Energy prices surge as regional war drives up costs, deepens Lebanon’s economic strain

Report by Bassam Abou Zeid, English adaptation by Mariella Succar

Two months into the U.S.-Israeli war on Iran, escalating tensions in the region are driving up global energy prices, with direct consequences for Lebanon’s already fragile economy.

With the closure of the Strait of Hormuz and rising oil prices, energy costs have increased steadily worldwide. The impact is being felt across multiple sectors, but in Lebanon — still grappling with a prolonged economic crisis — the effects are more severe.

The country imports more than 80% of its essential goods, making it highly vulnerable to global price fluctuations. Fuel prices, in particular, have risen sharply. On February 28, the first day of the war, the price of a gasoline tank stood at $20.23. 

A month later, it had climbed to $26.35, as the price of a barrel of oil rose from $73 to $100. Diesel prices also surged, increasing from $15.59 per tank to $25.59.

These increases are directly reflected in the cost of electricity generators, bread and a wide range of goods and services, adding further pressure on consumers.

Economists warn that the Lebanese pound could face additional depreciation for two main reasons. First, as global prices rise, importers require more U.S. dollars to pay for goods, most of which are sourced from abroad. Second, consumers may become more reluctant to spend dollars, increasing demand for the local currency and creating further instability in the market.

Sources at the central bank said the situation remains stable for now, with sufficient dollar liquidity available. 

The bank injects approximately $213 million per month into the market under Circulars 158 and 166, amounting to around $2.56 billion annually. Remittances from abroad also continue, despite the war affecting Gulf countries.

However, the sources warned that a prolonged crisis could worsen conditions, particularly as the central bank opposes reinstating subsidies. Instead, it is urging the government to secure international assistance and take measures to ensure at least minimal energy reserves.

They also stressed the need to inform the public about steps to reduce fuel, gas and electricity consumption in order to limit rising costs.