Russia and Lebanon – The 2023-24 Trade and Investment Dynamics
As the Israel-Palestine war continues, we look at Russia’s regional trade and development.
By Michael Barantschik
In recent decades, trade and investment relations between Russia and Lebanon have evolved against a backdrop of geopolitical shifts and economic challenges. Historically, ties between the two nations have been influenced by a mix of cultural exchanges, political affiliations, and economic interests. However, the dynamics of their interactions have been subject to the broader geopolitical and economic uncertainties both in the Middle East and on the global stage.
As Lebanon grapples with economic recovery in the wake of its financial crisis, and Russia continues to extend its influence in the Middle East, trade and investment interactions are coming into a new focus. The sectors of energy, agriculture, and technology in Russia find a potential market and collaboration space in Lebanon, given its strategic location and ongoing economic reforms. In turn, Lebanon can benefit from Russia’s technological advancements and investments to bolster its economic recovery and infrastructural development.
Trade and investment relations date back to 1944 when diplomatic ties were established between the Soviet Union and Lebanon, shortly after Lebanon declared independence from French rule. The Soviet Union was among the early nations to recognize Lebanon, and likewise, Lebanon was among the first to acknowledge the Russian Federation in 1991 following the dissolution of the Soviet Union.
During the Cold War era, despite Lebanon maintaining a neutral stance, significant trade took place – primary exports from Lebanon to Soviet Russia during this period included agricultural products like citrus fruits, olives, and textiles, while Russia exported machinery, energy resources, and industrial goods to Lebanon. The 1990s saw a dip in trade activities due to the collapse of the Soviet Union, but by the early 2000s, with Russia’s economic resurgence and Lebanon’s post-civil war reconstruction efforts, trade began to pick up again. The establishment of the Russian-Lebanese Business Council in the late 2000s further bolstered trade relations, aiming to facilitate direct communication between businesses of both countries, promoting investment opportunities, and addressing challenges.
Lebanon’s strategic geographical location at the crossroads of Europe, Asia, and Africa allows for significant potential as a trade hub. The country’s Mediterranean shoreline, which opens up to vital maritime routes, has historically served as a hub for both trade and cultural exchange, dating back to the time of the Phoenicians who were renowned seafaring traders.
This positioning suggests the potential for Lebanon to serve as a gateway for trade flows in the Middle East, offering shorter transit times and facilitating connections between continents. The Port of Beirut, prior to the tragic explosion in August 2020, was one of the busiest and most important ports in the Eastern Mediterranean, serving not just Lebanon but also acting as a transshipment hub for neighboring countries.
For Russia, and indeed for any major economy looking to engage with the region, Lebanon could serve as a valuable partner. The development of port facilities and related infrastructure could enhance Lebanon’s role as a regional trade facilitator. This potential is particularly important for countries seeking to diversify their trade routes and reduce dependency on traditional transit hubs.
However, realizing this potential requires stability, substantial investment, and development of infrastructure. Lebanon faces significant challenges, including political instability, economic turmoil, and the need for substantial reconstruction of the Port of Beirut and related facilities. These challenges must be addressed to attract and secure the level of investment needed to develop port facilities and trade infrastructure to make Lebanon a regional trading hub.
Having established a stronghold in Syria, Russia views Lebanon as an extension of its strategic interests and a contributor to its broader regional influence in the Middle East. Maintaining Lebanon’s stability is imperative for Russia as it directly impacts the stability of its neighbor Syria. Russia’s ambitions in Lebanon include enhancing its engagement in the economic, political, and diplomatic arenas, thus broadening its economic connections within the Middle East. This strategy is vital for Russia’s broader geopolitical and economic objectives, which are increasingly becoming intertwined with the regional geopolitics of the Middle East.
From an economic standpoint, Russia sees Lebanon as a market for its exports and as a potential investment destination. Politically, having a foothold in Lebanon allows Russia to project its influence in Middle Eastern politics. It can provide Russia with leverage in international forums and with regional alliances, acting as a counterbalance to the influence of Western countries and other regional powers.
In the diplomatic arena, a stable and Russia-aligned Lebanon can offer Moscow increased diplomatic weight. It can serve as an intermediary or a venue for regional negotiations, and as a point of influence in the complex sectarian and political tapestry of the Middle East.
Russia’s approach to Lebanon is indicative of its wider strategy to fortify its presence in the Middle East. By investing in economic and political ties, Russia aims to secure a long-term role in the region’s geopolitics, ensuring that its interests are sustained through various means, including commercial engagement.
Economical and Political Crisis
The economic landscape of Lebanon is currently going through tumultuous times, with the country grappling with a severe financial crisis, hyperinflation, and a battered infrastructure. The crisis, exacerbated by political instability and the catastrophic Beirut explosion in 2020, has urged Lebanon to seek international aid and embark on a path of economic reforms. These reforms aim at reviving the economy, restoring investor confidence, and improving living conditions for its population.
