**Ongoing security frictions and Hezbollah’s rejection of disarmament continue to constrain prospects for full normalization between Israel and Lebanon before 2027.** A June 2026 U.S.-brokered trilateral framework agreement established mutual recognition of sovereignty, pilot zones for phased Israeli withdrawals, and Lebanese Armed Forces deployment to restore state control, but Lebanese officials explicitly described it as a process to end hostilities rather than a peace treaty or normalization step. Hezbollah has denounced the deal and refused disarmament, while Israeli operations against the group’s infrastructure have persisted into September 2026. Subsequent talks have advanced slowly, with recent envoy meetings yielding limited progress and the next round delayed until October. These factors, combined with Lebanon’s linkage of broader relations to the Arab Peace Initiative and the short remaining timeline, underpin the market’s strong “No” pricing.