Iran’s Stakes in Syria’s Economy

Although political considerations are the main drivers of Iran’s policy toward Syria, economic interests are playing an ever greater role.

Recent gains by Syrian opposition forces in the north of the county, where they took control of the Idlib province and the city of Jisr Al-Shughour in April 2015, raised questions about Iran’s commitment to supporting the Syrian President Bashar Al-Assad, who has experienced a number of recent setbacks. But remarks on May 5, 2015 to Bloomberg News by Adib Mayalah, the governor of the Central Bank of Syria, dispelled these doubts. He announced that Iran has given “preliminary approval” for a new credit line to the Syrian government for $1 billion, which would be used to help finance imports.

This will be the third such loan since the uprising began in March 2011. The first loan, which amounted to $1 billion, came in January 2013 after government revenues had already plunged to 50 percent of their pre-war levels. Because of the conflict, Syria faced sanctions imposed by the European Union and the United States, an oil-related revenue decline by 90 percent, and a sharp decline in available funds from state-owned enterprises and taxes from the private sector. With this in mind, Syrian government dedicated this first loan to pay for imported food commodities and to prop up the Syrian regime’s official foreign reserves, which had been depleted by the increasing pressure of the military expenses since the beginning of the uprising. A second, more robust $3.6 billion loan came that August and was earmarked mainly for the purchase of oil products. This latest loan, however, is meant to offset the sharp drop in the value of the Syrian pound. This necessitated pumping more money into the market to avoid the collapse of the local currency.

But this is only one way in which Iran has reaffirmed its economic commitment to the Syrian government. Tehran also met with Syrian Defense Minister Fahd Jassem Al-Freij “to enhance strategic cooperation between the two armies to confront challenges which encounter the region,” Al-Manar Television reported. Iran also sent Alaeddin Boroujerdi, chairman of the Committee for Foreign Policy and National Security in the Iranian parliament, to Damascus to announce that Iran’s support for the Syrian regime is “stable and constant.” Speaking from the Syrian capital, he stressed that there were no “restrictions or limits to cooperation with Syria and providing support.” A few days later, on May 18, Syria and Iran signed several investment agreements in the oil, electricity, and industrial sectors, and they discussed “means to implement [further] cooperation between the two countries.”

Although Iran played a relatively small economic role in pre-war Syria, it has now grown accustomed to its economic interests there and deems them worth defending. It has a new place within Syria’s economic relationships with its neighbors, which have shifted dramatically since the war. Opposition to the Assad regime, for example, ended one its strongest emerging economic alliances—namely the strategic alliance that had developed between 2004 and 2010 between Syria, Turkey, and Qatar. In that period, Syria was the fourth largest recipient of investment from other Arab countries, particularly from the Gulf. Consequently, Syrian-Arab foreign investment increased from 5.9 billion dollars in 2004 to 38 billion dollars in 2005 and Turkey increased its business projects in Syria. Turkey and Qatar strongly supported Hezbollah, Assad’s main ally in Lebanon, in the 2006 Israel-Hezbollah war, and Qatar donated a quarter of a billion dollars to support reconstruction efforts in Bint Jbeil, a Lebanese town loyal to Hezbollah. In contrast, Iranian investments were marginal in Syria during that period, and even the agreements signed between Iran and Syria since 1990—related to strengthening economic cooperation, exchanging expertise, and encouraging investment—remained unimplemented until the outbreak of protests in 2011.

Unlike other regional states, after war destroyed much of Syria’s infrastructure and productive sectors, Iran entered into many economic cooperation agreements and contracts with the government to rebuild these sectors. Among others, this includes infrastructure projects, food production, and health services, in addition to providing loans the Syrian government then used to pay for Iranian imports. In July 2013, for example, Damascus exempted an Iranian company specializing in exporting food from all taxes on goods coming into Syria. There have also been unconfirmed reportsindicating that Iran is seeking to obtain collateral from the Syrian government in the form of real estate assets or other state properties, as opposed to just loans.

In 2012, both Syria and Iran began to implement a free trade agreement, and now most goods and products exchanged between the two are not subject to taxes and customs tariffs; trade between the two countries grew from approximately about $300 million in 2010 to $1 billion in 2014. Both Syrian and Iran have made clear their desire to see trade rise to $2 billion in 2015 via two direct maritime lines. Although $2 billion may not seem significant—especially in comparison with the more than $10 billion in trade between Iran and Iraq—this growth during a bloody war is remarkable nonetheless. It is an important reminder of Iran’s interests in Syria, as well as its stakes in the country’s post-war economy.

In addition to the lucrative contracts currently enjoyed by Iranian companies in Syria and the thriving trade between the two countries, Syria falls within Iran’s future plans to expand its activities in the global natural gas market. Syria’s reliance on Iranian funds allowed Iran to secure an agreement in 2011 to create a pipeline that will transport Iranian gas through Iraq and Syria, destined for Europe. While the war in Syria has blocked the construction of this vital Iranian project, a defeat for the Syrian regime would dash Iran’s hopes of building the pipeline and increasing its share in the global natural gas market.

Iran is also keeping its eye on the post-war reconstruction process. There are already millions of homes, facilities, and infrastructure damaged or destroyed in Syria. If it has good relations with the ruling regime at the end of the conflict, Iran will be prepared to play a dominant role in the reconstruction process, as it is the largest producer of cement and iron in the Middle East.

There are strong political and security considerations that explain Iran’s strategic commitment to supporting the Syrian regime. First and foremost is Damascus’s historical relationship with Hezbollah, which in turn has political and ideological ties with Tehran. And Iran’s continued commitment to the Syrian President Assad comes at a stage when it is working to entrench its influence in Iraq and expand it in Yemen and Bahrain. But Iran’s economic investments have played a growing role in its persistent backing of Assad and continued rejection of the Geneva Conference—which called for a transitional government with full executive powers that might undermine Iran’s economic interests while it remains locked in tough negotiations with the West to lift economic sanctions.

Although Iran’s intricate political interests are what push it to take such an obstinate stance regarding political solutions to the war in Syria, economic interests play an increasingly important part. Iran will thus continue to resist any comprehensive settlement that would enshrine a genuine power-sharing agreement if it risks coming at the expense of its traditional political and security interests, its nascent economic interests, and its potential opportunities in the future of a post-war Syria. 

This article is reprinted with permission from Sada. This article was translated from Arabic.

Salam al-Saadi is a Palestinian-Syrian journalist and researcher focused on political and economic affairs in the Middle East, particularly in Syria, Iraq, and Palestine.

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