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11.26.25

How the 2024 War Reordered Veto Power and Produced Only Selective Reform

Sami Atallah,
Sami Zoughaib

Crises are often described as opportunities in disguise. They raise the costs of doing nothing, open space for new coalitions, and make the previously impossible seem necessary. Political scientists call them “critical junctures” — moments when entrenched equilibria are shaken and new paths can emerge.

The 2019 financial crash was one of the most severe peacetime collapses in modern history: GDP shrank by over 40 percent, inflation soared into triple digits, and millions of people were locked out of their savings. By any comparative measure, this should have led to an immediate imposition of capital controls, the restructuring of the banking sector, and a renegotiation of the social contract. Instead, the political class responded with circulars, ad hoc restrictions, and endless negotiations and misleading narratives that ultimately aimed to socialize the cost of the crisis, prevent any meaningful reform, and protect those with political and financial influence. The window was wide but never used.

Between 2019 and 2024, two major veto players ensured the status quo. The first was Lebanon’s financial elite—bankers, real-estate developers, import monopolists, and their political patrons. They mobilized parliament, courts, and media to shield themselves from any loss allocation. Every proposal to restructure the sector, impose haircuts on large depositors, or tax wealth was diluted or blocked. The strategy was clear: privatize gains, socialize losses, and preserve a rentier economy that served them well.

The second, less obvious veto player was Hezbollah. While the party had no direct stake in the banking system, it privileged regime stability above all. It consistently opposed reforms that might destabilize its coalition partners, even when the crisis was devastating its own constituency. The calculus was simple: better a dysfunctional system that survives than a restructured one with unpredictable political consequences.

The 2024 war opened another window—this time triggered not by economics, which were already in ruins, but by geopolitics. International actors began linking Lebanon’s financial stabilization to its security architecture: constraining weapons, empowering the Lebanese Armed Forces, and reducing Hezbollah’s autonomy. Reform was no longer only about satisfying the IMF; it was now tied to the region’s stability. The window widened again, but with a geopolitical premium.

After the War: Three Actors, Three Shifts

The outcome of the 2024 war altered the balance of power and the strategies of all three major actors—Hezbollah, international stakeholders, and the financial elite. Taken together, their transformations created the conditions for a new reform landscape, though not necessarily a deeper or more equitable one.

Hezbollah’s transformation was the most visible. It emerged from the war militarily bruised, financially strained, and politically more cautious. Its capacity to exercise a systemic veto—one that could block virtually any reform—was diminished. What remained was a situational veto, deployed selectively and only when core interests—or red lines around weapons—were at stake. This became clear when Hezbollah walked out of cabinet on August 5, 2025 after ministers voted to confine arms to state institutions. It signaled opposition but did not escalate to resignation. It tolerated amendments to banking secrecy laws, accepted tighter anti–money laundering standards, and allowed procurement reforms to pass, even though these measures brought greater financial scrutiny. Hezbollah’s strategy shifted from obstructing reform wholesale to managing risk selectively and defending only the pillars it considers existential.

International actors, meanwhile, underwent an even sharper shift. Between 2019 and 2024, donors exercised what amounted to “soft conditionality”: enough pressure to generate rhetoric, but never enough to force action. After the 2024 war, conditionality hardened and became more coercive, though also significantly narrower in focus. Support for reconstruction and financial stabilization was now explicitly tied to enhanced transparency, stricter financial compliance, and institutional controls designed to constrict Hezbollah’s access to the formal economy. Reform became a lever of geopolitical strategy. Donors framed economic stabilization as inseparable from security containment, aiming to weaken Hezbollah’s financial autonomy and reinforce state institutions that could serve as counterweights. This shift meant that the reform agenda tightened around measures that aligned with security objectives, not necessarily those needed for a just economic recovery.

The financial elite also recalibrated its approach. Insolvent, discredited, and cut off from international markets, banks could no longer obstruct everything as they had after 2019. Under pressure from donors, regulators, and the government, they shifted from aggressive resistance to tactical compliance. They accepted reforms on banking secrecy, anti–money laundering, and procurement not because they embraced change, but because these became unavoidable entry points for international engagement. However, their strategic posture did not fundamentally change. Whenever reforms threatened wealth concentration, loss distribution, or accountability for past misconduct, the old networks reactivated to dilute, delay, or divert. The financial elite complied where it cost them little and resisted where it mattered most.

