While Syria coup revives geopolitical trade and redesign economic supply routes and partners, in Lebanon a cost for stabilization will see more dumping of the dollar
A trader’s tweet last week quoted: “If you have bills to pay in Lebanese pound it’s now or never.” Asked by NOW Lebanon what’s the catch on that, he answered, “we foresee a scenario of dumping the American dollar and a dire need for Lebanese pounds in the market, following the coup. Money exchangers in Hamra confirmed the news. People are selling dollars at an increasing pace as news from Syria were optimistic of the successful toppling of Assad, they told NOW.
Syria’s geo-economic importance is multifaceted, therefore a change in the regime will certainly introduce a new country, shaped by its strategic location, natural resources, and the complex interplay of a new entente with regional and global powers. The new rulers of Syria reconsidering their alliances will certainly reconsider their trade partners. In either case they are inheriting an endless socio economic crisis. Over 85% of Syrians in northern Syria surveyed by the International Rescue Committee (IRC) are in debt; more than 90% can’t repay it. 60% buy food on credit. Nearly 50% cite selling products (including animal products, crops, agricultural products, fish, livestock, fuel gas) as their primary income source. Almost 60% identify food or money for food as their household’s greatest unmet need. 40% observe child labor in local markets, attributing it mainly to poverty and the need for family contributions to work.
For Lebanon, reconsidering Syria trade partners and international communities’ alliances is key especially to oust Syria’s economic ghosts crippling the governance of the administration. Whether the money markets will relax after a change of regime in Syria or not, Lebanon continues to face depressed economic activity stemming from the onset of the economic crisis in late 2019. To be noted that Syrian affiliated political elite have also played key roles in triggering a financial crisis described as one of the largest Ponzi schemes in modern history. Experts estimate that roughly 100 billion dollars, the accumulated wealth of the country’s depositors, had been wiped out by this financial meltdown. This crisis has devastated the savings of millions of Lebanese and plunged the country into a severe economic downturn, leaving 44 percent of the population living below the poverty line.
The impact of the Syrian Assad regime was also underlined in Lebanon’ economy which was deeply infiltrated with illicit finance and Captagon trade which main source is Syria’s which economy was being driven by Captagon, with the country a “major producer and exporter” of the illegal fenethylline-based drug, the World Bank has said. The total market value of Captagon of Syrian origin is estimated between 1.9 billion and 5.6 billion dollars a year, almost equal to Syria’s estimated GDP of 6.2 billion last year, the multilateral lender said in its May report.
“Actors based in or linked to Syria profit from the sale of Captagon to up to 1.8 billion dollars per year, almost twice the revenue generated from all licit Syrian exports in 2023,” it said. Other areas of the economic sectors have been a prey to the black market operatives along the uncontrolled Lebanese Syrian borders.
Syria’s economic challenges
Syria’s economic landscape is dire, with projections indicating a continued contraction of real GDP by 1.5% in 2024, following a 1.2% decline in 2023. This economic downturn is exacerbated by soaring inflation, which has reached 93%, and a significant depreciation of the Syrian pound, which fell by 141% against the US dollar in 2023. Poverty affects approximately 69% of the population, with extreme poverty affecting over a quarter of Syria. The regime’s reliance on printing currency to cover inflation has only worsened the situation, leading to a cycle of economic mismanagement characterized by corruption and oligopoly.
Since the onset of the civil war in 2011, Syria’s economy has faced severe challenges. The Syrian civil war has had devastating economic consequences. From 2011 to 2016, Syria’s GDP contracted by approximately 63%, with cumulative losses estimated at 226 billion dollars. The conflict led to widespread destruction of infrastructure – about 7% of housing stock was destroyed – and significant displacement of populations. Unemployment surged dramatically; by 2015, youth unemployment reached a staggering 78%. The oil GDP declined by 93 percent during the same period, while the non-oil economy contracted by 52 percent due to the severe destruction of infrastructure, reduced access to fuel and electricity, low business confidence, and disruption of trade.
The economic disruption was particularly acute in the hydrocarbons sector. The production decline from 383,000 bpd in 2010 to just 10,000 bpd in subsequent years exemplifies this trend. Additionally, international sanctions have further isolated Syria economically, leading to a current account deficit that reached 28% of GDP by 2016.
Export revenues plummeted from approximately USD 11.9 billion in 2010 to just USD 0.6 billion by 2019, marking a staggering decline of about 95%.Imports also decreased significantly, falling from USD 20.6 billion to USD 6.0 billion during the same period, which deepened the country’s import dependency. The former Syrian government’s fiscal resources have diminished drastically, with the budget in 2021 being only one-eighth of what it was in 2012. This economic contraction has forced Syria to rely heavily on humanitarian aid and remittances from abroad, affecting its ability to engage in international trade effectively.
The fallout from the Syrian conflict has extended beyond its borders, particularly affecting neighboring countries, Lebanon and Jordan. The World Bank reported that Lebanese exports to Syria dropped significantly due to reduced demand caused by the war. For instance, exporters in Lebanon lost an average of USD 90,000 in exports to Syria by 2012, with more pronounced effects on sectors like manufactured goods. Conversely, some sectors in Lebanon saw benefits as they filled gaps left by Syrian production declines. For example, Lebanese exports of wheat surged dramatically during this period. Jordanian exporters faced even greater challenges, highlighting the heterogeneous impacts of the conflict on regional trade dynamics. In another note; Syria is receiving clandestine cargoes of LPG from Turkey with vessels ostensibly heading to Lebanon in fact delivering cargoes to the Syrian terminal of Baniyas despite ongoing international sanctions banning the supply of energy products. Kepler Data On Lebanon LPG; The remaining 72,000 tons actually went to Syria. Imports show a mere 5,000 Tons arriving From Turkey.
