The Bottom Line: Lebanon's Transition Goes Against Hezbollah (Again), Saudi Reset in Syria & Lebanon, Egypt's Inflation

Lebanon’s transition is gathering pace with another major twist, the election of a new prime minister rejected by Iranian allies, pointing to a potentially Hezbollah-free Cabinet. This comes shortly after the election of army commander Joseph Aoun as president, meaning that two of Lebanon’s three top political posts are not controlled by Iranian allies or proxy groups.

It doesn’t mean smooth sailing for critical economic reform, but it’s a big positive step. Here is why:

Disclaimer: Any opinions expressed here do not necessarily represent the views of my employer.

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The Bottom Line:

·???? Lebanon named Nawaf Salam, the current head of the International Court of Justice, as Prime Minister-designate on Monday, with the task of forming a government.

·???? This is a surprise given that until yesterday, outgoing caretaker PM Najib Mikati was widely believed to be on course to keeping his job, which would have been a setback to any major reform efforts

·???? Salam’s election follows the election of Aoun, a candidate backed by the US and Saudi Arabia, as president, ending a political vacuum that lasted more than two years

·???? Hezbollah and its allies also expected Mikati to be named according to an informal deal: they support the election of Aoun as president and get their favorite pick for PM

·???? But the Iranian-backed group now openly talks about a betrayal.

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Why it Matters?

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·???? Under Lebanon’s delicate sectarian system, power is shared between the president (Christian Maronite), the PM (Sunni Muslim), the Speaker of Parliament (Shiite Muslim).

·???? Given that parliament is headed by a key Hezbollah ally, any reform movement needed to control the other two posts to be able to make any dent in Lebanon’s severe political and economic crises.

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Risks:

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·???? As ICJ chief, Salam is known for his anti-Israeli sentiment, which could make him unwelcome by the US administration, especially Team Trump.

• Salam could struggle to form a cabinet if Shiite politicians refuse to join, especially after Hezbollah openly accused those backing him of seeking to "cancel" the group.

·???? As noted earlier, parliament remains key in enacting any major economic measures to restructure Lebanon’s zombie banking system, which is a prerequisite for any debt restructuring

·???? Lebanon’s defaulted dollar-denominated bonds, which have staged one of the biggest rallies in emerging-markets last week ahead of Aoun’s election, rose today, to almost 16.5 cents.

·???? The rally shows you the sentiment. The price shows you the challenge.

·???? For the time being, allow this Lebanese to stick to sentiment!

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The Gulf’s Reset with Lebanon and Syria:

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·???? Saudi Arabia and the United Arab Emirates, the biggest two Arab countries, are re-engaging heavily with Syria and Lebanon just as Iran’s influence is waning.

·???? Saudi Arabia, in particular, seems to have played a major part in the push to successfully elect Aoun as president.

·???? The kingdom has also taken the lead in mobilizing international support for Syria’s new administration after the surprise collapse of Bashar Al Assad.

·???? At this early stage, it’s hard to predict the outcome of this diplomacy, but it could bode well for both Lebanon and Syria in terms of mobilizing enough financial resource to rebuild their shattered economies.

The Best of Socials

Egypt’s Not-So-Simple Decision:

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·???? Egypt’s inflation continued its downward trajectory, slowing to its lowest level in two years at the end of 2024, according to data released last week.

·???? Prices barely rose month-on-month, too, edging up just 0.2%. This continues the downward trend seen in August.

·???? With favorable base effects at the end of the first quarter, inflation is set to ease dramatically, paving the way for the first interest-rate cuts since 2020.

·???? But the prospect of a more restrictive US monetary policy this year due to Trump’s trade war could delay Egypt’s move.

·???? That’s because a stronger dollar could feed into Egypt’s inflation dynamics, and because authorities want to keep the country’s local-currency debt market attractive to foreign investors.

·???? Worth a reminder that the Egyptian pound is already weaker than anyone had expected, slipping below 50 pounds per dollar late last year.

·???? The IMF wants Egypt to maintain a flexible exchange rate.

About Me:

I am a Lebanese journalist, commentator and media executive. I run SRMG Academy, the media training arm of Saudi Research and Media Group, where I am also the managing director of content development. Before SRMG, I was Bloomberg News’ managing editor for European economics and the managing editor for the Middle East and North Africa. I worked for Reuters and the Associated Press in various locations, including Dubai, Cairo, London and Beirut.