The Middle East is lately undergoing economic and political changes that imply the need to rethink Lebanon’s posture in this volatile geopolitical neighborhood. The two main impulses to consider are the expansion of the European Union and the recent and future American intentions for the region, and what the latter means for Lebanon. Both factors combine with recent improvements in Lebanon’s economic performance that brought upturns in not all but some important areas. Besides the much talked-about resurgence of tourism, the country’s export performance is to be named here. Despite regional factors of international business concern, such as the war raging for much of the year in Iraq and the third year of the intifada in Israel, Lebanon’s outbound trade thrived in 2003.
A report released by Lebanon’s ministry of industry in mid-July announced that the country’s industrial exports for 2003 increased by 28.2% compared to the previous year. The report calculated that the volume of industrial export at $1.087 billion in 2003, compared to $848 million in 2002, although it is worth noting that the country still has a considerable trade deficit (around $3 billion), and exports still need to be significantly boosted. The Lebanese economy has also benefited from the 9/11 events in the United States, as Arab and Gulf tourism has been diverted away from countries in Western Europe and North America into Lebanon, a country offering a host of advantages that are suitable to Arab tourists. Another significant benefit, which is likely to get substantially amplified in the years to come, is the withdrawal of around $300 billion of Saudi and Gulf investments from the US and some Western European countries, and their gradual re-allocation into Arab economies, including Lebanon and its banking sector.
But do the outside changes affecting the Middle East also indicate long-term opportunities for the battered Lebanese economy? With the EU now only a 20-minute flight on a Middle East Airlines jet from Beirut International Airport, and new business and trading possibilities in the offing, how would commerce and politics inter-mingle? And, more importantly, how would this all fit in with America’s overall strategy for Lebanon, assuming there is one in the first place? Much of that depends on how the US views Lebanon today, and what role Lebanon is intended to play in Washington’s overall plans in “bringing democracy to the greater Middle East.” In the very short term, it would appear that Lebanon may be too complicated, from a political standpoint, for the US to get too involved. Having been caught in the Iraqi quagmire, from which it is still trying to find an honorable exit, it is unlikely that the US would now want to get involved in Lebanon’s web of political intrigue. The presence of Syrian forces and the Hizbullah factor hardly makes Lebanon attractive to the US, at least until the presence of armed forces – armies and militias – are no longer an issue to contend with. Moreover, the significant interference of Syria in Lebanese domestic politics and in the assignment of local politicians into key positions and roles that are likely to have a crucial effect on the economy, is a discouraging factor for both the US military and businesses. It will be indeed, very difficult to remove inefficient individuals from their positions, in which they have had time to get deeply embedded in, or for US businesses to get past the bureaucracy and corruption hurdles created by the same individuals.
Looking farther down the road, however, the US just might have a more pronounced ambition in mind for Lebanon. Such new moves would require preparations in that Washington would first need to settle its affairs in Iraq before it could undertake any new initiatives elsewhere in the area. Second, it is a certainty that nothing would be tried until after the November presidential elections.
So what would likely be the policies of a post-election US administration concerning Lebanon? The answer to that question, of course, largely depends on who the next US president will be, and at present, any prediction on the election outcome would be unwise. Currently, Bush and Kerry are running neck-to-neck, give or take a percentage point.
In the event of a Bush victory, the re-elected president – who would not have to worry about another election campaign – may well decide to push for more “regime changes” in the region. Responding to shouts of “four more years” from supporters while on the campaign trail in July, Bush promised that if re-elected, he would strive “to make America safer,” and “finish what was started.”
Direct military interventions, however, are extremely remote possibilities given the way things turned out in Iraq. Secondly, a US military intervention in Lebanon is really unthinkable at this time, given that American troops would have to face both Syrian and Hizbullah forces.
This suggests that a re-elected Bush would try to bring about these changes through other means, such as supporting opposition movements in Iran, and, as a number of senators and House members are advocating, in Syria too, or call on the military assistance of its ally, Israel. How would all this translate for Lebanon? Any military action would initially send the economy into a tailspin. But if Lebanon can hold its nerve for what would be perceived as one final round of conflict, even under those conditions, the longer term outlook for the country’s businesses can only be good, assuming the area recovers relatively quickly. And although the implications of (what is denounced in the region as) forced US democratization by pressuring Middle Eastern countries into reforms with non-military means would most probably include a period of instability, Lebanon would be a beneficiary in business terms. Eventually, international corporations will relocate to Beirut, exploiting Lebanon’s relative cosmopolitanism to the full. However, in playing through all such scenarios, the geo-strategic planners in Washington should bear in mind what Lebanon’s business community had to acknowledge in the recent past: the realities of our time. The 1960s are forever gone and it would be highly unreasonable to expect Lebanon to become a US satellite in the region, especially that Lebanon needs to carry out significant internal political, social, and economic reforms before it is ready to become anybody’s satellite. Lebanon needs to play out the unique role it was destined to, that of the middleman between East and West. Any politician and strategist, whether based in Beirut or elsewhere, is well advised to capitalize on this Lebanese talent for adaptation. Lebanese ingenuity can facilitate business transactions between Europe, the US and the Arab world, of which it is an integral part. In the event of a Kerry victory, one could expect that American foreign policies would see relative inactivity for a few additional months while the new administration settles in. But it is doubtful that even with a change in the White House, the overall US Middle East policy would differ much, at least as far as Lebanon is concerned. The visible difference might possibly lie in the new administration’s view on how to deal with the war in Iraq. Kerry is likely to adopt a more universal approach in addressing the region’s problems and would engage the international community in a more active way. There may be a positive spin to this scenario, as it would involve the Europeans who tend to have a more realistic approach as well as a better understanding of the region. That would make the transition to peace somewhat more of a reality, speeding up Iraq’s receptiveness to business opportunities.