Syria riches
Syria possesses significant natural resources, particularly in hydrocarbons. Before the onset of the civil war in 2011, Syria produced approximately 383,000 barrels of oil per day (bpd). However, due to conflict and territorial control by various factions, production plummeted to around 10,000 bpd by 2015. The oil sector was a crucial contributor to Syria’s economy, accounting for a substantial portion of government revenue. In 2010, oil revenues represented about 25% of total government income.
In addition to oil, Syria has considerable agricultural resources. The country was once known as the “breadbasket” of the Arab world, producing wheat and barley. However, ongoing conflict has severely disrupted agricultural production due to damaged infrastructure and loss of arable land. The agricultural sector’s contribution to GDP has diminished significantly since 2010.
Shifts in trade patterns
Syria’s historical relationships with regional trade partners have been complex, often subordinating economic interests to political objectives. The Assad regime has previously prioritized political stability over economic reform, which has hindered trade relations with neighboring countries like Iraq and Jordan. As the new Syria will seek to stabilize its economy, it must navigate these long standing political dynamics. The normalization of relations with regional partners could potentially enhance trade prospects. Recent shifts might indicate a gradual thawing of ties with countries like the UAE and Bahrain, which may lead to increased investment and trade opportunities if sanctions are lifted .
Before the civil war, Syria was engaged in various international trade agreements, including a free trade agreement with Turkey and an association agreement with the European Union (EU). However, these relationships have been strained due to the conflict. It is still to be seen how the new rulers of Syria will go about the new trade agreements. In recent years, there has been a notable shift towards “substituting imports” and promoting local products within Syria as a response to economic isolation and sanctions. To be noted that in 2023, Syria reported a significant increase in exports (60% rise) despite an overall trade deficit of 2.3 billion euros. This increase was driven by exports of phosphate, clothing, and agricultural goods. However, the government’s rationing policy on imports has led to a decrease in overall import values by 27%. This destruction has created bottlenecks in supply chains, complicating logistics for businesses trying to operate in or with Syria.
Due to sanctions and the conflict’s instability, traditional supply routes have been rerouted. For instance, EU-branded trucks intended for civilian use have been found being utilized by the Syrian military, indicating a clandestine supply chain that bypasses direct exports to Syria.
Will the role of key actors be redefined?
To start with, Russia’s involvement in Syria is driven by both geopolitical interests and economic opportunities. Since its military intervention in 2015, Russia has sought to stabilize the Assad regime while securing preferential access to Syria’s energy resources. Russian companies are poised to play a significant role in rebuilding Syria’s energy and infrastructure sectors. For instance, contracts worth approximately 1.6 billion dollars were announced for Russian businesses to resume operations once stability is restored.
Russia has also forgiven substantial portions of Syria’s debt – 75% or 14 billion dollars – demonstrating its commitment to maintaining influence in the region1. This financial support is critical as Syria seeks international investment for reconstruction.
As for Iran its involvement is similarly strategic but focuses more on military and ideological objectives. Iranian investments include building power plants and telecommunications infrastructure worth hundreds of millions of dollars. For example, Iran committed to constructing a mobile service network and several gas-fired power plants across various Syrian provinces.
Iran’s economic strategy is intertwined with its military objectives; however, it faces challenges due to international isolation and competition from Russia and China for influence in post-war Syria.
China on her part is increasingly interested in Syria as part of its Belt and Road Initiative (BRI), which aims to enhance connectivity across Asia and beyond. China’s involvement could provide much-needed investment for reconstruction efforts. However, detailed figures regarding Chinese investments in Syria remain scarce at this point.
Where do we go from here?
The road ahead for Syria’s economy is fraught with challenges but also opportunities for growth and development.
With estimates suggesting that rebuilding infrastructure could cost upwards of 400 billion dollars over several years, international cooperation will be essential.
Restoring oil production capacity can significantly boost government revenues and provide funds for reconstruction. Also revitalizing agriculture through investment in irrigation systems and technology can restore food security.
In conclusion, Syria’s geo-economic importance lies not only in its strategic location and natural resources but also in its potential as a hub for regional trade and investment post-conflict. As the new rulers of Syria will have to make difficult choices about how they spend what little money they have, humanitarian agencies are also being forced to make impossible decisions regarding the services we should prioritize as financing aid and relief actions is paramount. The funding shortfall for Syria’s Humanitarian Response Plan (HRP) has been steadily increasing for several years. The HRP for 2023 received less than 40% of the necessary funds, and projections for 2024 suggest that even more severe cuts are to come. This funding shortfall is already directly impacting the ability of organizations like the IRC to provide essential services such as health care, treatment for communicable diseases, and services for pregnant and lactating women, thereby exacerbating the suffering of those in need.
Engaging with international organizations can facilitate funding and expertise necessary for recovery. Will the former geopolitical tensions of the Assad regime’s authoritarian practices pose significant barriers to consistent regional partnerships? However, the key question remains whether the international community accepts the new government to be in place.
Maan Barazy is an economist and founder and president of the National Council of Entrepreneurship and Innovation. He tweets @maanbarazy.
The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW
