Govt formation efforts continued without breakthrough as economic crisis deepened, while hopes persisted of deal to resolve maritime dispute with Israel. Efforts to form govt following 15 May parliamentary elections made no progress. PM Mikati and President Aoun 17 Aug held consultative meetings after discontinuing such discussions after Mikati 29 June proposed cabinet lineup, citing lack of progress; progress has reportedly been hampered by disagreement on allocation of various ministries to different sectarian communities. As obstacles continue to beset legislated reforms required to unlock International Monetary Fund (IMF) financial bailout package, economic crisis continued to deepen. After intermittent bread shortages triggered fights at bakeries nationwide in mid-to-late July, civil servants during month conducted open-ended strikes for weeks, protesting their heavily devalued wages, which has brought most state institutions to standstill. In mid-month, pressure on Lebanese lira increased once more, with currency weakening from 31,000 to one U.S.-dollar on 10 Aug to 34,000 on 20 Aug. European vessel 6 Aug rescued over 75 Lebanese citizens near Turkish coast from sinking boat, on which they had been trying to reach Europe. Amid rising tensions between Israel and Hizbollah over maritime dispute, hopes continued during month of resolution after U.S. mediator Amos Hochstein late July met with Aoun, Mikati, and House Speaker Nabih Berri, as well as Israeli leaders. Govt reportedly offered to back down from its expanded claim (known as “line 29”), thus renouncing any claim to Karish gas field, in return for solution that adopts “line 23” (which places demarcation line further north) but awards Lebanon additional 80km² that includes Qana prospect – gas deposit of unproven worth; Israel reportedly expressed willingness to accommodate proposal, subject to receiving compensation for ceding 80km² pocket. Despite reported progress, Hizbollah chief Hassan Nasrallah 19 Aug publicly accused Hochstein of wasting time, warning that “escalation will be inevitable” if negotiations do not conclude promptly and allow Lebanon to begin exploring its offshore natural gas reserves.

Tensions rose between Hizbollah and Israel over maritime border dispute, while PM Mikati and President Aoun haggled over cabinet formation. Following arrival early June of floating production, storage and offloading facility operated by London-based company Energean in preparation to extract gas from Karish offshore natural gas field some 90km off Lebanon’s and Israel’s coast, Shiite armed group Hizbollah 2 July launched three unarmed drones toward Karish; Israeli army intercepted all three drones. Israeli Army 6 July claimed to have shot down another Hizbollah drone en route to Israel’s maritime areas. Israeli Defence Minister Gantz 7 July said Hizbollah’s threats were putting Lebanon at risk. Israel 11 July submitted official complaint to UN Security Council about Hizbollah’s drone launches, blaming Hizbollah Secretary General Hassan Nasrallah for continuing to threaten and provoke Israel. Nasrallah 13 July vowed that Hizbollah would prevent gas exploitation by Israel even “beyond Karish” if Lebanon is prevented from exploiting its own maritime resources; Nasrallah described war with Israel over maritime boundaries as more “respectable option” than submitting to U.S., which it accuses of threatening international companies with sanctions to deter them from exploring for gas in Lebanese waters. Washington’s envoy Amos Hochstein 31 July visited Beirut to push for diplomatic solution between govt and Israel. Following President Aoun’s decision last month (with parliamentary support) to charge caretaker PM Najib Mikati to form next govt, Mikati and Aoun remained in discussions about potential cabinet formation, reportedly disagreeing over allocation of various ministries to different sectarian communities; observers during month raised prospect of no new govt being formed before presidential elections that are to be held within final two months of Aoun’s term, which ends on 31 Oct. Parliament Speaker Nabih Berri 29 July said “miracle” was required for govt to be formed soon and next day asserted: “I will not call for a presidential election session until after the reform laws required by the [International Monetary Fund] have been adopted”.

President Aoun invited PM Mikati to form next govt, while tensions rose with Israel over disputed maritime border. President Aoun 23 June tasked incumbent PM Najib Mikati to form new govt after Mikati secured support of 54 out of 128 members of parliament – lowest level of support for any PM-designate since end of civil war in 1990; Mikati will likely face challenges to form govt that can rely on sufficiently strong parliamentary support to move forward with substantial reform, while most observers expect that no new govt can be formed before compromise is found over successor of Aoun, whose term expires on 31 Oct. Meanwhile, floating production storage and offloading facility operated by energy company Energean 5 June arrived at position near maritime border between Israel and Lebanon to prepare commercial extraction scheduled for Sept 2022 of gas from Karish gas field, which company acquired in 2016 with authorisation of Israeli govt; field is located some 90km off both countries’ coastline and has been area of dispute between govts. In response, Hizbollah Sec Gen Hassan Nasrallah 9 June called upon all Lebanese political forces to unite in defence of country’s maritime resources, warned Energean against extraction activities and threatened group may take matter into its own hands. At invitation of govt, U.S. mediator Amos Hochstein 13 June arrived in capital Beirut seeking compromise to dispute following previous failed attempts this year; uncertainty persists around whether govt will adhere to official 2010 position of maritime border known as “line 23” or adopt expanded claim presented in 2020 known as “line 29” that claims part of Karish field. 13 MPs elected last month on platforms of opposition to established parties 16 June voiced support for “line 29”; despite heated public debate and many casting support of “line 29” as patriotic duty, Aoun resisted signing decree to officially modify govt’s 2010 position. Govt, UN and over 100 humanitarian partners 20 June announced $3.2bn appeal for 2022 Lebanon Crisis Response Plan aimed at providing support for 1.5mn Lebanese, 1.5mn displaced Syrians and more than 209,000 Palestinian refugees.

Parliamentary elections resulted in no clear winner as reformists expanded presence and Hizbollah and its allies lost majority, while currency crisis continued to jeopardise critical imports. New political groups hailing from civil society and 2019 protest movement made significant inroads in parliamentary elections held 15 May, totalling 13 seats (up from one seat previously); Hizbollah and its allies lost parliamentary majority despite retaining all 27 seats reserved for Shiite MPs; Lebanese Forces party became single largest in parliament, stripping title from main Christian rival, Free Patriotic Movement. Election day saw several violent incidents. Notably, supporters of Lebanese Forces and Hizbollah-Amal movement allegedly clashed in Kfarhouna, south Lebanon. Early signs of political jostling that could complicate govt-formation efforts emerged, raising risk of violence between opposing camps. Lebanese Forces leader Samir Geagea 15 May suggested his party would not accept re-appointment of Amal Movement head Nabih Berri as parliamentary speaker, view echoed by other key figures opposed to Hizbollah and allies; in response, head of Hizbollah’s parliamentary group Mohammad Raad evoked spectre of “civil war” if opposing political forces fail to approve consensus govt. Striking more conciliatory tone, Hizbollah leader Hassan Nasrallah 18 May called on rival blocs to compromise. In first session since vote, parliament 31 May re-elected Berri as speaker. Meanwhile, extended queues 18 May emerged at gas stations due to fuel shortages allegedly caused by delayed payments in foreign currency to importers. Govt 18 May temporarily shut down Deir Ammar power plant, key facility for state-provided electricity, due to lack of available fuel oil. Industry leaders 18 May warned country faces another bread crisis, as flour mills and bakeries suffer from shortages of imported wheat due to lack of foreign exchange; World Bank 6 May approved emergency loan of $150mn to finance immediate wheat imports. Central Bank 18 May extended decree authorising Sayrafa (“Exchange”) Platform, through which Central Bank sells U.S. dollars some 10-15% below market rate to counter Lebanese lira’s depreciation, until end of July 2022; currency’s value sharply fell following polls, from around 27,000 to 31,000 on 19 May, and to all-time low of 35,600 by 26 May.

