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Quiet economies

In recent months, government-held areas of Syria have been seriously affected by fuel shortages, causing worry that said fuel shortages may spill over into Lebanon, which is already having trouble supplying fuel to the population. However, analysts suggest that these shortages will likely only affect Lebanon in the short term and that Syria can likely continue to muddle through this crisis.

Syrians queue up to fills their tanks outside a gas station in an area controlled by jihadists of the Hayat Tahrir al-Sham group, which controls much of northwest Syria, on December 15, 2022 in the country's northwest Idlib province. Syria's civil war, which has killed nearly half a million people, has fragmented the country and caused economic collapse. Ninety percent of the population now lives below the poverty line and 12.4 million people are food insecure, according to the UN. Of the six million people in need of winter assistance, 2.5 million live in Syria's northwest, in the last major rebel and jihadist stronghold of the country. Photo: Omar Haj Kadour, AFP

Though fuel has increasingly become scarce throughout Syria in recent years, the last few months have seen a crisis so bad that average Syrians in government-held areas have been forced to ride on top of busses to travel.

In the Syrian desert, pro-government sources reported earlier this month that the Syrian army did not have enough fuel to attack villages that the Islamic State (IS) had captured around al-Kowm. However, about a week later, regime forces managed to launch an operation against said villages with the help of Russian military contractors.

The fuel shortages, as well as the deteriorating economic situation more broadly, have been so bad that protests erupted in the Druze-majority city of Suwayda at the beginning of December in which protesters called for the fall of the regime, a tacitly understood red line between Syria’s Druze community and the government.

Indeed, the situation has become dire.

It would be a serious mistake to look at the Syrian government’s recent fuel crisis in a vacuum, as the country’s informal economy heavily overlaps with neighboring nations and territories.

Lebanon, Syria’s tiny neighbor, has also seen mounting fuel shortages, and given the smuggling trade of all-purpose goods, illicit narcotics, and fuel, it is simply impossible to separate the two crises.

Analysts say that though Syria’s current fuel price hikes may have short-term consequences for Lebanon, ultimately, Lebanon is far better equipped to respond to fuel shortages than Syria.

An oil state with no oil

Syria is a country rich in resources, human capital, and industry. However, its many recent crises arose shortly after the onset of the Syrian revolution in 2011.

As Iranian media and outlets adjacent to it like to point out, Syria is a relatively major oil-producing state, and the US and its allies are currently occupying the majority of Syria’s major oil fields.

What said outlets generally fail to point out, however, is that, besides the fact that most of Syria’s oil infrastructure, as well as its general commercial infrastructure, was destroyed during the war (in most cases, by the Syrian government or IS), most of that oil is sold back to the government via oil smuggling from US-backed forces.

Either way, the Syrian revolution and resulting civil war led to the government withdrawing from vast swathes of territory as the conflict developed.

Regime forces largely withdrew from eastern Syria, where much of the country’s oil wealth is located, in 2013 to reinforce Damascus, Homs, and Aleppo.

If you look at the private sector company that is now meant to distribute fuel in Syria, a company locally called ‘BS,’ it’s actually a company registered in Lebanon and controlled by the Qaterji brothers in Syria… with some Lebanese members.

Then in 2015, IS took Palmyra, and managed to take over almost all of the Syrian desert, which also possessed major oil and gas fields, such as the Shaer field near Homs, which was destroyed after IS attacks.

IS, which had taken over most of Syria’s oil production, and even sold said oil to the government, as well as other factions, eventually was defeated on the ground, leaving Syria’s oil fields in the hands of US-backed forces and the Syrian government.

Around this time, shortly after US troops withdrew from the Turkish border to allow Ankara to launch an offensive against the Syrian Democratic Forces (SDF), the US’s partner in northeast Syria, former US President Donald Trump infamously quipped that “we are keeping the oil. We have the oil. The oil is secure. We left troops behind only for the oil.”

The great irony of this statement is that the Trump administration failed quite miserably at “keeping the oil,” as its plans for Syria’s oil almost completely fell through due to local corruption, logistical issues, and the fact that the only major buyer of SDF oil would be the Syrian government.

As the situation stands now, a small portion (somewhere between 10 to 20 percent) of the regime’s fuel demands are satisfied by SDF oil. The rest comes from Iran or via smuggling networks in Lebanon, many of which are associated with Hezbollah.

Neighboring Lebanon has also experienced severe fuel shortages and price hikes in recent years, though these have been largely due to corruption and the sheer incompetence of the Lebanese government.

Dr. Karam Shaar, a political economist and non-resident scholar at the Middle East Institute, told NOW that ultimately fuel goes both ways across the Lebanese-Syrian border, depending on the price in either country at any given time.

Indeed, Shaar pointed out that, “it’s prudent to look at the problem of fuel shortages in Syria and in Lebanon holistically.”

Oil brothers and foreign suppliers

A name one will often hear regarding Syria’s oil sales is Qaterji, or the Qaterji brothers, Hussam and Muhammad.

Hussam, as described by the US Treasury Department, was “the godfather of the regime’s oil and wheat trade with the Islamic State of Iraq and Syria (ISIS)…. [who] beginning in 2014… started brokering oil and wheat trade deals between the Assad regime and ISIS.”

Both Hussam and his brother have been sanctioned by the US, but exert a large degree of influence over the fuel trade in Syria, and, to some degree, Lebanon as well.

