Lebanon: Ukraine war pushes country deeper into crisis as global wheat and fuel prices soar

As wheat and oil prices surge across the region following Russia's invasion of Ukraine, Lebanon has been witnessing scenes echoing the height of last summer's crippling fuel crisis, when shortages hit supermarkets, grocery stores and bakeries, while cars stood for hours on end in long queues in front of gas stations.

Back then, a World Bank report had noted that Lebanon's economic collapse is likely to rank among the world's worst financial crises since the mid-19th century. The Lebanese currency had already lost more than 85 percent of its value against the dollar, and more than three-quarters of the population was already living in multidimensional poverty. 

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But as a country heavily reliant on imports for its basic needs, including food, experts believe that Lebanon’s crisis will only get worse with Russia’s war on Ukraine, the consequences of which are already being deeply felt across the Middle East and North Africa.

Russia and Ukraine account for more than a quarter of the world's annual wheat sales. 

“Lebanon is already going through a harsh crisis with an economic recession. The Lebanese population have lost jobs, savings, and the purchasing power of their income due to high inflation, the sharp devaluation of the currency, and the banking system crisis,” Patrick Mardini, economist and head of the Lebanese Institute for Market Studies, told Middle East Eye.

“Now with the additional problem related to higher global prices of wheat and oil, everything will become expensive in the country, with higher consumer price and inflation.”

Domino effect

The Opec Basket, which measures the prices for petroleum blends produced by Opec members, rose from $95 the day before Russia invaded Ukraine to $120 on 24 March 2022 - the highest price since 2014. 

This increase has caused a rise in the price of fuel in Lebanon. Diesel, which was selling at 331,000 Lebanese lira per gallon - half the Lebanese minimum wage - has already undergone a 31 percent  increase since the start of the Russian invasion of Ukraine. 

Haidar Attieh, a gas station owner in Qana, a village in south Lebanon, has noticed the impact of the crisis not only on his clients, but also on his daily life.  

“People have minimised their travel, even important travel. They are not able to buy the same amount of fuel as before and are afraid of shortages,” Attieh said. 

“My ability to live is becoming more and more difficult. As everything becomes more and more expensive, and with a salary that has shrunk, I'm no longer able to meet my needs for things as basic as medicine and food.”

In addition to the rise of transportation costs, which are becoming less and less affordable for a large part of the population, the crisis in the electricity sector is also expected to worsen. 

The state electricity company Electricite du Liban (EDL), which already lacked funds to purchase fuel, may have even fewer resources to supply the country with electricity. At the same time, those who rely on small diesel generators, to meet electricity needs not covered by the state, are also likely to suffer from the cost increase, which is expected to result in the rise of power outages that are already part of the daily life of Lebanese. 

Mardini summarises the energy crisis as follows: “With higher energy prices, the cost of living in Lebanon will become more expensive as everything relies either on electricity or transportation.”

'Catastrophe' for bakeries

As if the situation was not bad enough, the agri-food sector was also hard hit by the war in Ukraine.

'As everything becomes more expensive, and with a salary that has shrunk, I'm no longer able to meet my needs for things as basic as medicine and food'
- Haidar Attieh, gas station owner

Economy Minister Amin Salam said earlier this month that the country, which used to buy 60 percent of its wheat from Ukraine, has enough wheat reserves for only six weeks to two months. 

On 10 March 2022, the Economy Ministry released new higher bread prices. Not only did family-sized bread bundles decrease in weight from 1,750 grams to 1,125 grams, their cost has also increased by 550 percent, from 2,000 lira to 13,000 lira. 

The crisis has bakeries around the country worried about the fate of their businesses.

Marlene Chekka, co-manager of the bakery Chez Ghassan in the Mar Mikhael neighbourhood in Beirut, has been concerned about how long they could stay open as government promises to help have yet to materialise.

“The war in Ukraine is a catastrophe for us. In the short term, there is no solution, we will no longer receive oil and flour and the prices will be too high,” she told MEE.

The bakery's pre-conflict stock of 15 bags of 50 kilos of flour is dwindling with no recourse in sight. Chekka was only able to buy four bags of flour last month, considerably less than the four bags the bakery needs per week.

“The government says it will find an alternative, but so far it has done nothing. Very soon we will not be able to produce manakish anymore, and we might have to close the bakery.”

Rising food insecurity 

Since 2020, food prices across the country have soared by up to 570 percent, pushing many families to change their dietary habits to cope with the rising costs. 

In the short term, Sami Halabi, policy director of Triangle, a Beirut-based think tank, expects Lebanon to go through a period of food insecurity related to the import of basic commodities.

“Today, we are still in the transition phase, where food prices are rising, and market demand is increasing,” Halabi told MEE.

“In this type of food-insecure environment, people will go through coping mechanisms, with adults giving up their meals to save them for the children. We should also expect micronutrient deficiencies, which will lead to disease.

“In an environment where there are no social security funds and hospitals only taking US dollars, people will not be able to cover the cost of emergency procedures.”

In search of a solution to cope with unpredictable Ukrainian and Russian imports, Lebanon’s central bank has opened credit lines for wheat imports. Accordingly, the Lebanese government plans to launch a tender to import 50,000 tonnes of wheat from India to meet the national consumption of about 400,000 tonnes per year. 

However, given the small size of the Lebanese market, the country does not have much room for negotiations and will have to accept the market price, which will result in increased food insecurity. Halabi warns against a political instrumentalisation of the situation as Lebanon prepares to hold general elections in May, the first since 2018.

“We could see the food insecurity crisis being used by the political and banking elite as an excuse to postpone the elections, with the argument that they need to transfer the money to more pressing issues,” Halabi noted. 

“If they fail to postpone the elections, we may also see them buying bread from the people. They will see how bad the situation is, and they will try to use it for their own benefit.”

The political exploitation of crises in Lebanon by traditional parties is not a new phenomenon and has not stopped shaping the political landscape. 

During last summer, various political parties played on the crisis and sectarian dynamics to increase public support. While the Lebanese Shia group Hezbollah opened the al-Sajjad supermarket chain with discounted prices accessible through party-issued cards, the Progressive Socialist Party distributed diesel to generators in its partisan strongholds.

Broken government

Experts believe that the impact of the global wheat and oil crisis could still be limited if the government took practical steps to avoid reaching a situation of severe shortages.

Mardini said the ministry should stop subsidising fuel and wheat in order to maintain the government's purchase price below the selling price on the Lebanese market. By continuing to subsidise these products, without having more funds available, the government will simply be unable to buy as much fuel and wheat as is needed to run the country.

For his part, Halabi stressed the importance of focusing on the financial crisis to unlock the Lebanese economy

“If we can solve the financial problems - which will involve the banks sharing the losses - we can start restructuring the system with an injection of capital. In that case, we can minimise the impact of the Ukrainian war without too much trouble,” Halabi said.

“The problem is that the government is broken, and they do not want to deal with the situation. It has been three years since the uprising, and we are still dealing with the stupidity of the political banking elite who refuse to take any responsibility.”