Grain shortage triggered bread crisis, govt struck preliminary deal with International Monetary Fund (IMF), and ambassadors of Gulf countries returned after Oct 2021 diplomatic spat. Amid rising global commodity prices, country mid-month experienced dramatic grain shortage triggered by Central Bank refusal to continue previous policy of providing importers with U.S. dollars at highly subsidised exchange rate; Central Bank reportedly requested govt to sign formal loan agreement that would guarantee repayment of any amount disbursed for this purpose. Govt 12 April decided grain subsidies for importers would be covered by funds govt obtained by selling so-called “Special Drawing Rights”, which it received from IMF in Sept 2021. Lebanese lira continued to decline in value, trading at around 25,000 to U.S. dollar by mid-month; reports mid-month indicated long queues to get bread across country as many bakeries were forced to shut down. Govt and IMF 7 April signed “Staff Level Agreement” for institution to provide $3bn over period of four years; deal comes with stringent conditions and seen as trial that could lead to release of additional funding, particularly some $11bn pledged at 2018 donor conference; observers during month expressed concern about deal being used by govt as electoral ploy ahead of polls in May. Following diplomatic dispute that surfaced in Oct 2021 after then-Information Minister Georges Kordahi made critical comments about Saudi Arabia’s role in Yemen’s war – leading some Gulf countries to suspend diplomatic ties – Saudi Arabia, Kuwait and internationally recognised govt of Yemen 7 April returned ambassadors to capital Beirut. Boat licensed for 12 passengers carrying at least 60 irregular migrants that was headed to Italy 23 April capsized off coast near Tripoli city after attempted interception by Lebanese Navy; total number of dead unknown while 45 were rescued; passengers accused Navy of ramming vessel, while Navy blamed person steering vessel. Israeli tanks 25 April fired into southern Lebanon in response to rocket fired into northern Israel same day.

War in Ukraine exacerbated economic crisis, while candidates registered for May election. Lebanese lira mid-March again dropped some 20% in value, likely driven by spiking oil prices generated by war in Ukraine, as Lebanon imports all of its energy needs and remains exposed to market volatility; devaluation came despite ongoing Central Bank scheme to support exchange rate of Lebanese lira by providing banks with U.S. dollars at price significantly below market rate, which is rapidly depleting foreign exchange reserves. Rising food prices also increased pressure on govt’s room to address economic crisis, and put further strain on fragile social cohesion. As country imports more than 80% of its grain from Ukraine, skyrocketing prices during month fuelled concerns that govt may struggle to continue subsidies for grain, which are critical to prevent public unrest; bread has become increasingly central for food security of rising number of Lebanese impoverished by enduring economic crisis. Judge Ghada Aoun 21 March charged Central Bank Governor Riad Salameh with illegal enrichment and money laundering, after ordering arrest of his brother and freezing assets of several banks; banking association same day announced two-day bank closure to protest decisions. EU 28 March announced assets totalling some $130mn belonging to Salameh were seized in France, Germany and Luxembourg. International Monetary Fund 2 March reportedly warned Lebanese leaders that demanded reforms necessary to unlock financial support would have to be real and “not only on paper”; Deputy PM Saadeh Shami 9 March warned that hole in financial system, currently estimated at $69bn, will continue to grow. Meanwhile, preparations continued for elections scheduled for 15 May; 1,043 candidates, including 155 women, registered candidacies by 15 March deadline. Hizbollah Sec Gen Hassan Nasrallah in televised speech 18 March categorically denied Ukrainian Ministry of Defence’s assertions, made previous day, that Hizbollah fighters were supporting Russian military operations in Ukraine, saying: “These are lies that have no basis in truth.” Judge 24 March announced he had charged Lebanese Forces party leader Samir Geagea in relation to deadly clashes in capital Beirut in Oct 2021.

