Finance
Can Hezbollah’s shadow economy be dismantled?
Vehicles transporting people who had fled southern Lebanon are slowed down by heavy traffic on the outbound road from Beirut, in the area of Khaldeh on November 28, 2024, a day after a cease fire between Israel and Hezbollah took hold.
Ibrahim Amro | Afp | Getty Images
Up until a few months ago, the drive from Beirut’s international airport through the Lebanese capital city’s southern suburbs used to feature a stream of pro-Iranian and Hezbollah-themed propaganda.
Hassan Nasrallah, the charismatic former leader of the Iran-backed group who was killed in Beirut last year, stared down at you from billboards while you drove along Imam Khomeini Road, named after the late founder of Iran’s Islamic Republic. Images of Hezbollah leaders were interspersed with dramatic murals of fallen Iranian spy commander Qasem Soleimani.
Now many of those images have been replaced with western and local brands. In June dozens of those billboards along the highway instead featured Formula One racecar driver Lewis Hamilton advertising shaving products.
Many of the new posters also feature patriotic, unifying messages that replaced the formerly sectarian signage — an attempt by Lebanon’s new Prime Minister Nawaf Salam to encourage “A New Era for Lebanon,” just in time for the summer tourism boom the Mediterranean country is hoping for after months of war.
In this “new” Lebanon, Hezbollah is being forced to operate in the shadows — more than ever in the group’s over 40-year history.
The Iranian proxy, which controls several parts of Lebanon as a sub-state group and is designated a terrorist organization by Washington, has always looked for creative ways to evade U.S. sanctions. But since Israel’s aggressive assault – its most deadly since the 2006 war – Hezbollah’s leadership and financial infrastructure have been left in tatters.
“Hezbollah finds itself in its greatest predicament since its foundation. The Israeli war against Lebanon greatly hit the party and its infrastructures, assassinating the party’s senior military and political leaders including Secretary-General Hassan Nasrallah,” Joseph Daher, author of “Hezbollah: The Political Economy of Lebanon’s Party of God,” told CNBC.
“The regions majorly inhabited by the Shia population have been greatly targeted, destroying extensively civilian housing and infrastructures as well,” he said.
A vehicle carries the coffins of former Hezbollah leaders Hassan Nasrallah and Hashem Safieddine, who were killed in Israeli airstrikes last year, during a public funeral ceremony, in Camille Chamoun Sports City Stadium, on the outskirts of Beirut, Lebanon, on Feb. 23, 2025.
Thaier Al-sudani | Reuters
The group, whose political wing also holds seats in parliament, still wields significant political power in Lebanon, which last held parliamentary elections in 2022. Despite losing the most significant number of seats in the group’s political history, it still held tight to a 62-seat coalition in the 128-member parliament.
While Hezbollah “will not disappear because it has a strong, disciplined and organized political and militant structure, and benefits from the continued assistance of Iran,” the group “has become increasingly politically and socially isolated outside Lebanon’s Shia population,” Daher said.
Outside the banking system
While Hezbollah receives much of its funding from Iran, it has also developed extensive international financial networks to bring in revenue. The group makes money from traditional industries like banking and construction, but it also runs smuggling, money laundering and international drug trafficking operations around the Middle East and as far afield as Bulgaria and Argentina. Its revenues are estimated in the billions of dollars annually.
FILE PHOTO: Lebanon’s Hezbollah leader Sayyed Hassan Nasrallah gestures as he addresses his supporters during a rare public appearance at an Ashoura ceremony in Beirut’s southern suburbs November 3, 2014.
Hasan Shaaban | Reuters
Hezbollah’s parallel governance strategy, operating as both a political party and sub-state group, has enabled it to survive and grow as an armed group for decades.
When Lebanese depositors were locked out of their savings in 2019 after a financial meltdown crippled the country and its currency, Hezbollah remained able to fund its base and illicit activities. It operated cash-only businesses and ran black market U.S. dollar exchanges.
This strategy will continue despite pressure on their finances, regional analysts say, due to the extreme difficulty of tracking informal, cash-only transactions.
Lebanon’s economy “operates more than 60% on cash exchanges, the circulation of which the state cannot trace,” Daher said. “It is thanks to the segment of this cash in circulation that Hezbollah smuggles into Lebanon that it finances its activities and pays its employees and helps its popular base, alongside other sources of funding, both licit and illicit.”
However, the U.S. under President Donald Trump’s administration is placing renewed pressure on Lebanon’s new government to crack down on Hezbollah’s illicit activities.
New government crackdowns
In an apparent blow to Hezbollah’s funding operations, Lebanon’s central bank, the Banque Du Liban (BDL), issued a directive banning all financial institutions in the country from any dealings with Al-Qard al-Hasan — a Hezbollah-linked financial entity that provides local loans by taking gold and jewelry as collateral. It’s a tool by which Hezbollah cements support from the country’s Shiite population and gets more funding for its operations. Israel has specifically targeted Al-Qard al-Hasan facilities with airstrikes in the last year.
