US Caesar Act could bleed Lebanon for years to come

Beirut, Lebanon – Strike up a conversation about the general situation in Lebanon today and at some point, in an exasperated voice, the phrase will be uttered: “How much more can this country take?”

Lebanon has been beset by disruptions and bad decisions that have spawned a political crisis, widespread social unrest and plunged its economy deeper into crisis.

• UN envoy calls for Russia-US talks to help end Syrian war

• Syrian warring sides agree to Geneva constitution talks: UN envoy

• Has Russia grown tired of Syria’s Bashar al-Assad?

While many of Lebanon’s plagues are rooted in years of financial mismanagement and a culture of corruption among the country’s elites, some are beyond Beirut’s control – like the coronavirus pandemic and the war next door in Syria.

Now, a new set of wide-ranging United States sanctions threaten to add to Lebanon’s troubles. Analysts warn that the Caesar Syria Civilian Protection Act could foster greater political instability and conflict in Lebanon over the divisive issue of ties with Syria and Iran-backed Hezbollah’s outsized role in the country.

“I don’t think Lebanon will succeed in mitigating the impact of this legislation. It’s part of an increasing pressure campaign on Syria, Iran and its prime proxy in the region, Hezbollah,” Hilal Khashan, a professor of political studies at the American University of Beirut told Al Jazeera.

“The internal situation in Lebanon is heading towards some fragmentation, and I don’t think a full-blown conflict with Israel is out of the question, given growing US efforts to decisively encircle Iran and its allies.”

Noble goals

The Caesar Act was conceived as a tool to pressure and sanction those who aid the regime of Syrian President Bashar al-Assad – most notably Russia and Iran, the countries credited with turning the tide of Syria’s nine-year war in al-Assad’s favour.

The act is named after a Syrian military photographer who leaked some 55,000 pictures of people who were systematically tortured and killed by al-Assad’s regime, and aims to punish and pressure the regime, stop human rights abuses and push for a political transition.

The first round of sanctions announced this week target individuals within Syria including al-Assad, members of his family, officials and business people tied to the regime. It also targets any foreign person or entity that provides aid or material support to al-Assad’s government or works with specific Syrian industries like construction and the energy sector.

“The  Act seeks to deny the Assad regime the financial resources that his regime uses to fuel its campaign of violence and destruction that has killed hundreds of thousands of civilians,” a US State Department official who asked not to be identified told Al Jazeera. The Act “is meant to send a clear signal that no external actor should enter into business with or otherwise enrich such a regime”.

That targeting of foreign entities could scupper long-held hopes by Lebanese politicians and companies of participating in Syria’s lucrative reconstruction.

The administration of US President Donald Trump also promised to step up sanctions on Hezbollah and its affiliates in Lebanon, part of a so-called “maximum pressure” campaign aimed at Iran.

Strong informal economic ties

Lebanon and Syria enjoy a long history of cross-border trade. While the volume of formal trade has decreased as political divides over the Assad regime have frozen official relations between the two countries, informal commerce has flourished.

The value of Lebanon’s overall exports in the first half of 2019 was $1.73bn, with Syria accounting for less than 7 percent of that – or $115m. This places Syria behind Switzerland, the United Arab Emirates and Saudi Arabia, according to BLOMINVEST, the research arm of one of Lebanon’s leading banks.

Syria does not even crack the top 10 countries for Lebanese imports. But official trade figures obscure far deeper informal transactions.

The two countries have a long history of smuggling through official border crossings as well as dozens of clandestine crossings that dot their 400km (248-mile) border.

Sami Nader, director of the Levant Institute for Strategic Studies, told Al Jazeera that by making formal trade more difficult, the US sanctions will drive commerce further underground and turbo-charge the smuggling of fuel, wheat and other basic goods.

Moreover, since those goods are subsidised, ie purchased by the Lebanese government with foreign currency and sold at a discount to the Lebanese people – an increase in smuggling will further deplete Lebanon’s already squeezed US dollar supply. Lebanon’s central bank reserves are estimated to be around $20bn and are being rationed mostly for imports of basic goods.

“I’m worried about how the situation in Syria will lead to bleeding the Lebanese foreign-currency reserves slowly through the smuggling of subsidised goods and increased demand for our few remaining dollars,” Nader said.

Demand for US dollars in Syria and Lebanon increased sharply as people sought to hoard greenbacks as the deadline neared for Ceaser Act sanctions to take effect, Nader said. The rush on US dollars saw the value of both the Syrian and Lebanese currencies plunge sharply on parallel and black markets in recent weeks.

When asked by Al Jazeera whether Washington is prepared to mitigate the unintended fallout on Lebanon of Ceaser Act sanctions, the senior State Department official responded that the US remained a “steadfast partner of the Lebanese People,”and had contributed $750m in economic development, humanitarian aid and security assistance in 2019 alone.

Lebanon’s defence, foreign and information ministers, and the head of the parliamentary foreign affairs committee did not respond to Al Jazeera’s requests for comment.

No Energy? No problem

Lebanon’s single consistent official transaction with the Syrian state has been the purchase of power, up to 250 megawatts in recent years according to a source at state-run power company Electricite du Liban.

But the source told Al Jazeera that Lebanon was not currently purchasing power from Syria and had not been “for some time now,” though they could not give an exact date.

This signals that Lebanon should be relatively insulated from sanctions should they affect power purchases from Damascus.

Lebanon only produces around 2000 megawatts of power but has a peak summer demand in excess of 3500 – a gap that was previously bridged in part by energy from Syria, but mostly by hundreds of privately-run diesel generators.

Political pressure to turn “east”

Aside from its potential economic effects, the Caesar Act could also fuel tensions in Lebanon’s fractious political landscape that is split between Hezbollah and its allies – who favour strong ties with Syria – and those who vehemently oppose ties with al-Assad’s regime, such as former Prime Minister Saad Hariri’s Future Movement.

In a speech on Wednesday night, Hezbollah leader Hassan Nasrallah said the Caesar Act aimed to “starve” people in both Syria and Lebanon, and that Lebanon should turn from the US and Europe and look east to Iran and China as sources of potential aid.

The US was looking to shut down “all the possibilities in front of you as people to live a dignified life and secure job opportunities and create industry and sell your industrial products and agriculture and to make a productive economy, so you go hungry,” Nasrallah said.

But Nader believes the Act will make the argument for normalising ties with Damascus much less palpable.

“This was a hard sell before and now it’s really not politically feasible,” he said. “I mean just imagine the weight of the sanctions that would come to bear.”