Govt held talks with International Monetary Fund (IMF), political infighting continued among political elite, and tensions surfaced between Hizbollah and Israel. Govt and Central Bank representatives 11 Feb concluded talks with IMF, which said “progress was made in agreeing on these necessary reform areas” but “more work is needed to translate them into concrete policies”, likely indicating that there is long way to go before deal is concluded; meanwhile, Central Bank continued attempts to stabilise exchange rate of Lebanese lira by injecting hundreds of millions of U.S. dollars into exchange market, further depleting country’s reserves. On political front, judge considered close to President Aoun 15 Feb requested Central Bank Governor Riyadh Salameh be brought in for questioning in investigation over alleged fraud; in sign of divisions among branches of security sector, Internal Security Forces (thought to be loyal to former PM Saad Hariri) reportedly prevented State Security (headed by Aoun’s ally) officers from entering residency where Salameh was present, raising spectre of clashes between branches owing to tensions between political leaders. After Kuwaiti FM Ahmad Nasser al-Mohammad al-Sabah late Jan transmitted list of 12 demands from Gulf countries to restore relations between govt and Gulf, which inter alia reportedly called for Hizbollah’s disarmament, Hizbollah 15 Feb hosted public event of main Bahraini Shiite opposition group Al-Wefaq in capital Beirut, likely intended to signal defiance. On regional front, Hizbollah’s leader Hassan Nasrallah 16 Feb claimed group was producing drones domestically and would soon have capacity to turn rockets into precision-guided missiles. Israel 17 Feb reportedly downed Hizbollah drone violating its airspace. Hizbollah 18 Feb flew drone into Israeli airspace to undertake significant reconnaissance mission before drone returned; Israel confirmed foreign aircraft entered airspace and next day conducted overflights and staged mock raids above Beirut. U.S. senior official 8 Feb began new talks on demarcation of maritime border between Lebanon and Israel; FM Abdallah Bouhabib 18 Feb expressed positive position on new proposals.

Currency continued to depreciate, prompting central bank to announce new scheme, while Hizbollah and Amal ended months-long boycott of cabinet. Lebanese lira continued to depreciate, with exchange rate reaching near 34,000 to U.S. dollar on 11 Jan, a record low. Central bank same day announced it would provide banks with unlimited amounts of U.S. dollars at rate about 30 per cent lower; in response, market rate rapidly fell. By 20 Jan, U.S. dollar traded around 23,000 in informal market, reversing losses that lira had suffered since early Dec. Deputy PM Saadeh al-Shami 24 Jan announced round of talks with International Monetary Fund (IMF) aimed at establishing strategy to address “deep economic challenges”. Efforts continued to put in place schemes whereby country would be supplied with Egyptian natural gas and Jordanian electricity via Syria, thereby improving dismal performance of public electricity grid, which currently supplies less than three hours daily. Energy ministers of Jordan, Lebanon and Syria 26 Jan signed agreement to deliver electricity to Lebanon via Syria; Lebanon now seeks to secure World Bank loan to finance deal. On political front, Shiite groups Hizbollah and Amal 15 Jan announced end to boycott of cabinet sessions in place since 12 Oct 2021 in attempt to force replacement of Judge Tarik Bitar who heads investigation into Aug 2020 Beirut port explosion, citing need to pass 2022 budget and push forward with economic reform and IMF talks. Diplomatic spat with Gulf countries failed to find resolution. Hassan Nasrallah, leader of Hiz-bollah, early Jan accused Riyadh of spreading extremist ideology and holding Lebanese citizens in Gulf “hostage”; PM Mikati immediately issued statement saying that Nasrallah’s comments did not represent the views of govt or Lebanese people. Hezbollah 12 Jan hosted conference for Saudi opposition figures in capital Beirut. Kuwaiti FM 27 Jan visited Beirut, reportedly conveying 12 conditions, assumed to be formulated by Saudi Arabia, for restoring relations between Lebanon and Gulf countries; conditions reportedly included end to Hizbollah’s regional posture and ban on political activities deemed hostile to Gulf countries in Lebanon.

