Analysis | The Houthis Are Destroying the Remains of Lebanon’s Economy

Lebanon relies almost exclusively on sea trade. The damage caused by the blockade of the Red Sea and the Suez Canal to the residents of Lebanon is estimated in the billions of dollars

The activities of the Houthi rebels in the Bab al-Mandab area in the Red Sea against Israeli maritime trade have been affecting the entire maritime trade passing through this sea, and sending signals to other countries in the region, besides Israel.

In addition to affecting maritime traffic passing through the Suez Canal and consequently impacting Egypt's source of income, The Houthi attacks also have negative repercussions on Lebanon and its economy.

This is primarily due to the decision of international shipping companies to change the navigation route of their vessels by circumventing the southern tip of Africa, avoiding the risk of passing through the Red Sea.

Naturally, this extends the distance traveled by these vessels and affects their timelines. As a result, it also increases the costs of maritime trade for the countries affected by these changes.

A disaster for exporters and farmers

Lebanon is one of the countries that relies on the Red Sea for its international trade, and as a result of the current situation, both its exports and imports have been adversely affected. This impact is mainly felt by trade to/from the Gulf countries (oil and gas) and China (various goods and products). Goods destined for export are accumulating in the Beirut Port, without reaching their intended destinations.

According to the Vice President of the Arab Federation of Shipping and the former President of the International Chamber of Navigation in Beirut, the decision of international shipping companies to choose a route that encircles Africa, due to the Houthi threat on ships, constitutes a disaster for Lebanese exporters, especially farmers.

According to him, the navigation in the new shipping route imposed on shipping companies, "lengthens the distances instead of shortening them, which increases the amounts of fuel consumed as a result and directly affects the overall cost of transportation. Additionally, insurance companies have raised insurance prices for ships passing through the Suez Canal due to increased risks of war in the region.

“Those who will bear these increased costs are not the shipping companies but rather the exporters and importers, and they will pass it on to the citizens. It is expected that soon the prices of goods and products in the global market, including the Lebanese market, will rise significantly."

It appears that the Houthi attacks in the Red Sea have caused a direct impact on Lebanese foreign trade, especially in agricultural exports which, according to the head of the Farmers and Peasants Association in Beqaa, has completely ceased more than three weeks ago. Ships that were supposed to arrive at the port of Beirut did not, leading to the accumulation of hundreds of tons of fruits and vegetables inside existing containers stored in the customs warehouses and refrigerators.

What exacerbates the crisis facing the farmers is that agricultural exports from Lebanon are currently limited to sea transport, especially due to difficulties in doing so overland, imposed by Saudi Arabia.

Saudi Arabia has prohibited the passage of Lebanese trucks carrying fruits and vegetables from Lebanon to Gulf countries overland since its customs officials seized more than 5.3 million Captagon pills hidden within a shipment of grenades in 2021.

"In such a situation, and with the extension of maritime transportation routes through South Africa, there is no longer any incentive, according to the head of the Farmers and Peasants Association in Beqaa, to export agricultural produce by sea. The cost has tripled.

Officials in the Lebanese government have stated that they are trying to find a solution to facilitate exports to the Gulf through Syria and Saudi Arabia.

The director of the port of Beirut estimates that if the situation in the Red Sea remains as it is today, it will lead to delays in the arrival of ships forced to bypass Africa to Lebanon, taking between seven to ten days. On the other hand, no issues have been reported regarding ships arriving from Europe via the Mediterranean Sea.

400 thousand tons of agricultural products

According to the head of the Farmers and Peasants Association in Beqaa, Lebanon exports about 400,000 tons of agricultural products annually, including citrus fruits, potatoes, and fruits, especially to Gulf countries, Qatar, Bahrain, Kuwait, the Emirates, and Saudi Arabia. He stressed that Export is an absolute necessity for farmers, as the Lebanese population cannot consume the quantity it produces. Additionally, it is intended to secure funding for farmers to enable them to continue production.

According to statistics from the Customs Administration, the export value of the agricultural industry and Lebanese agricultural products reached $756 million in 2022, compared to $986 million in 2021.

