Last week in Damascus, just days after the highest ranking visit from a U.S. official in years, Syrian President Bashar Assad hosted a state dinner for his Iranian counterpart Mahmoud Ahmedinajad. Welcoming Ahmedinajad so close on the heels of the U.S. diplomatic good will gesture was a pointed Syrian slight to the Obama administration, but the icing on the cake was Assad’s other guest of honor at the feast: Hezbollah leader Hassan Nasrallah.

For Damascus and Tehran—the last two U.S.-designated state sponsors of terrorism in the Middle East—Hezbollah has long constituted a strategic asset and a point of pride. More recently, the organization successfully worked to broaden its appeal throughout the region. And indeed, after the Shiite terrorist organization fought Israel to a standstill in 2006, Hezbollah’s stature in the Arab world skyrocketed. Not only was Nasrallah the most compelling Arabic orator, Hezbollah became the most positive personification of Shiites in the largely Sunni Muslim region.

That was 2006. Today, while Hezbollah remains a formidable “resistance” force, in the past two years, a number of setbacks have tarnished the organization’s carefully cultivated image in Lebanon and the broader Arab world. Hezbollah’s military prowess may not be in doubt, but now for the first time, Lebanese and other Middle Easterners are starting to question the organization’s once unscrupulous morality. Nearly three decades after its establishment, the resistance has institutionalized and bureaucratized, and Hezbollah is starting to resemble other, corrupt Lebanese organizations.

The problems of the Party of God, Hezbollah's English translation, started in May 2008, when the militia violated its cardinal rule and turned its weapons—allegedly intended for use against Israel—on Lebanese citizens, when the organization invaded Beirut. Continuing this trend, three months later the militia opened fire (accidentally, Hezbollah says) on a Lebanese army helicopter, killing the co-pilot. Then, in November 2008, a 49-member Hezbollah cell was arrested in Egypt, accused of plotting attacks against Israeli tourists and Suez Canal shipping. (Nasrallah responded to the arrests by publicly calling on Egyptians to topple their government).

Setbacks continued into 2009. First came a damaging report in the May edition of Der Spiegel, implicating the militia in the 2005 assassination of former Lebanese premier Rafik Hariri. (These allegations were recently confirmed by Le Monde). A month later, the heavily favored militia lost the Lebanese elections to its pro-West rivals.

Adding insult to injury, less than a week after its defeat at the polls, the organization was dealt yet another blow, when mass demonstrations erupted in Iran protesting the fraudulent elections. The rallies challenged Iran’s clerical leadership and its controversial doctrine of velayat-e faqih (Islamic government), threatening the seat of power of Hezbollah’s spiritual leader and financial patron Supreme Leader Ali Khamenei.

As if this weren’t enough, in September 2009 one of the militia’s chief local financiers, Salah Ezzedin, went bankrupt in a Ponzi scheme, ala Bernard Madoff. Ezzedin, who had promised rates of return up to 80 percent, ended up swindling 10,000 Lebanese Shiites out of an estimated $300 million.

Among the setbacks of the past two years, the Ezzedin scandal was perhaps the most damaging to Hezbollah because the militia’s leadership was so close to the disgraced financier, a relationship that led many investors to trust him with their money. (Indeed, Ezzedin named his publishing house after Nasrallah’s son, Hadi, who was killed by Israel in 1997). The Ezzedin affair implicated Hezbollah in the same kind of corruption it routinely accused the pro-West Sunni Government in Beirut of perpetrating.

Recognizing the implications for the organization’s reputation, Hezbollah went into damage-control mode. Nasrallah repeatedly denied any connection to the affair, claiming that the party itself lost $4 million. According to the Arabic news service Elaph, he also instructed Hezbollah clerics to issue a “fatwa-like” directive forbidding the mention of the militia in connection to the scandal, lest it provide fodder for Israeli and American propaganda machines to further “besmirch the organization’s name.”

But the damage was already done. In Lebanon, Hezbollah’s long suffering detractors were giddy with schadenfreude; meanwhile, many of the organization’s supporters expressed profound disappointment.

One article in the pro-Hezbollah Lebanese daily Al-Akbar, written by the paper’s editor Ibrahim al Amin shortly after the scandal broke, provides a good picture of the sentiment of Hezbollah’s base. Al Amin accused the organization of going soft after decades of hardship and of starting to live the good life corrupted by “greed.” This cultured lifestyle, he wrote, was “in opposition to the principle of sacrifice” that once was the hallmark of the resistance. Ending with a flourish, al Amin cited the famed Israeli Ministry of Defense advisor on Lebanon, Uri Lubrani, who long ago said that Israel would only defeat Hezbollah “when it became infected with the virus of the Palestinian Liberation Organization in Lebanon, in other words, when it alters its appearance and becomes bourgeoisie.”

