Lebanon: On the Brink of War

The recent explosions of communication devices in Lebanon, which resulted in numerous casualties and injuries, threaten to escalate tensions in the Middle East. Hezbollah has already accused Israel of being behind the attacks, while Jerusalem has declared a “new era” of warfare. In the last few days, the death of Hezbollah leader Hassan Nasrallah in an Israeli strike and the subsequent Iranian bombing of Israel have contributed to an increasingly tense state of affairs. However, some experts argue that a full-scale war would be in neither side’s interest. What course of events is expected in the Middle East? And how could this impact businesses in the region and across the globe?

On September 17, Lebanon was shaken by a series of explosions caused by communication devices. According to the Lebanese Ministry of Health, about 3,000 people were injured and at least 37 lost their lives, including Mahdi Ammar, the son of a Hezbollah-affiliated Lebanese parliament member. The explosions, which affected a wide range of civilian and military equipment, occurred in two waves and immediately raised concerns about a potential escalation in the region.

According to Al Jazeera, the devices (primarily pagers and wireless communication tools) contained up to 20 grams of explosives and emitted a warning signal before exploding, causing victims to inadvertently bring them close to their faces, increasing the casualties. Hezbollah swiftly accused Israel of orchestrating the attack, calling it a “declaration of war”.

The tension between Hezbollah and Israel is not new. Their decades-long conflict has seen multiple escalations. The 2006 war between Hezbollah and Israel is perhaps the most notable, with both sides suffering significant casualties. Since then, there have been numerous skirmishes, but neither side has engaged in full-scale war.

As Reuters highlights, the roots of this animosity are deep and complex, involving a mix of political, religious, and territorial disputes that have defied resolution for years. The long history of these tensions has left both sides in a state of high alert, where even minor provocations have the potential to spiral into major conflict.

The recent explosions have heightened fears of another war between Hezbollah and Israel. Lebanon’s government quickly labeled the attacks as acts of Israeli aggression. Ziad Makari, Lebanon’s Minister of Information, stated that the incident was viewed as an attack that demanded a response. Hezbollah echoed this sentiment, with Nasrallah issuing threats of retaliation, stating that Israel had crossed “all red lines”.

Israel, while not explicitly taking responsibility, suggested through official statements that the attacks marked a “new era” in warfare. Walla News cited IDF sources indicating that the operation aimed to disrupt Hezbollah’s communication network and secure a tactical advantage. Former Israeli officials stated that this opportunity could not be missed, as it might prevent Hezbollah from gaining an upper hand in the event of broader hostilities.

Despite this, some international experts have warned against the risks of escalation. As U.S. Secretary of Defense Lloyd Austin noted, another war between Israel and Lebanon could be “devastating” for both countries. The Times of Israel reports that U.S. President Joe Biden has pushed for diplomacy, urging all sides to pursue peaceful resolutions.

The United Nations Security Council has also been engaged, with calls for an immediate ceasefire. A statement issued by UNSC members emphasized the need to protect civilians, citing international law, and urged all parties to avoid further civilian casualties. “Even one civilian casualty is one too many,” the statement noted, according to the UN’s official news channel.

In this volatile context, experts remain divided on what the future holds. Some analysts argue that neither Hezbollah nor Israel is truly interested in a prolonged war, as both would suffer significant losses. As noted by a report from The Guardian, both sides have strategic reasons to avoid a full-blown conflict, given their respective domestic concerns–Israel with its internal political struggles, and Hezbollah with the potential backlash from Lebanese citizens who have already suffered greatly. However, the cycle of retaliation and counter-retaliation makes it difficult to predict whether the situation can be contained.

The potential for a broader Middle East conflict remains a significant concern, as it presents a number of risks to the global economy.

Lebanon, already grappling with a severe economic crisis, would face catastrophic consequences if the conflict were to escalate further. The country’s financial infrastructure, devastated by the Beirut explosion in 2020, has not recovered, and further destabilisation could push Lebanon into complete economic collapse. Economists warn that a full-scale war could wipe out 25 percent of Lebanon’s already fragile GDP and lead to shortages of essential goods such as wheat and fuel.

The potential economic impact of a full-scale war would be devastating for Israel as well. Experts warn that the country would face substantial costs due to an increased military budget. The need for additional military supplies, the mobilisation of reserves, and extensive post-war reconstruction efforts would impose a heavy financial burden.

At the same time, domestic businesses, particularly those in conflict zones, would suffer severe disruptions. In northern Israel, large-scale evacuations would bring local economic activity to a complete standstill.

Moreover, the geopolitical and internal ramifications of a prolonged state of war should not be overlooked. Israel’s international standing would likely be further undermined, with increasing pressure from international institutions. Concerns over investment safety, especially in Israel’s crucial high-tech sector, would intensify, potentially leading to a decline in foreign direct investment.

However, the consequences for businesses extend beyond the region. According to ABC News, experts warn that any major conflict in the Middle East could lead to a spike in oil prices, which could rekindle inflation in the U.S. and other economies reliant on energy imports from the region. The Middle East remains one of the most critical regions for oil and gas production, and any disruption to supply chains, particularly in the Eastern Mediterranean, could have far-reaching consequences for global trade and energy security.

Global industries like technology, manufacturing, and retail could see delays in production and delivery due to supply chain disruptions. Multinational corporations with investments in the Middle East might face heightened operational risks, leading to increased insurance premiums and the need for contingency planning. Furthermore, market uncertainty could drive up costs, especially in sectors like construction and energy, where raw materials are often sourced from or shipped through the region.

As it stands, the Middle East is at a critical juncture. The potential for peace remains, but the window for diplomacy is narrowing with each passing day. While world leaders continue to push for a peaceful resolution, the reality on the ground is fraught with danger. As UN officials have warned, the consequences of further escalation could be “unimaginable”, and the time to act is now. With both sides heavily armed and entrenched in their positions, the next few weeks will be crucial in determining whether the region moves towards peace or war.