“If you look at the private sector company that is now meant to distribute fuel in Syria, a company locally called ‘BS,’ it’s actually a company registered in Lebanon and controlled by the Qaterji brothers in Syria… with some Lebanese members,” Shaar told NOW.

As the regime lifts fuel subsidies, the Qaterji brothers have increasingly been expected to supply government-held areas with fuel. However, there have been some complications that have made this process difficult, especially regarding Iranian fuel.

Though there was speculation that Iran completely cut its oil exports to Syria in September, precipitating the crisis, Shaar pointed out that it was more likely that Iran had simply decreased fuel shipments in recent months.

“For the Iranians, they would like to be compensated for these oil shipments. Yes, they would be selling oil at a discount for Syria, as well as for other countries, such as China, and yes, Bashar al-Assad is an ally for them, however… I don’t think they would be willing to give oil to Syria free of charge. The key issue is that the Syrian government hasn’t been able to pay for these oil shipments, and that’s why… the Syrian government has decided to more or less lift the subsidies and get the private sector to start supplying the market,” he explained.

Shaar also pointed out that the Qaterji brothers may switch to a Russian supply if they are unable to negotiate good terms with Iran.

“What we know so far is that the Qaterji company will be entering the market soon. Now, whether Qaterji will be importing oil from Russia or Iran is yet to be seen,” he added.

Mohanad Hajj Ali, a senior fellow at the Malcolm H. Kerr Carnegie Middle East Center, explained that depending on how the Qaterji brothers receive new fuel shipments may shift the balance of power between the regime, Russia, and Iran.

“Another side to this story is the impact of Iranian fuel shipments on the power balance inside Syria. We have a regime which is not only increasingly reliant on Iran for fuel, and less so on Russia given the Ukraine war, but also indebted to Tehran. The Syrian regime was playing a balancing act in the past with Iran and Russia, and now this is not possible anymore,” Hajj Ali told NOW.

“The crisis has to do with delays in shipments and the inability to get foreign currency as the exchange rate continues to change, more depreciation. The Iranian regime will increase supply, but this will carry a cost. Political and probably militarily on the ground. Not sure how this will play out, but given Russia’s Ukraine war, now the regime needs Iran more,” he added.

He explained that regardless of where the oil comes from, shortages will continue either way.

“The Iranian shipments of fuel are helping but of course, the shortages will be recurrent, given the impact of sanctions and the inability of the [Qaterji] brothers to get the foreign currency needed to import,” Hajj Ali explained.

He also pointed out that the regime may attempt to generate the necessary foreign currency, such as US dollars, via the illicit narcotics trade or take cuts from foreign aid.

Lebanon could be impacted by increases in price in Syria; however, given the lifting of subsidies, this could be quickly corrected by an increase in imports. This remains possible given Lebanon is not under a heavy sanctions regime like Syria. So while in the short run, there might be an impact, I don’t see this lasting long.

Many have pointed out that Syria is increasingly becoming a “narco-state,” as the amount of Capatagon and other narcotics being smuggled into the region from Syria has skyrocketed in recent years.

Interestingly, though not extensively reported on, the Men of Dignity, a Druze militia in Syria’s Suwayda Governorate, found a Captagon production lab in the basement of the headquarters of the Dawn Forces, a gang headed by Raji Falhout that is affiliated with the regime’s security apparatus, proving a direct link between the Syrian government and the Captagon trade.

Regarding other regional developments, especially the protest movement that swept across Iran beginning in September, both Shaar and Hajj Ali agreed that it did not have any serious ramifications on Iran’s decision to decrease oil shipments to Syria.

“I would downgrade the significance of what’s happening in Iran internally… as there is an excess supply of crude oil in Iran and there are actually numerous ships already oil-laden around the world just waiting for an order to start moving, so… what’s happening domestically is not related, there’s just too much of an oil supply,” Shaar explained

“If you’re talking about how tolerant Iran is to continue to deliver oil free of charge/on credit… you would expect that tolerance to have declined because of the internal dissent,” he added.

Spilling over the border

As Shaar pointed out earlier, it is both unhelpful and, in many cases, impossible to disconnect politics and economics in Syria and Lebanon.

The smuggling networks between the two countries go back for generations, and Syria has been intimately involved in Lebanon’s internal machinations for years and vice versa more recently.

Hajj Ali explained that though there definitely could be spillover effects in terms of fuel prices in Lebanon, as fuel is smuggled into Syria to be sold at a higher price, consequently decreasing supply in Lebanon and increasing the price, this would ultimately only affect Lebanon in the short-term.

“Lebanon could be impacted by increases in price in Syria; however, given the lifting of subsidies, this could be quickly corrected by an increase in imports. This remains possible given Lebanon is not under a heavy sanctions regime like Syria. So while in the short run, there might be an impact, I don’t see this lasting long,” Hajj Ali told NOW.

“Syria could rely on Iranian shipments in spite of the delays and recurrent shortages, but the Lebanese market would not be impacted in the medium and long terms for two reasons: 1. The imports could still take place, and privately so at market rates 2. The Syrian regime and local clients in Syria won’t be able to pay market prices for the fuel and to compensate for the transport cost which is now substantial. So smuggling makes little sense there. But if it would occur, I guess we are talking small scale,” he added.

Ultimately, it seems that Lebanon and Syria will be able to continue muddling through this crisis. However, the burden of price hikes and shortages will continue to fall on the shoulders of the poor and unconnected.

Though Syria is an oil-producing state on paper, its ability to quench the demand of its population seems a long way off.

David Isaly is a Beirut-based journalist and researcher. He tweets @DEyesalli.