running.

10 months of war

The 10-month border conflict with Israel, which Hezbollah says it initiated in support of its ally Hamas, has already severely affected the economy.

Even without a full-scale war, Mr Salam says, the Lebanese economy will not be able to “carry the burden of another four or five or six months of the same situation”.

The 2024 budget included increased government revenue and high hopes that the tourism season would inject much-needed foreign currency into the economy and Mr Salam says they had “high expectations” a few months ago.

Expected growth margins for this year were between 1.5 and 2.5 per cent, he says.

“That didn't happen. The economy is going backwards instead.”

The border conflict and general instability have taken a toll on “two very important pillars of the economy”: agriculture and tourism.

Last week's escalation in tensions cut the summer season short for the diaspora, many of whom hold dual citizenship, as foreign embassies advised their nationals to return to their home countries.

“Most of the people are now gone,” Mr Salam says, stressing that the summer season would typically last until September.

Tourism revenue is expected to drop by 50 per cent compared to 2023, he estimates.

As for the agriculture sector, constant Israeli shelling has caused losses estimated between $2.5 billion and $4 billion due to the destruction of farmlands and soil contamination from phosphorus bombs – a toxic chemical used by Israel. Its use in south Lebanon has been condemned by rights groups.

“A war will be like the final blow that could push Lebanon to complete collapse,” Mr Salam warned.