These developments raise concerns in Lebanon because if this situation continues for an extended period, its implications on the global supply chain may outweigh the impact of the war in Ukraine, as described by the head of the Food Importers Association in Lebanon.

According to him, Lebanon's imports are primarily based on China, "from which we import over $2.5 billion, or 14% of the annual import of food products.” There is also food import from India, Malaysia, Thailand, Vietnam, and Sri Lanka. Regarding export, he added that the quantities exported to the Far East and China are not large because our focus is on European and Gulf countries. Export to certain destinations in the Gulf, such as Dubai, may be affected, while there is no issue with exporting to Jeddah in the Red Sea.

Lebanese traders are not currently worried about the upcoming holiday season of the new year, but they are concerned about what may happen in the next holidays – Easter and the month of Ramadan, which begins in early March, as the merchandise is supposed to arrive in early February, and if shipping companies do not change their route, it may reach them after the required period.

"While there is currently a food supply, concerns revolve around the possibility of dealing with a supply shortage in the next phase," he said.

Lebanon's reliance on maritime transportation stems from its significantly lower cost compared to air transportation, for several reasons. The most significant of these is that the cost of maritime transportation is calculated per ton, while air transportation costs are calculated per kilogram. Moreover, a ship can carry a cargo capacity of up to 200,000 tons, whereas the maximum payload of an aircraft is only 450 tons.

$3.5 billions’ worth of export

According to Lebanese sources, the country’s exports in the past year amounted to $3.5 billion, including $747 million to the United Arab Emirates, which is Lebanon's primary foreign trade partner. Among the top ten countries that Lebanon exports to are Qatar, Iraq, Jordan, and South Korea.

Last year, Lebanon imported goods and products worth $19.1 billion, with $2.675 billion, or about 14% of the total import value, coming from China, considered its primary foreign trade partner. Lebanon focuses on importing oil and gas from Iraq.

During the first seven months of 2023, Lebanon's exports amounted to $1.6 billion, while the import value reached $9.8 billion, according to a report by Bank Audi, the largest bank in Lebanon, for the third quarter of 2023.

The Beirut Port is the main entry point for goods, followed by the Rafic Hariri International Airport near Beirut. After that, there's the port of Tripoli, located across from the Syrian border (Beirut-Damascus highway), the port of Sidon, followed by the border crossings of Arida (on the coastal road to Tartous and Latakia) and Abboudieh (on the road to Homs) at the northern border with Syria, and the port of Tyre.

The Port of Beirut

Regarding the activity at the Port of Beirut, statistics indicate that in the first nine months of the year, 1,016 ships visited the port.

In total, there were 478 cargo ships, and the port handled 3,949.4 million tons of goods and containers. A total of 621,781 containers passed through, including 403,132 for local consumption and 218,647 in transit to other destinations. Additionally, 42,164 new and used cars passed through the port.

A new financial shock

The ongoing situation in the Red Sea and the change in shipping routes for vessels, including circumventing the African continent, implies the accumulation of negative consequences on a global scale and for Lebanon, economically, industrially, and in terms of trade.

Lebanese citizens are likely to face a new economic shock, reflected in disruptions to the supply of goods and essential materials such as oil, gas, fuel, and food products, in addition to rising prices.

Therefore, they hope that the Houthis’ activities in the Red Sea, which have led to the current situation, will come to an end, either due to the American initiative to organize an international naval force to protect trade in the Red Sea and ensure freedom of navigation for all countries or through other means.

Lebanese sources believe that the salvation of the local agricultural sector during this time, given the developments in the Red Sea, should be achieved through the activation of overland transportation.

The Lebanese government is required to intervene in this matter and act with the Saudi authorities to allow Lebanese trucks to pass through their territory, as they have done in the past during the Syrian Civil War.

Lebanon understands that the activities of Iranian proxies like Hezbollah and the Houthis against Israel also have negative repercussions, affecting the local economy and agricultural population, both in the southern part of the country and in Beqaa.

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