The BDL move was “ingenious,” said Matthew Levitt, a senior fellow at The Washington Institute and director of its counterterrorism and intelligence program, because Al-Qard al-Hasan has long been registered as a charity and thus was able to operate outside the Lebanese financial system, evading regulatory oversight.
“Here, the BDL appears to have found a way to jump the gap and say, ‘whatever you are, people can’t provide services for you. You can’t bank, and anybody who does is violating the law,” Levitt said.
Black smoke rises above the Dahieh neighborhood after Israeli airstrikes on targets of Lebanese Hezbollah, widely believed to be the last of a series of strikes aimed at Hashem Safieddine, the likely successor of the assassinated previous Hezbollah leader Hassan Nasrallah, who Israel announced has now been killed, near the southeast corner of the international airport on October 8, 2024 in Beirut, Lebanon.
Scott Peterson | Getty Images
Until recently, Hezbollah controlled almost all ports of entry in Lebanon, including the Beirut airport. Following Israel’s assault on the group, its airport is now under the control of the Lebanese government, which has fired staff linked to Hezbollah, detained smugglers, and implemented new surveillance technology.
And while Tehran is still funding its proxy group, its transport routes to Lebanon are dramatically restricted after losing a key ally with the fall of the Bashar al Assad regime in Syria. Flights coming in from Iran and other locations meant to bring in material support for Hezbollah are being heavily inspected, experts told CNBC.
“Cash transfers from abroad have been intercepted at the airport and border. We are talking about millions of dollars,” Daher said of the renewed security in the country.
‘The window of opportunity is now’
Many who want to see Hezbollah’s power dismantled say the time is now.
“When you now have Iran under tremendous stress, and Lebanon overtly trying to crack down on Hezbollah’s ability to function as an independent militia – and trying to target the funding it needs to be able to do that – you have an interesting opportunity,” Levitt, who also served as deputy assistant secretary for intelligence and analysis at the U.S. Treasury Department, told CNBC in an interview.
For the first time in decades, both the prime minister and president of Lebanon are interested in asserting monopoly over the use of force in the country, he added.
“They’re interested in securing the much, much needed international aid that Lebanon needs to get out of the economic crisis, and they’re interested in not saying no to the Trump administration.”
But it’s not that easy. The group, long described as the most powerful non-state organization in the Middle East, is still loyally followed by hundreds of thousands of people who rely on it for social services and ideological leadership — and it remains well-armed.
Notably, no one is officially demanding Hezbollah disband or cease to exist entirely. Trump’s envoy to the region Tom Barrack recently demanded Hezbollah lay down its weapons, a proposition the group has rejected.
“Hezbollah’s not going to disarm because you ask them nicely,” Levitt said. “But we have to enable the government of Lebanon to do this, give them the capability to do it, and have their back when they do it.”
That requires a combination of carrots and sticks, former U.S. officials say – ironically, tools that have in many cases been weakened by the shrinking of U.S. government resources under the Trump administration.
Alexander Zerden, principal at Washington-based risk advisory firm Capitol Peak Strategies who formerly served at the U.S. Treasury Department’s Office of Terrorism and Financial Intelligence, outlined some of those potential approaches.
“On the offensive side, the U.S. can and will likely continue to target Hezbollah financial networks inside and outside of Lebanon. The U.S. will seek to deny Hezbollah access to Syria, including lucrative reconstruction contracts,” Zerden said.
“On the incentive side, direct tools are more limited with reductions in diplomacy and development capabilities,” he noted – one example of that being the gutting of USAID, which served as a powerful diplomatic vehicle. “However,” he added, “there appears to be space for the U.S. to support economic reforms.”
For Ronnie Chatah, a Lebanese political analyst and host of The Beirut Banyan podcast, what’s truly needed is international pressure that would push Iran to relinquish its involvement in Lebanon.
“What has not yet shifted in Lebanon’s favor is the international aspect, meaning finding a way for Iran to abandon Lebanon that I think can only happen by strategic diplomacy,” said Chatah, whose father, a former Lebanese finance minister, was killed in a suspected Hezbollah assassination plot.
“If the Trump administration wants peace the way it says repeatedly, if Donald Trump wants the Nobel Peace Prize too, there has to be some way forward for Lebanon to take the spotlight and to find a peaceful resolution that in some ways satisfies Iran’s terms,” he told CNBC from Beirut.
What’s been done so far by both the U.S. and Lebanese governments is important, but will not ultimately break Hezbollah’s power in the country, Chatah warned.
“The window of opportunity is now. It’s not tomorrow, and unfortunately, it’s a closing window,” he said. “The intent is not enough. Whether it’s by the Trump administration or even whether it’s by the Lebanese president, the intention is not enough.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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