The current unrest in Lebanon, which has caught much of the outside world by surprise, raises meaningful humanitarian, political, and economic concerns. To many observers, the situation evokes memories of Lebanon’s protracted civil war, in which decades of economic progress were lost. What, one might ask, are the implications for firms doing business in the Gulf?
One factor to bear in mind is the impact of political unrest on energy prices. Conflict in the broader Middle East – even when the epicenter is not in an oil-exporting country – tends to lead to higher oil prices. It’s not surprising, therefore, that the barrel hit record highs (above $125) around the time the crisis in Lebanon hit the news. Higher oil prices mean, of course, even greater liquidity and wealth in the Gulf, and therefore a thriving local business environment.
As far as trade flows are concerned, the Gulf does have imports from Lebanon and from the broader Levant region. The GCC region benefits, however, from a broad and diverse set of trade partners such that commerce does not suffer greatly from crises like today’s. Certain sectors may feel higher import prices, but these should not have deep impact on Gulf economies overall.
More visible will be the impact of Lebanese unrest on tourism and vacation patterns this coming summer. Many Gulf families spend significant time – and money – in Lebanon during the summer as a temperate, nearby, and culturally familiar getaway destination. Like the summer of 2006 – when the Israeli-Hezbollah conflict disrupted tourist flows – we should expect the summer of 2008 to witness drastically reduced volumes of visitors to Lebanon. This will, almost certainly, exacerbate the economic loss associated with unrest and violence.
Unrest in Lebanon– at least under the current scenario – does not seriously threaten the economies and business environments of the Gulf. The Middle East is not a homogenous region, and the GCC economies remain quite safe. While the tragedy in Lebanon should surely spark concern amongst observers, the fundamentals of Gulf economies position the GCC markets to safely ride out the storm.