There is no doubt that a pacified Iraq, even if set in a still turbulent region, would be a major trading partner with Lebanon (as it was before the start of the Lebanese civil war in 1975). Iraq is practically a land-locked country. It’s only ports – Basra, Faw and Umm Qasr – are all situated on the narrow Shatt el Arab waterway, located at the very end of the Arabian Gulf, and are already over-burdened. Reaching those ports from Europe or North America requires ships to sail through the Suez Canal (and pay the required tolls), navigate around the Arabian Peninsula, sail through the Straits of Hormuz and then up the Gulf, adding several days to the journey. All this, of course, reduces millions of dollars from the profit margins of companies operating those vessels. Of late, much of the merchandize destined for Iraqi has transited through the Jordanian port of Aqaba. But again, reaching Aqaba necessitates the crossing of the Suez Canal. Beirut and other Lebanese ports are already being used for goods bound for Iraq. They are easily reachable from the Mediterranean, bypassing the need to sail through the Suez Canal, thus allowing huge savings in costs and time. From Lebanese ports, merchandise destined for Iraq can easily be transported by trucks, and in time, through re-built railways through Syria, allowing for faster delivery. Beirut is a good deal closer to Baghdad than Aqaba, which would further save on transportation costs. Iraq could also be the land of opportunities for Lebanese consultants, bankers and regulators, who could use their significant expertise to rebuild commercial banking, financial services, an industrial base, and laws and regulations, into a country that needs to rebuild its economy from scratch.
In the reverse sense, it is not inconceivable that oil from Iraq could be transported via pipelines to Lebanon using existing facilities in Tripoli and Sidon, from where oil tankers could then reach European and North American markets. Cheaper delivery costs translate into cheaper oil, and this is a good incentive for rehabilitating the Lebanese oil terminals. In realizing such a scenario, competition from the southern pipeline to Haifa would have to be faced. Thus, the government in Beirut would need to display strong negotiation skills in attracting a pipeline project. It would also have to prove its commitment in developing the needed technical capacities and enforcing safety and regulatory standards
But all this is pure speculation. While Lebanon may enjoy a seasonal uplift in its economic and industrial transactions, this country has to deal firsthand with the reality of a region that is not about to miraculously witness an instant political amelioration anytime in the immediate future. Iraq and the situation in the Palestinian territories will continue to keep the region in a precarious balance of uncertainty. No American politics will alter this. Neither Kerry, nor Bush will have a magic wand that can make the region’s problems go away.
Iraq faces a long uphill road until it can finally reach a workable degree of stability, fully reclaim its sovereignty and attain a political balance that will allow it to not only resume pre-1990 to 19991 levels of oil production of 3.5 million barrels per day (bpd), but also rebuild all other aspects of its regionally very significant economy. For this, the faster the new Iraqi government can assume real sovereignty, the better. The influx of fundamentalists that have flooded into the country following the collapse of Saddam Hussein’s regime in the spring of 2003, and that continue to fight the coalition forces and Prime Minister Iyad Allawi’s government is certainly not helping the business environment. The presence in Iraq of some 150,000 US and British troops, along with a smattering from other nations, will continue to attract militants intent on fighting the Americans and their allies.
One possible fix – at least until Iraqis are strong enough to look after their own security once again – would be for Arab countries to contribute troops to the “Coalition of the Willing,” but this remains a highly unlikely scenario. Just why would any Arab country want to be seen to assist the Bush administration, particularly at a time so close to the US November presidential elections? It’s not exactly as though Bush has many friends in the Arab world.
The dispatch of Arab troops to Iraq at this time would be perceived as a move in support of Bush, a president, who in the eyes of the majority of people in the Arab world is seen as acting counter to their interest in his unfaltering support of Israel and of Ariel Sharon’s hard-line policies. Remember, this is the president that called Sharon, “a man of peace.” With significant domestic decisions looming, the question for Lebanon is now whether the country’s natural business interests will prevail or be once again made victims of politicking. If continuing on current paths, Lebanese policies would leave the country standing behind in the dust of missed opportunities. Whatever the changes in American strategies and regional frameworks could be, this is the one certain danger, which Lebanon and its people face.
Claude Salhani is the foreign editor and a political analyst with United Press International in Washington, DC.
Nicolas Photiades is an independent financial adviser on financial, capital optimization and strategy.