Lebanon: Exploring when the Worst Financial Crisis in Modern History and War Meet
- Trekking For Alpha
- Jun 3
- 9 min read
In May 2024, we set off for Lebanon. Not in search of alpha but in order to see for ourselves the implications of one of the craziest financial and geopolitical sagas in modern history. We are not just out here looking for alpha but also exploring how things can go wrong. After all, that's a big part of the frontier / emerging markets story.
Saying Lebanon has had a tough half decade is an understatement. Since 2019, it has been one thing after another for this small Middle Eastern nation. In 2019, irresponsible government spending and unfathomable corruption finally caught up to the government. The worst financial crisis - banking, debt, and currency - in modern history ensued. Savings were wiped out overnight as banks shuttered denying depositors of their life savings. A nation unaccustomed to theft and crime began witnessing bank robberies as desperate citizens attempted to break in and reclaim their own deposits. Shortages became rampant - in addition to the more major issues such as medicine and fuel….we have heard of instances where the coveted pistachio had to be replaced by the peanut, a culinary crime in this part of the world! The currency, once considered a beacon of stability in the Middle East as it was successfully pegged to the USD from 1997 to 2019, de-pegged and collapsed. Protests erupted, Prime Minister Saad Harari resigned, and a semi-prosperous population was thrown into poverty.
Banks in Tripoli boarded up since late 2019, dollar rate posted in sweet shop - the Lebanese Pound lost 98% of its value falling from its peg rate of 1,507.5 LBP/USD in 2019 to ~90,000 LBP/USD...change received in two currencies
The next year was no better. In addition to COVID, Beirut suffered from the largest non-atomic explosion in history. The blast occurred right off the coast of Beirut’s highest-end neighborhoods. The explosion killed 218 people, injured over 7,000, left 300,000 people homeless, shuttered businesses for months, and caused up to $15 billion (~50% of Lebanon’s 2020 GDP) in damages. To make matters worse, many of the “fortunate” who were able to withdraw savings from banks before the collapse purchased properties in the blast radius as this high-end real estate was considered a “safe asset”. Following the blast, the cabinet and new Prime Minister stepped down. Such is life in Lebanon.
Time did not heal but only created opportunities for more disasters. 2021 was a tough year - inflation surged to 145% (with food prices up 600%+ from 2018), fuel shortages crippled the nation, political violence rocked Beirut, large swathes of the country were thrown into darkness, and poverty skyrocketed to 75%. The crisis only worsened in 2022 and war was added to the mix starting in 2023.
Hezbollah roundabout "decoration", Hezbollah flag, Roman site of Baalbek empty due to the ongoing war surrounding the complex
To add a further element of oddity to all of this, Lebanon navigated these choppy waters without a captain. From mid-2022 until early 2025, Lebanon was presidentless and the country was ‘led’ by a caretaker government headed by the Prime Minister who had limited powers during this time. Though, many joke that the lack of government was probably a blessing.
Given all of this, we had to go see for ourselves where this leaves a country. Despite the State Department’s Level 4 travel warning (we recommend you heed the travel advice of your local government!), we hopped on a flight to Beirut to see what was going on.
Tanks in a neighborhood in Beirut, tanks outside Tripoli's castle, tanks on a roadside near entry to Qadisha Valley
Learnings from the Road
No matter where you are - in an Uber, at a restaurant, in a store, etc. - locals, often unprompted, are quick to describe to you how bad things have been for them. On our first day in Beirut, our Uber driver blankly opined on how his $50,000 savings devalued to under $2,000 virtually overnight. The cost of the ride - LBP(Lebanese Pound) 1,800,00 (equal to $20) - gave us a shallow taste of this problem. Multiple other people described to us their back-up plan - living off of inherited land and fishing and farming for other essentials (yes… it was that bad there). Most restaurants and stores felt hauntingly empty. Almost everyone wanted to tell us about how the government literally stole their savings – freezing the bank accounts of the people and removing the funds in order to repay their hefty, corruption-fueled debts. There is a general air of defeat, pride for the resilience required to navigate so much disaster, and an oddly dark sense of humor we often had to be promoted to laugh for.
Usage of currency is weird. We often found ourselves paying in a combination of Lebanese Pounds and USD and receiving mixed change back. At some places prices are quoted in USD and at others Lebanese Pound. Acceptance of credit cards was the third worst we have ever seen – after Iraq (sanctions) and Sierra Leone. We were told that the economy really dollarized after the onset of the crisis and that credit card acceptance declined significantly.
Inequality here is the worst we have ever seen. On Gemmayze, a bar and restaurant lined street in a high-end neighborhood in Beirut, beggars and refugees weave between G Wagons and Porsches (~30% of the cars are luxury / ultra luxury!) hoping for a few Pounds from drivers or the fashionable patrons of the upscale eateries. Headlamp-clad men dig through dumpsters literally next to the outdoor tables of some of Beirut’s trendiest restaurants. In some neighborhoods, the percentage of fancy cars is the highest we have ever seen, meanwhile, the poverty rate has hovered between 50-75% over the last several years.
Meetings with investors were hard to come by as there are so few – and for good reason. At an event, we ran into a business leader who was quick to quip “I know Lebanese millionaires and billionaires who would never put a cent into Lebanon. Why would you?”. Before the crisis, there may have been a few more investors, but in the last half decade 20% of the population has left. This was mainly the most skilled and educated. Friends we met opined on how their whole friend group or all of their children have left the country.
