Israeli Strikes on Lebanon Displace Thousands as Oil Markets React to Wider Iran Conflict

Israeli airstrikes across Lebanon killed at least 52 people and triggered mass displacement Monday after Hezbollah fired rockets into northern Israel for the first time since the November 2024 ceasefire, reigniting a conflict that now threatens regional stability and global energy markets.

The strikes followed Hezbollah’s decision to retaliate after the killing of Iranian Supreme Leader Ali Khamenei in joint U.S.-Israeli operations that began Saturday. According to Al Jazeera, Israel issued evacuation warnings for more than 50 towns in southern Lebanon and the Bekaa Valley, leading to scenes reminiscent of September 23, 2024, when Israeli attacks killed about 500 people and displaced more than one million in a single day. Lebanese Prime Minister Nawaf Salam announced a total ban on Hezbollah military activities and demanded the group surrender its weapons, though enforcement remains uncertain given the organization’s entrenched position.

The humanitarian toll is immediate and severe. Lebanon’s Health Ministry reported at least 31 people killed and 149 injured in the strikes, with 20 people killed and 91 others wounded in Beirut’s southern suburbs and 11 people killed and 58 others wounded in southern Lebanon, according to Wikipedia. The violence compounds an already dire situation in a country where more than half of the Lebanese population lives below the poverty line, while 9 out of 10 Syrian refugees living in the country require humanitarian assistance to meet their basic needs, according to UNHCR.

Economic Fragility Under Pressure

Lebanon enters this crisis with virtually no fiscal capacity to absorb another shock. Lebanon’s 2026 state budget, set at around $6 billion, reflects a country struggling to maintain the basics of governance amid years of economic collapse. To put this in perspective, Lebanon’s budget in 2018 was nearly $17 billion, according to The Beiruter. GDP has fallen from $55 billion in 2018 to less than $31 billion, while the Lebanese pound has lost over 97% of its value since 2019.

The World Bank had projected 4% growth for 2026 contingent on reform progress and political stability—assumptions now in jeopardy. Remittances and tourism will remain critical growth drivers, but risks including delay on critical reforms and regional instability threaten the fragile recovery. Lebanon was already placed on the 2026 Emergency Watchlist alongside countries facing severe humanitarian crises, and the recent round of war with Israel has caused an estimated $11 billion in damage to infrastructure, according to the Middle East Institute.

Regional Spillover and Refugee Flows

The displacement crisis threatens to destabilize neighboring Syria, which is itself fragile following the December 2024 fall of the Assad regime. More than 562,000 people have crossed from Lebanon into Syria since the escalation of hostilities—63 percent of the displaced are Syrians and 37 percent are Lebanese or other nationals, according to USA for UNHCR. Most of those who are fleeing into Syria are women and children, and more than half are children.

For many Syrian refugees who had fled their homeland’s civil war, this marks a second or third displacement. More than 90,000 refugees have been displaced a second time, 99 percent of whom are Syrian refugees. The threat of double displacement is exacerbating existing vulnerabilities, as even before these latest attacks, a staggering 9 out of 10 Syrian refugees required humanitarian assistance to meet their basic needs. Lebanon hosts an estimated 1.5 million Syrian refugees—the highest number of refugees per capita globally—alongside its own population of 5.5 million.

Oil Markets Price in Duration Risk

Energy markets reacted sharply to the conflict’s impact on critical shipping infrastructure. Brent crude rose by another 4% on Tuesday to stand at a one-year high of nearly 81 US dollars a barrel, after Iran took action to block a crucial shipping route for crude tankers, according to Bloomberg. About 20% of global oil consumption passes through the Strait of Hormuz. Four vessels have been hit in Gulf waters since the conflict began; with shipping companies and their insurers concerned about vessel safety, tankers are not risking passage through the strait, according to NPR.

The price reaction has been relatively muted compared to historical precedents, reflecting two factors. Markets have recently been oversupplied with oil, allowing countries to fill their stockpiles. China, in particular, has plenty of oil in storage both on land and floating offshore. That means the world is well-positioned to weather a short-term disruption in oil flows. However, if the conflict stretches on past a few weeks, things could look very different.

Insurers—not Tehran—have temporarily halted coverage for vessels transiting the chokepoint through which roughly 20 percent of global petroleum and liquefied natural gas is shipped. What will determine the economic pressure on the military campaign against Iran is whether maritime traffic through the Strait of Hormuz resumes within days or remains suspended for months, according to the Atlantic Council. OPEC+ announced a larger-than-expected production increase over the weekend, but the question of OPEC production boosts could be “an entirely moot point” because of the lack of a sea passage to get large portions of that oil to market. “The lion’s share of OPEC barrels in the region could essentially become stranded assets in an extended war scenario”, according to RBC analyst Helima Croft.

Diplomatic Response Fragmented

International reaction has been fractured. The U.S. State Department issued departure orders for Americans in more than a dozen Middle Eastern countries, including Lebanon, Israel, Jordan, and the Gulf states. Lebanese President Joseph Aoun and Prime Minister Salam have called for Lebanon to be shielded from the wider Iran conflict, but their ability to constrain Hezbollah is limited. Lebanese Prime Minister Nawaf Salam told a UN Security Council delegation that the Lebanese Army has expanded its deployments in southern Lebanon to counter Hezbollah’s rearmament, adding that Lebanon seeks the deployment of a new international force to help preserve security once the mandate of the current UN force ends in 2026, according to the Council on Foreign Relations.

Both “expressed serious concern over the real risks of the spreading of the conflict, which has already affected several Arab countries and is fraught with catastrophic consequences”, according to a Kremlin readout of a call between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman reported by PBS. The European Union allocated over €93 million in humanitarian aid to Lebanon for 2025, but funding appeals remain significantly underfunded relative to needs.

What to Watch

The next 72 hours will determine whether this escalation becomes a sustained regional war or a contained flare-up. Key indicators include whether Hezbollah launches additional strikes despite the Lebanese government’s ban, how quickly Strait of Hormuz shipping resumes, and whether Lebanon’s army can credibly enforce disarmament south of the Litani River. For energy markets, the critical threshold is two weeks—beyond that, strategic reserves begin to matter and recession risk rises materially.

Lebanon’s ability to absorb this shock is near zero. With no IMF program, collapsing public services, and a banking sector still paralyzed from the 2019 financial crisis, another major displacement wave could tip the country into full state failure. Humanitarian organizations estimate Lebanon needs at least $500 million in emergency funding within the next month to prevent catastrophic gaps in shelter, food, and medical care. Whether that materializes depends on donor priorities that are already stretched across Gaza, Sudan, and Ukraine.