Over the past months, more deadly violence has been witnessed in Lebanon, including in its capital Beirut. Among the victims were a senior Hezbollah commander on 4 December and a former Sunni finance minister on 27 December. One month before, the embassy of Iran had been hit by a severe bomb attack. The attacks were inspired by sectarian rivalries and are increasingly spilling over from the conflict in neighbouring Syria, where Hezbollah is supporting the Syrian Assad regime, while Sunni Lebanese tend to support the (mostly Sunni) Syrian opposition. A few days after the 27 December bombing, Saudi Arabia pledged a USD 3 billion grant to the Lebanese Armed Forces (LAF).

Impact on country risk

The violence shows that security risks are further increasing. The Saudi support (which amounts to more than double the LAF’s annual budget) could strengthen the army’s capacity to contain violence, but it could also increase tensions with Hezbollah, which itself has an important military capacity. In the meantime, Lebanese politics enters 2014 increasingly paralyzed and even prone to a political vacuum: a new government still has to be formed after the fall of the government in March last year and parliamentary elections are postponed to end 2014. Moreover, it remains unclear who will succeed President Sleiman, whose term will expire in May. Despite recent signals of the possible formation of a new cabinet in the coming days, the recent violence is likely to complicate attempts to restore political stability, which is also affecting economic performance as discussed in the Risk Monthly of September. Therefore, the outlook for Lebanon’s political risk classifications remains negative.

Analyst: The Risk Management Team, r.cecchi@credendogroup.com