Even fruits and vegetables have not been spared. Given Lebanon’s location on the Mediterranean, we were excited to chow down on some of the world’s best produce; however, this was not the case. Produce was expensive, hard to come by, low quality, and limited in variety. Many produce stands only sold the basics - potatoes, onions, apples, carrots - and would not be out of place in Africa. A stark contrast to their Mediterranean neighbors where the juiciest peaches, apricots, and cherries are starting to make their summer debut on nearly every street corner. Since 2018, agriculture has declined from 3.2% of the much larger GDP ($55 billion) to 1.4% ($23 billion GDP). Additionally, Beqaa Valley, the most fertile land in the nation, is a Hezbollah stronghold and has been bombed frequently over the last year which has complicated the growing efforts.
On a geopolitical front, the troubles are glaring as well. From the moment you drive outside of Beirut Rafici Hariri International Airport - which was just purged of Hezbollah this year - the instability is palpable. Destroyed buildings dot the landscape and a few Hezbollah flags billow in the breeze along the highway to the city. The scars of instability plague the rest of the nation as well - tanks on random streets, the sound of drones overhead at night, military fortifications everywhere. While at the Baalbek ruins complex, a key tourist attraction and one of the largest and best preserved Roman ruins in the world, we heard airstrikes, explosions (likely weapons depots), and gunshots. The road there was no more comforting as the final 15 km stretch into this ancient wonder is lined with Hezbollah posters, statues, flags, and diagrams. Locals clamor to tell you their “where they were” stories during the Nazrallah bombing and other noteworthy explosions. Parts of Beirut are piles of rubble and much of the rest is bullet hole ridden, an inescapable reminder of the decades of conflict this nation has suffered from.
Baalbek, Lebanon
Another thing we quickly noticed is that a lot does not work here. The power at our Airbnb in Beirut flickered 5-10 times a day as the building switched between the grid and a backup generator. While feasting on baklava, maamouls, and knefeh at Hallab 1881, the most iconic and best sweets shop in the Middle East, the restaurant was plunged into darkness. Nobody flinched. In what felt like a cathartic oration session, our Airbnb host was eager to explain to us that parts of Beirut get under six hours of power from the grid a day and that this was down to 1-2 hours during the depths of the financial crisis. The whole country is run on one state-run power plant which occasionally runs out of fuel sending the entire nation into darkness. Backup generators hum continuously to save the day. Given prevalent generator usage in conjunction with purchasing power from a state-run monopoly, power prices are through the roof. We heard that they can reach 100-500x the global average.
Basic services also just don't exist. In an oddity seen nowhere else we have been, Airbnb hosts emphasize how to handle an emergency – call the Red Cross. At first we thought this was a nod to the elevated risk level here but “thankfully?” discovered that this is because there is no “911”. Lebanon’s EMS services are mainly volunteer-based - Red Cross or Civil Defense Force. Throughout our time in Lebanon, we saw Red Cross vest clad volunteers raising money along the side of the road. Oftentimes in the most traffic prone regions in what felt like “government failings inception” – volunteers of an organization that needs to be so prominent because of government failings benefiting from the government’s failure to build proper infrastructure. There is seemingly no public transportation and based on the overflowing dumpsters and trash lining much of Beirut limited public sanitation services. Sim cards were in low supply – out of stock at the airport and the first ten stores we checked in Beirut. The sad result of a corruption-supported duopoly.
A local described it to us this way “If it is run by the private sector it works – restaurants, hotels, stores. But if it does not work it’s public”. This is true in much of the world but nowhere is this as stark as in Lebanon.
Finally and sadly, there are refugees everywhere - Beirut, Tripoli, the beach resort towns, etc. Lebanon is hosting ~1.5 million refugees, equivalent to ~25% of the population…though… nobody actually knows the population because a census has not been done in a VERY long time. This is the highest per capita refugee rate on Earth and adds a layer of economic and societal complexities to an already exceedingly challenging situation.
Looking Ahead
Despite all of this, the locals have some optimism – note that this includes the Christians and Sunnis as many of the Shias in the country are Hezbollah or Hezbollah supporters and they are not optimistic right now. Many have optimism that the newly elected Lebanese government headed by President Joseph Aoun is Western oriented and will build stronger ties with the United States which they hope will usher in better days. Believe it or not, many locals are huge President Trump supporters and have conviction that he will bring peace, stability, and opportunity to the region. At a remote guesthouse in the mountainous village of Douma, the owner, who was tipped off by our driver prior to our arrival that we are American, came running out as the car pulled up flailing his hands above his head exclaiming “Welcome Mr. Trump! Welcome Mr. Trump. He is a good man! He is coming to Lebanon soon! He is bringing peace!”. He was not alone in his enthusiasm and so many others we spoke to felt the same way.
And there is some reason for optimism. In the last several months, the Lebanese Armed Forces have stepped up their game against Hezbollah – increased disarmament efforts, reclaimed control of Beirut Rafic Harari International Airport, and removed pro-Hezbollah banners in key travel corridors in Beirut. This is in part due to a pressure campaign by the United States, specifically the Trump Administration. If Washington and Beirut play their cards right, we see a lot of room for mutually-beneficial outcomes from this new budding partnership including economic gains for Lebanon and increased security for the United States and allies.
However, after spending time in Lebanon we have even more conviction that optimism needs to be taken with extreme caution. The sectarian divides are incredibly apparent leaving this nation one incident away from the return of civil violence. From how many describe the Taif Agreement (the 1989 treaty that ended the 15-year civil war) as a mere band-aid to the fact that the country cannot even conduct a census because that would reset religious representation in the government (the last official census was in 1932) to the way locals talk about other religious factions to how the territory is so starkly divided down religious lines, it is evident tensions remain and another civil conflict should never be ruled out. Also, while recent gains against Hezbollah have been made, truly routing out the Axis of Resistance will be tough and the challenges that lie ahead should not be underestimated.