UPDATE 4-Hezbollah-backed candidate Diab on course to be Lebanese PM

Former minister Hassan Diab looked set to be named Lebanon's new prime minister on Thursday with backing from the Iran-backed group Hezbollah and its allies, a move that could complicate efforts to secure badly needed Western financial aid.

Lebanon, wrestling with the worst economic crisis since the 1975-90 civil war, has been in dire need of a new government since outgoing Prime Minister Saad al-Hariri resigned on Oct. 29, prompted by protests against the ruling elite. But efforts to reach a deal on a new premier have been mired in divisions that reflect long-standing tensions between Hariri, who is aligned with Western and Gulf Arab states, and the heavily armed Shi'ite Muslim group Hezbollah. Washington regards Hezbollah as a terrorist group and has imposed sanctions on it.

President Michel Aoun, a Hezbollah ally who has also been at political loggerheads with Hariri, began consultations on Thursday with deputies to designate the new premier, who under the country's sectarian political system must be a Sunni Muslim. Aoun, a Maronite Christian, is required to designate the candidate with the most support.

The move to nominate Diab signaled a decision by Hezbollah and its allies to abandon efforts to forge a consensus with Hariri and to install a candidate of their choosing, drawing on the parliamentary majority they secured in a 2018 election. But even as Diab appeared set to become premier, it was not clear how quickly a government would be formed. Until the new government is formed, Hariri, Lebanon's leading Sunni politician, will stay on as caretaker prime minister.

Lebanon is facing an unprecedented financial crisis: banks are imposing tight capital controls, the Lebanese pound has slumped by a third from its official rate and companies are shedding jobs and slashing salaries. Fitch last week cut Lebanon's credit rating for the third time in a year, warning it now expected the country to restructure or default on its debt.

HARIRI AND HIS PARTY BOW OUT Hariri did not put forward anyone for the post of the prime minister and MPs with his Future Movement told Aoun it would not take part in the next government, a source close to Hariri said.

Seeking to avoid a one-sided cabinet, Hezbollah and its Shi'ite ally Amal want to change Hariri's mind so the Future Movement takes part in the cabinet, a political source familiar with the issue said. However, Aoun is expected to press for a rapid cabinet formation, the source said. Hariri had seemed on course to be nominated prime minister himself but withdrew his candidacy on Wednesday.

That decision followed a move by the Christian Lebanese Forces, a staunchly anti-Hezbollah party with close Gulf ties, to nominate neither Hariri nor anyone else for the position. Mohanad Hage Ali, a fellow at the Carnegie Middle East Center, warned of the risk of unrest between Shi'ite supporters of Hezbollah and Amal on the one hand, and Sunni supporters of Hariri on the other.

"The lack of Hariri support means that it is a polarising government, which means it is less likely they will see (foreign) support," he said. Diab served as an education minister in a government led by ex-premier Najib Mikati. He has a doctorate in computer engineering and is currently Vice President at the American University of Beirut.

Elie Ferzli, the deputy parliament speaker and a Hezbollah ally, was the first lawmaker to declare support for Diab. He said the nomination took "into account some of the basic prerequisites wanted by the people" and called him an "academic and person of integrity".

But Mikati said he was not up to the job. "I don't want to deflate the hopes of Lebanese but I am skeptical that any of the proposed names could shoulder (the responsibility) during this period," said Mikati, who had backed Hariri for the post.

After announcing Hezbollah's support for Diab, Hezbollah lawmaker Mohammad Raad said the group had extended the hand of cooperation "for the sake of the country".