Lebanon is yet to elect a new president since Michel Aoun’s term concluded in October 2022. This ongoing political deadlock has left a significant void in the country’s governance, and further hindered the execution of a comprehensive strategy for economic recovery. These challenges have pushed poverty and food shortages to alarming levels, impacting both the local Lebanese people and the Syrian refugee communities. An analysis conducted in September 2022, known as the Integrated Food Security Phase Classification, projected that nearly 42% of the Lebanese population was facing severe food shortages. To put this in context, it’s crucial to note that when the conflict in Ukraine erupted, Lebanon had one of the highest dependencies on Ukrainian wheat globally, resulting in a significant shock and a sharp escalation in food prices.
As the largest global supplier of wheat, Russia possesses the capability to step in for Lebanon’s wheat imports previously sourced from Ukraine. The likelihood is significant that stronger and enhanced relations between Russia and Lebanon could pave the way for a solution to secure and alleviate the prevailing food shortages in Lebanon.
In 2017, Lebanon awarded consortiums comprising Total, ENI, and Russia’s Novatek stakes in its offshore blocks 4 and 9 for oil and gas exploration, marking a significant advancement in their economic ties. However, due to both American sanctions and limited advancements, Novatek exited the project in 2022, making way for QatarEnergy to take its place.
In 2018, Lebanon’s Ministry of Energy and Water Resources entered into an operational and service agreement with Rosneft, the Russian state-owned oil company. This agreement pertained to the revitalization, expansion, and operation of the Tripoli Oil Installations in Lebanon (TOIL). The contract, spanning a duration of 20 years, grants Rosneft the capability to utilize TOIL for the storage of its oil products, leveraging its existing storage capacity of 450,000 metric tons. The envisioned outcome for the development of TOIL is to eventually increase its capacity to 1.5 million tons.
Lebanon’s advantageous geographical position opens up potential investment opportunities, particularly along its coastline and the western mountain ranges. These areas hold the potential for developing ports, enhancing infrastructure, and for joint energy initiatives. The fertile lands of the western mountain ranges, enriched by moisture from the Mediterranean, offer substantial opportunities for agricultural exploration. Given Russia’s expertise in agricultural development, this area offers considerable potential for join initiatives.
In 2021, Russia’s trade turnover with Lebanon totaled US$542.7 million – Russian exports to Lebanon reached US$520 million, while imports from Lebanon amounted to US$22.7 million. In the structure of Russia’s exports to Lebanon, the bulk of shipments was categorized as follows: mineral fuels, oils and distillation products accounted for approximately 72% of the total volume, followed by foodstuffs and agricultural raw materials, particularly animal fat and grains, at 18.4%. Additionally, wood pulp and paper products constituted a smaller but notable share, making up 5.6% of the total export volume.
In the case of Russia’s imports from Lebanon, two particular products stand out: tobacco and manufactured tobacco substitutes, which amount to US$7.2 million, and copper and copper products, totaling US$6.9 million. Furthermore, printed books, newspapers, reproductions, and other products of the printing industry, along with plastics and articles thereof, each contribute roughly US$1 million to the total import figures.
While trade between Russia and Lebanon has shown consistent growth over the past 25 years, Lebanon’s share in Russia’s imports in 2021 was a mere 0.0077%, and its portion of Russian exports was approximately 0.1%. These statistics highlight substantial room for improvement and expansion in their trade relationship.
Lebanon is a nation with a hardworking populace, significant potential, and numerous projects that could yield substantial benefits, but it grapples with a weak economy and governance issues. It is now in dire need of support from a globally powerful and independent nation to navigate these challenging times. The central question revolves around determining the extent to which Lebanon can captivate the attention of Russian investors and companies, enticing them to forge new agreements and, subsequently, reap the associated benefits.
Dezan Shira & Associates assist foreign investors into Asia and have a partner firm in the Lebanon. For assistance please contact Maria.Kotova@dezshira.com
During these uncertain times, we must stress that our firm does not approve of the Ukraine conflict. We do not entertain business with sanctioned Russian companies or individuals. However, we are well aware of the new emerging supply chains, can advise on strategic analysis and new logistics corridors, and may assist in non-sanctioned areas. We can help, for example, Russian companies develop operations throughout Asia, including banking advisory services, and trade compliance issues, and have done since 1992.
We also provide financial and sanctions compliance services to foreign companies wishing to access Russia. Additionally, we offer market research and advisory services to foreign exporters interested in accessing Russia as the economy looks to replace Western-sourced products. For assistance, please email firstname.lastname@example.org or visit www.dezshira.com