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Beirut explosion: How the port blast will hit Lebanon's economy

Disaster spells catastrophe for country's much-needed imports and will likely hit the already flagging currency, experts tell MEE
The scene of the explosion in Beirut port, with the ruined grain silos seen in the background (AFP)

The huge explosion at Beirut’s port is a crippling blow to a country that had been reeling from a political and financial crisis, a depreciating currency and the Covid-19 pandemic. Economic damage from the blast is being estimated in the billions of dollars.

“It’s hard to imagine the financial cost of this disaster, it is in the billions. The port is completely destroyed, and much of the city is damaged. Who will pay for the reconstruction of Beirut?” said Laury Haytayan, a Beirut-based expert at the National Resource Institute.

Beirut port, which was the epicentre of the explosion, is the country’s main logistics hub and its deepest sea port. 

'The disaster will have a dramatic impact on food security. Bread prices were already up, spiking food prices will go up further, and 50 percent of Lebanese are under the poverty line'

- Martin Keulertz, AUB

“It was the beating heart of the country as it provided around 80 percent of imported goods, which kept the economy moving,” said Sami Halabi, director of knowledge and co-founder of Triangle Consulting in Beirut.

The closure of the port threatens food security in the country, which is import reliant for an estimated 65-85 percent of food needs, according to a Triangle report. Some 15,000 tonnes of wheat had been stored at the port’s silos.

“The disaster will have a dramatic impact on food security. Bread prices were already up, spiking food prices will go up further, and 50 percent of Lebanese are under the poverty line. This is the perfect storm over the next several months,” said Martin Keulertz, assistant professor in the food security programme at the American University of Beirut.

The country’s second port, in Tripoli 80km north of the capital, is significantly smaller than Beirut’s and will struggle to handle additional cargo volumes.

“Tripoli is not really fitted out to deal with the amount of food imports needed. There is an absolute urgency to import, and the government doesn’t have the foreign currency to do that,” said Halabi.

A third shock

The disaster is the third shock to hit the country since protests erupted in October 2019, and the economic impact of the coronavirus pandemic.

Despite banks imposing informal capital controls to limit cash withdrawals, over $25bn has flowed out of the country over the past year, while the Lebanese lira has depreciated by around 80 percent to the US dollar. Public debt has also skyrocketed to $92bn, equivalent to over 170 percent of GDP.

Ammonium nitrate: What is it and how did it get to Beirut's port?

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There are still many details surrounding the cause of the explosion that devastated much of Beirut on Tuesday that remain murky and unexplained.

However, the Lebanese government has so far indicated that they believe the enormous blast to have been the result of 2,700 tonnes of the chemical compound ammonium nitrate left lying in a warehouse in Beirut port since 2013.

Middle East Eye has compiled a quick guide to the destructive compound and the circumstances surrounding its fateful detonation on Tuesday.

What is ammonium nitrate?

Ammonium nitrate is an industrial chemical commonly used for fertilisers, but also as an explosive, often used in mining.

The chemical, known by the formula NH4NO3, is a naturally white crystalline solid and is often known as saltpetre.

Under most conditions ammonium nitrate is not necessarily dangerous and is relatively stable - it can even be used to smother a fire.

However, if contaminated it can become highly volatile.

What previous incidents have there been?

The most notorious confirmed ammonium nitrate explosion prior to Tuesday was the 1947 Texas City Disaster.

On 16 April 1947, at the Port of Texas City, 2,300 tonnes of ammonium nitrate exploded, killing almost 500 people.

More than 5,000 people were injured and at least 1,000 buildings levelled in the surrounding area.

It was the deadliest industrial accident in US history and resulted in the first-class action lawsuit against the US government on behalf of 8,485 victims.

A more recent incident involving ammonium nitrate took place in 2015 when a series of explosions at a chemical plant in the Chinese port city of Tianjin killed 173 people and injured 798.

Among the blasts at the port was the detonation of 800 tonnes of ammonium nitrate.

Eventually Chinese courts handed jail sentences to 49 government officials and warehouse executives and staff over their involvement in circumventing and loosening safety standards enabling the storage of dangerous chemicals.

How did the chemical end up in the port?

The chemicals originally arrived at Beirut's port on board a Russian-owned cargo vessel flying a Moldovan flag in September 2013.

The shipping monitoring organisation ShipArrested.com at the time reported that "upon inspection of the vessel by Port State Control, the vessel was forbidden from sailing. Most crew except the master and four crew members were repatriated and shortly afterwards the vessel was abandoned by her owners after charterers and cargo concern lost interest in the cargo".

According to documents posted online and seen by Al Jazeera, the ship's dangerous cargo was then offloaded and placed in hangar 12.

Numerous letters were reportedly sent by customs officials, including former director of Lebanese customs Shafik Merhi, to judges between 2014 and 2017 asking for guidance on what to do with the chemicals.

One letter sent in 2016 - which noted there had been "no reply" to previous requests - said the ammonium nitrate was being kept in "unsuitable" conditions.

"In view of the serious danger of keeping these goods in the hangar in unsuitable climatic conditions, we reaffirm our request to please request the marine agency to re-export these goods immediately to preserve the safety of the port and those working in it, or to look into agreeing to sell this amount," said the letter.

Another letter was sent by Lebanese customs administration director general Badri Daher on 27 October 2017 urging a resolution to the situation, in light of "the danger ... of leaving these goods in the place they are, and to those working there".

With foreign currency having dried up, importers had been struggling to pay for goods, reflected in imports dropping by 50 percent this year, according to Lebanese Customs authority data.

The impact of the explosion on the economy could cause further falls in the lira, which has dropped from LL1,507 to the dollar to over LL8,000, which would make imports even more expensive.

“Once the markets open the lira will take a hit, but the extent of that is as yet unknown. Whatever local demand there was for lira, it is going to be dampened by people having even less economic prospects than before,” said Halabi.

Lebanese in Beirut Souks shopping mall inspect the damage in the aftermath of yesterday's blast (AFP)
Lebanese in Beirut Souks shopping mall inspect the damage in the aftermath of yesterday's blast (AFP)

The ongoing ramifications of the financial crisis will impede the economy’s ability to rebound from the explosion.

“How will businesses start up again when there are capital controls that don’t let people take money out of banks? And with a fluctuating black market rate for currency? It’s a complete disaster,” said Haytayan.

Across the board, the Lebanese economy has been on the decline, with construction permits down 60 percent, car sales down 70 percent and tourism down by half this year on 2019.

“Everything is at a standstill, and putting it all back together again will be difficult as many people had not taken out insurance to cover for this type of disaster, and the insurance companies are tied to the banking sector, which was in the doldrums due to the financial crisis,” said Halabi.

 “Many businesses will not recover.”

This article is available in French on Middle East Eye French edition.