It’s less clear how this scandal and other Hezbollah missteps are impacting the organization’s standing throughout the Arab world. While much of the regional polling is unreliable, it does reveal some trends. Pew polls taken in 2007 and 2009 indicate consistently high levels of Shiite confidence in Nasrallah, reaching 97 percent in 2009. During this same two year period, however, Sunni Muslim confidence in Seyyid Hasan dropped from an already low 9 percent to 2 percent. (The same 2009 poll showed a decline from 2007 in favorable views of the organization among Egyptians, Jordanians, and Palestinians). Other polls of Arabs also suggest a decline in support. According to polls conducted by Zogby International, in 2008 Nasrallah was the top vote-getter (at 27 percent) when Arabs were asked about their most admired foreign leader. In 2009—even prior to the Ezzedin affair—he only received 11 percent.

Although difficult to prove, both based on the public opinion polling and anecdotal evidence, it appears that the last two years have undercut some of Hezbollah’s hard-won currency in the region. Of course, public opinion is fickle, and there is little doubt that the militia’s popularity would increase if another round of fighting erupted between the organization and Israel. During the summer war of 2006, for example, over a 33-day period, Hezbollah’s al-Manar satellite station viewership soared from 38 in the rankings into the top ten.

Still, recent actions by Hezbollah suggest that the organization is concerned with its image in Lebanon and the Arab world. In November, two months after the scandal broke, for example, Nasrallah changed the topic and published a new Hezbollah “manifesto,” updating the 1985 charter. Like the previous document, the 2009 manifesto spelled out its enmity toward Israel and the United States. At the same time, though, the new charter sought to appeal to a broader Sunni audience by downplaying the organization’s historic allegiance to the clerical leadership in Tehran. Likewise, rather than urging Lebanese Christians to convert—“We call upon you to embrace Islam” read the 1985 manifesto—in 2009, Hezbollah adopted more conciliatory language toward its fellow countrymen.

Likewise, in December, to counter the growing impression of Hezbollah corruption, Nasrallah gave a speech promoting (of all things) adherence to Lebanese laws, including respecting traffic signals, paying for—and not stealing—Government water and electricity, abiding by building laws and civil codes, ending smuggling that undercuts Lebanese businesses, and emphasizing the importance of civil servants showing up for their jobs and actually performing their duties.

This past February, the resistance really put the spin machine into full gear. First, in a speech during “Martyred Leaders Week,” Nasrallah—in an obvious bid to regain his standing with the Arab street—pledged that during the next war with Israel, Hezbollah would go toe-to-toe with Israel, threatening to “bomb Ben Gurion airport,” if the Jewish state targeted Beirut International.

Then, following the martyrs speech, Hezbollah’s website published a bizarre interview with Lebanese “economists” claiming that by establishing a credible deterrent threat, the Shiite militia had actually “improved [the] economic situation in Lebanon,” particularly the performance of the Beirut Stock Exchange. Not coincidentally, at about the same time, Al-Akbar publicized a poll by the pro-Hezbollah Beirut Center for Research and Information, indicating that 84 percent of Lebanese “trust the resistances’ capabilities facing any Israeli attack.”

The final piece of the puzzle in Hezbollah’s effort to rehabilitate its image at home and abroad is compensation for the victims of the Ezzedin Ponzi scheme. Because Hezbollah was so close to the financier, swindled Shiites—most of whom are supporters of the resistance—are petitioning the organization for financial restitution. And it’s not only the Lebanese. According to reports in the Arab press, several leading figures in Syria’s Assad regime, including Assad’s brother Maher and Vice President Farouk Shara’a also lost their investments, and are looking to Hezbollah—which captured Ezzedin on the lam with suitcases of cash in hand—to recoup some 17 million euros.

Not surprisingly, the Kuwaiti newspaper Al-Siyasa reported on February 28 that some time ago Nasrallah had contacted Supreme Leader Khamenei, requesting $300 million in funding to stave off a “crisis of confidence” among his constituents. Khamenei approved the appeal, and according to Al-Siyasa, the funds were transferred to Nasrallah by Ahmedinajad when they met in Damascus last week.

With money in hand, Hezballah will be able to placate its supporters. By threatening Israel, the militia may even be able to again generate some buzz in the Arab world. What the last two years have demonstrated, however, is that if the “resistance” isn’t resisting (i.e., actively fighting) Israel, the Arab world has little use for the militia, particularly if it is attacking Sunnis at home and subverting Arab regimes abroad.

During the dinner in Damascus for Ahmedinajad and Nasrallah last week, Assad pledged his regime’s continued backing for Hezbollah. “To support the resistance is a moral, patriotic and legal duty,” he said. Four years after the last war with Israel and a following a string of Hezbollah miscues, although the Shiite militia dominates Lebanese politics, Assad’s sentiments today appear to be shared by a minority of Middle Easterners. While the organization is making great efforts to reverse the tide, absent another war with Israel, the decline of Arab support for Hezbollah is a regional trend that’s likely to continue.

David Schenker is Aufzien Fellow and director of the Program on Arab Politics at the Washington Institute for Near East Policy.

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