Amid ongoing political paralysis, Central Bank took measure prompting currency devaluation, and France sought to mediate Beirut’s diplomatic spat with Saudi Arabia. Cabinet meetings still on hold with little apparent prospect of resolution. Attempts to reach political deal ended in acrimony: PM Mikati and Parliament Speaker Nabih Berri met 20 Dec, but did not succeed in resolving disputed issues – including Hizbollah and its allies demanding removal of Judge Tarik Bitar from investigation into Aug 2020 Beirut port explosion, Free Patriotic Movement party asking modifications to mode of expatriate voting, and issue of reshuffling senior security positions. On economic front, currency fell to record low. Following 3 Dec resignation of Information Minister George Kordahi, whose comments on Saudi-led war in Yemen had caused frictions with Gulf countries, Lebanese lira improved by nearly 10% within less than 24 hours, reaching 22,000 to U.S. dollar. However, in unexpected move Central Bank 9 Dec raised amount of lira that depositors can receive for U.S. dollars from 3,900 to 8,000, triggering fears of inflation that sent lira to record lows at 29,000 to U.S. dollar on 14 Dec; currency stabilised at 27,000 after Central Bank same day announced injection of additional dollars into market. Shooting 12 Dec erupted at funeral procession in Palestinian camp Burj al-Shemali in Tyre city killing three Hamas members; Hamas blamed factions affiliated with Palestinian Authority (PA) while PA rejected allegations. During visit to Qatar, United Arab Emirates and Saudi Arabia, French President Macron 3-4 Dec sought to restore relations between Riyadh and Beirut; Macron’s attempt to arrange meeting reportedly failed but PM Mikati and Saudi Crown Prince Mohammed bin Salman 4 Dec held telephone call during which they struck agreement on unspecified mechanism for humanitarian cooperation. After Shiite Bahraini opposition group Al-Wefaq 11 Dec held press conference in capital Beirut criticising Bahrain’s human rights record, Minister of Interior Bassam Al-Mawlawi 15 Dec ordered deportation of non-Lebanese members of Al-Wefaq in likely attempt to curry favour with Gulf Cooperation Council. UN Sec-Gen Antonio Guterres 19-21 Dec visited Lebanon on “mission of solidarity”, met religious, civil society and political leaders.

Standoff over investigation into Aug 2020 Beirut port explosion continued, while economic decline triggered protests across country. Shiite groups Hizbollah and Amal maintained demand to remove investigative judge Tarik Bitar. Cabinet meetings remained suspended since 12 Oct due to political divisions; attempt by Maronite patriarch to mediate compromise solution to standoff failed to achieve breakthrough and judiciary faced increasing paralysis while facing political pressure amid flurry of procedural objections and counter-suits by some of politicians Bitar seeks to question. Work on measures to alleviate worst symptoms of economic crisis, in particular to increase electricity supplies and release rationing card to support poorest citizens hit by removal of subsidies, continued throughout month but without significant breakthroughs. Govt also continued consultations with International Monetary Fund on financial assistance. Protesters 26 Nov broke into ministry of social affairs building in capital Beirut citing further economic decline and continuing currency collapse. Protesters 29 Nov constructed roadblocks in central Beirut, northern city Tripoli and southern city Sidon, calling on govt to act to address collapsing currency. UNICEF 23 Nov reported “dramatic deterioration of living conditions” as over 50% of families had at least one child who skipped meal by Oct 2021. After diplomatic spat late Oct erupted with Gulf states after footage emerged of Information Minister George Kordahi criticising Saudi-led war in Yemen, relations with Gulf continued to face strains and deepened govt paralysis. Affair worsened 2 Nov when leaked statements of FM Abdallah Bouhabib (appointee of President Aoun) revealed minister criticising Saudi positions. After Riyadh declared ban on all commercial transactions with Lebanon, govt faced prospect of obliterating export earnings from Saudi Arabia, which already fell from $250mn in 2020 to $100mn this year, thus increasing economic and financial hardship at home; Aoun 29 Nov expressed desire for reconciliation with Riyadh.