Dispute over Lebanon marks latest foreign-policy rift to emerge between Washington and Riyadh
By JAY SOLOMON and DANA BALLOUT, WSJ
The Obama administration is pressuring Saudi Arabia not to take further steps to punish Lebanon economically in retaliation for the growing political power amassed in Beirut by Hezbollah, the Iranian-backed Lebanese militant and political group, U.S. and Arab officials said.
The dispute over Lebanon marks the latest foreign-policy rift to emerge between Washington and Riyadh, decades-old allies, particularly concerning the regional role played by Iran and its proxies.
Saudi Arabia in February said it had suspended $3 billion in military aid for the Lebanese armed forces. A group of oil-rich Arab states, led by Riyadh, placed restrictions on their citizens visiting Lebanon, and suggested additional financial penalties could be imposed on Beirut.
Senior U.S. diplomats, including Secretary of State John Kerry, have privately warned Saudi Arabia and other Gulf states that they were overreacting and risked destabilizing Lebanon’s broader economy, these officials said.
Beirut is heavily dependent on Arab investment and remittances from Lebanese workers living in the Persian Gulf.
“We thought the actions were reckless and risked driving the Lebanese further into the hands of Iran,” said a senior U.S. official briefed on the communications with Saudi Arabia. “It feels like a significant overreaction.”
The French government of President François Hollande has also raised concerns about Lebanon in recent meetings with the Saudi government, U.S. and Arab officials said.
Arab officials have privately acknowledged differences with the U.S. on Lebanon strategy. But Saudi Arabia said it is difficult for it to continue funding a dysfunctional Lebanese government dominated by Hezbollah and its political allies.
Lebanon hasn’t had a president in more than two years because of a political standoff between Hezbollah and its allies, and parties aligned with Saudi Arabia. Iran is Hezbollah’s primary financial backer and arms supplier.
“You feel like there is no Lebanon anymore,” Saudi Information Minister Adel Al Toraifi said recently in Washington. “If the government isn’t functioning, what will happen to the money?”
Saudi Arabia has expelled Lebanese workers in recent weeks that Riyadh alleges are Hezbollah members, the Saudi minister said. Other Gulf States have said they are considering pulling their deposits from Lebanon’s central bank and reducing other investments in the country.
U.S. Intensifies Bid to Defund Hezbollah (Dec. 16)The unprecedented rift between Lebanon and its Gulf neighbors was sparked by Beirut’s refusal in January to support an Arab League resolution condemning Iran for failing to prevent an attack on the Saudi embassy in Tehran that month.
Saudi officials said the vote by Lebanese Foreign Minister Gebran Bassil, an ally of Hezbollah’s, signaled Beirut abandoning its longtime alliance with Saudi Arabia, which has aided the Lebanese economy for decades.
Saudi Arabia has displayed a greater willingness to pursue a foreign policy independent of the U.S. since the ascension to the throne last year of King Salman and the appointment of his son, Mohammad bin Salman, as defense minister.
Riyadh has led a yearlong air war against Iranian-backed militias in Yemen, which has fueled concerns in Washington about the toll on noncombatants in the Arab country.
Washington and Riyadh have also split on the ways to end the Syrian war. Saudi Arabia has voiced concerns that the nuclear agreement reached between the U.S. and Iran last year could empower Tehran and its allies regionally through the unfreezing of billions of dollars of Iranian oil money.
The Obama administration has sought to cooperate with Iran and some of its allies in confronting the Islamic State terrorist organization, which is active in Syria, Iraq and Lebanon.
This has included sharing intelligence with Lebanese security services close to Hezbollah, U.S. officials said.
Lebanese businessmen and government officials have been spooked by the moves taken by Saudi Arabia and the other Gulf states in recent weeks.
Around 15% of Lebanon’s total economic output relies on remittances from overseas Lebanese workers, many living in the Gulf, according to World Bank statistics. Arab citizens make up the largest group of tourists who visit Lebanon annually.
“The impact of worsening relations has a major potential to harm Lebanon’s economy,” said Beirut-based economist Ghazi Wazni.
Hezbollah’s leader, Hassan Nasrallah, has publicly criticized Saudi Arabia in recent days for allegedly trying to sabotage the Lebanese economy.
“Does Saudi [Arabia] have the right to punish the Lebanese because one Lebanese party took a stance?” Mr. Nasrallah said in a nationally televised speech. “Is he an Arab who takes back a donation he offered or kicks out his guests?”
The Obama administration is concurrently facing pressure from the U.S. Congress to impose greater financial pressure on Lebanon.
President Barack Obama in December signed into law new sanctions that seek to drastically cut back Hezbollah’s ability to conduct business and utilize the international banking system.
The sanctions are based, in part, on penalties used by the U.S. Treasury Department to largely cut Iran off from the global economy, before the nuclear agreement was reached last year.
Lebanese businessman and politicians have conveyed to the U.S. their concerns that the sanctions could end up targeting banks and businesses not directly associated with Hezbollah. The legislation decrees that foreign institutions conducting any financial transactions with Hezbollah risked being banned from the U.S. financial system.
“Now [banks] are going to be extremely careful with deposits and loans, and stricter in knowing their clients,” said Mazen Souied, a Beirut-based banker and economist, noting that Hezbollah plays a significant role in Lebanon’s economy, given its medical, educational and social institutions it provides for its community.
This month, a delegation of Lebanese politicians visited Washington to seek assurances that broad sectors of Lebanon’s economy won’t be targeted by the sanctions as Iran’s was. The lawmakers received assurances from the Obama administration that this wouldn’t be the case, according to U.S. and Lebanese officials briefed on the meetings.
“Protecting the Lebanese financial system from abuse by Hezbollah is central to those efforts,” said a Treasury official. “With that in mind, the intent of this legislation is to get Hezbollah out of the Lebanese and international financial systems—not to target the Lebanese people.”
Lebanon’s central bank governor, Riad Salameh, said in an interview that his government is preparing to work with the U.S. to implement the new sanctions. But he said he was also assured that Lebanon’s broader financial system won’t be harmed.
“It was clearly stated by the U.S. government that this is targeting Hezbollah, and not the Lebanese banks or Lebanon,” he said.
Write to Jay Solomon at jay.solomon@wsj.com and Dana Ballout at dana.ballout@wsj.com
wow, times a changing