Selective Reform: A Wider Window, but Not a Deeper One

These three shifts—Hezbollah’s situational veto, international actors’ securitized conditionality, and the financial elite’s tactical compliance—did not produce structural reform. They produced selective reform. Lebanon finally amended banking secrecy laws, strengthened AML standards, and modernized procurement rules. These are genuine achievements, and under other circumstances they could have signaled a broader governance overhaul. But in the current context, they represent the least costly concessions for all three actors, the least threatening to entrenched interests, and the most useful to an international community intent on securing financial visibility and tightening the security perimeter around Hezbollah.

None of the structural pillars of Lebanon’s crisis have been touched. Loss distribution remains unresolved. Depositors remain unprotected. The tax system remains regressive. Bank resolution is stalled. Judicial accountability is absent. These are precisely the reforms that would reallocate power, wealth, and responsibility in Lebanon’s political economy—and they remain precisely the reforms that none of the three key actors are willing to pursue. Hezbollah sees them as destabilizing; international actors consider them secondary to geopolitical goals; and the financial elite views them as existential threats.

Toward a Sovereignty-Based Reform Pact

If Lebanon is to move beyond selective reform, it needs alignment—between domestic will, weakened veto power, and credible external pressure. That alignment would take the form of a Reform Pact rooted in sovereignty and justice. Sovereignty, because Lebanon cannot rebuild on a foundation of external violation and non-state veto. Justice, because no reform will be legitimate if it leaves citizens bearing the costs while elites escape.

A true reform pact would begin with equitable loss-sharing. Financial losses must be recognized transparently and allocated fairly. Small depositors should be protected, while banks and large creditors absorb their share. A bank resolution law with enforceable mechanisms is indispensable. Without a fair settlement of the financial collapse, no reform can claim legitimacy.

A second pillar would be progressive fiscal repair. Lebanon’s fiscal system cannot continue relying on regressive extraction and indirect taxation. Wealth and property must finally be taxed; VAT credits must be modernized; and the state must rebuild its capacity to raise revenue in a way that reflects income, not political privilege. Fiscal justice is not a technical issue — it is a sovereign one.

A third pillar is accountability that actually bites. Oversight institutions need budgets, staff, and independence. Enforcement outcomes must be published. Corruption and abuse must become visible, punishable, and costly. Reform without accountability is performance, not transformation.

Security belongs in the pact, but as a partner to justice — not a substitute. Strengthening the Lebanese Armed Forces, codifying convoy protocols with UNIFIL, and publishing transparent data on weapons seizures all matter. But security cannot be the sole currency of reform. A sovereign state is not only one that controls weapons; it is one that taxes fairly, protects rights, and delivers services.

Sequencing Matters

Grand blueprints will fail unless the state delivers small, visible wins first. Legitimacy in a country exhausted by promises is rebuilt through concrete proof of life. That requires enforcing existing laws with real budgets and real staff, not symbolic declarations. Oversight bodies must be revived, and their findings published rather than buried.

Reconstruction in war-hit areas must begin early, even with modest resources: clearing rubble, repairing roofs before winter, reopening schools and clinics. Parallel to this, the state must modernize its own interfaces with citizens — from tax filing to business registration to court procedures — to reduce corruption and show that efficiency is possible without clientelist intermediaries.

Crucially, reform must become visible in the security arena. The army should publish monthly dashboards on seizures, handovers, and safe-clearance operations. This is not a technical detail; it is a political act that signals presence, transparency, and the protection of soldiers and civilians alike.

None of these steps are technocratic. They are political signals that institutions can act, that promises can be kept, and that reform is more than a slogan. Done well, they create momentum, broaden coalitions, and make harder reforms thinkable.

The Choice Ahead

Lebanon’s reform history is one of selective compliance: donors ask, elites concede on procedure, citizens pay, and the system survives. The danger today is that this pattern repeats itself under a new guise — security-first reforms that change laws but not lives.

Yet the moment is not hopeless. The crisis window is wider than before. Veto players are weaker than before. External anchors are sharper than before. What remains missing is breadth: the courage to insist that sovereignty includes justice, that stability requires equity, and that reform must mean redistribution.

The choice is stark: reform as performance, or reform as transformation. Lebanon’s leaders — and its partners abroad — can either repeat the cycle or break it. The window is open. If justice does not walk through it now, it may slam shut for years.

 


Prepared by The Policy Initiative in collaboration with Friedrich Ebert Stiftung (FES). The article reflects the author’s views and not necessarily those of FES. This article is based on the report titled “Beyond Security Fixes: Toward a sovereignty-based reform pact in Lebanon”.

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