Ayman al-Zain watched on a recent afternoon as a bulldozer cleared the rubble of what used to be his sports clothing store, which was one of dozens of buildings destroyed in Israeli strikes against the Hezbollah militant group.

With a nominal truce in place that has reduced but not halted the fighting, Mr. Al-Zain tried to assess whether to rebuild the shop in Beirut's southern suburbs that he once hoped to pass down to his kids. But it's unlikely he will be able to do so anytime soon, and not only because of the fear of more airstrikes.

“Everything is expensive,” he told the AP. “If I want to open a new store and get mannequins, hangers and some accessories, the prices are very different than before.” The U.S.-Israeli war with Iran, and the closure of the Strait of Hormuz, have sent economic shock waves across the West Asia. In Lebanon, those woes have been compounded by the country's existing economic problems and by largely unregulated markets that are vulnerable to price gouging.

“This continues to be a major economic shock, one of honestly an existential nature,” said Economy Minister Amer Bisat, who is part of the Lebanese Cabinet that came into office over a year ago on a reformist agenda.

Problems have piled up for years. Since 2019, the tiny Mediterranean country has been in the throes of an economic crisis that pulverised the value of its local currency and its banking system.

That's when Lebanese banks collapsed, which evaporated depositors' savings and plunged about half of the population of 6.5 million into poverty, after decades of rampant corruption, waste and mismanagement.

The country suffered some $70 billion in losses in its financial sector, further compounded by about $11 billion in the 2024 war between Israel and Hezbollah, according to the World Bank. The Lebanese pound has since lost more than 90% of its value against the U.S. dollar.

The cash-strapped state electricity company provides only a few hours of power a day, and most Lebanese rely on diesel generators to make up the difference. That makes the economy particularly vulnerable to fuel price increases.

Lebanon was already “grappling with multiple rounds of crises,” said Mohamad Faour, Professor of Finance at the American University of Beirut (AUB). He said, "So this round of war only made an already fragile situation more fragile.” With this new war, 1.2 million Lebanese have been displaced, largely from southern Lebanon and Beirut's southern suburbs. Many are sheltering in schools with no work or draining whatever money they have, renting out apartments or hotel rooms.

Economy suffers job losses and crippling inflation. In an interview with the AP from his office, Mr. Bisat estimated that the country faces an economic loss of around 7% of its gross domestic product due to the war because “companies are closing, people are losing their jobs, tourists are not showing up”.

Evidence of inflation abounds. In the usually bustling produce market in Sabra, south of Beirut, vendor Ahmad al-Farra looked dejected as an elderly woman shopping for watermelon, tomatoes and potatoes walked away without buying anything after checking the price tags.

Prices have spiked since the U.S. and Israel launched a war against Iran on February 28, followed quickly by a resurgence of war between Israel and Hezbollah.

“We're keeping our prices low so we can sell, and even then we're not selling,” Mr. al-Farra said as the sound of an Israeli drone whizzed overhead. Even consumers who can afford to spend are anxious and cutting back on non-essential purchases, leaving many businesses empty.

Riad Aboulteif, who runs several restaurants and bars in the capital, said his revenue has dropped by some 90% since the war began, as Lebanon's shrinking middle class cuts costs.

“People are saving more money for their survival and not making plans to celebrate birthdays or other special occasions,” he said at one of his bars in the bustling Hamra district of Beirut, where the loud chatter of customers once overpowered the jazz music coming through the sound system.

That night, only a few tables were occupied. He's had to downsize his staff and restructure his menus to offer more affordable items. War fuels price gouging. Meanwhile, the country's bankrupt government has struggled to crack down on unfair and illicit profiteering and the hoarding of fuel and other essential items.

Many agricultural areas in southern and eastern Lebanon are no longer accessible because of airstrikes and clashes, but Mr. al-Farra believes suppliers have raised prices beyond what is necessary to cover cost increases. Some of the starkest increases have been in generator bills.

Families and businesses for years have paid multiple utility bills to cover privately supplied electricity and water in the absence of government services. Neighbourhood generator owners charge a monthly fee, and some landlords have their own generators and charge the cost to tenants.

Frustrated business owners have said that generator bills have doubled at times, forcing them to shorten their hours of operation or even close on some days to cut costs. “If we didn’t take these measures, we cannot continue,” Mr. Aboulteif said.

Mr. Bisat said his Ministry has conducted more than 4,000 inspections of private generators, gas stations and shops across the country since the start of the war in March and lodged dozens of complaints to the courts. But the issue will not be quickly resolved. In the meantime, the government has little ability to crack down on the handful of companies that import and distribute fuel and other goods.

No sign of relief on the horizon. With no end to the war in sight, the economic situation shows no sign of easing. A tenuous ceasefire is in place between the US and Iran, but talks between Washington and Tehran are gridlocked. A nominal truce between Israel and Hezbollah has reduced but not stopped the fighting in Lebanon.

For now, Lebanese families and business owners are confronting the challenges day by day and hoping for the best. “Only God knows how we've been trying to manage ourselves," Mr. al-Farra said.