Russia’s Eye on Syrian Reconstruction

Russia is primed to benefit economically from an influx of foreign investment in Syria, but an emerging rivalry with China and Iran for contracts could erode its long-term leverage.

Birds fly over destroyed buildings in Al- Khaldieh area in Homs, Syria, September 18, 2018. Picture taken September 18, 2018. Marko Djurica/Reuters

During a December 28 press conference with his Jordanian counterpart, Russian Foreign Minister Sergey Lavrov asserted that Russia’s contributions to Syrian reconstruction were helping to improve the humanitarian crisis and urged Western countries to invest in the reconstruction. Lavrov’s comments revealed Russia’s growing focus on Syria’s economic reconstruction, even as civil war continues to simmer in Idlib and prospects of a short-term peace settlement appear remote.

Russia’s rapidly growing interest in the Syrian reconstruction process highlights two main strategic objectives. First, Russia wants to reconnect Syria to global financial markets so Bashar Al-Assad can consolidate his hold on power and begin accruing the $400 billion he believes is necessary for rebuilding Syria. Second, Russia wants to benefit from its gradual positioning as the main actor in the Syrian reconstruction process, as a foreign capital influx into the Syrian economy could provide vital hard currency for Russian businesses. These aspirations will likely drive Russia’s policy towards the Syrian reconstruction process for the foreseeable future, even though Russia’s limited material resources and desire to avoid tensions with Iran could undermine the success of this agenda.

In order to provide Assad the economic resources he needs to rebuild Syria, Russia has lobbied governments across the world to invest in the Syrian economy. Initially, Russia courted U.S. investment in the Syrian reconstruction process. On July 19, 2018, the Russian military’s Chief of the General Staff, Valery Gerasimov, drafted a memo to his United States’ counterpart, Joseph Dunford, urging the United States to invest in Assad’s rebuilding efforts. U.S. officials rejected Gerasimov’s request, stating that a political transition in Syria was a prerequisite to U.S. investment.

This setback drove Moscow to shift its focus toward procuring European investment in Syria. After meeting with German Chancellor Angela Merkel on August 18, Russian President Vladimir Putin appealed to anti-immigration sentiments in the EU by describing the Syrian refugee influx as a “huge burden” for Europe, stating that helping Syria restore clean water and healthcare to its people would alleviate this problem. Putin’s outreach failed, however, as Merkel merely stated her desire to “avoid a humanitarian catastrophe” in Syria without committing to an Assad-led reconstruction process. Merkel’s reluctance to invest in an Assad-led reconstruction effort mirrored similar statements from France’s ambassador to the United Nations, Francois Dellatre.

The U.S. and EU’s unwillingness to grant Russia’s requests for large-scale financial assistance to Syria has pushed Russia to consider Saudi Arabia and China as more willing alternatives. Although Assad’s perceived illegitimacy has been a long-standing obstacle to Saudi investment in Syria, Russia viewed Saudi Foreign Minister Adel al-Jubeir’s August 29 call for a political solution in Syria as a positive development, and has engaged in subsequent diplomatic negotiations with Riyadh on ending the Syrian civil war.

In spite of the recent intensification of bilateral dialogue on Syria, in Russia’s view, Saudi Arabia has still not given a clear indication it is willing to provide economic assistance to Syria. Andrei Baklanov, former Russian ambassador to Saudi Arabia from 2000 to 2005, stated on January 5 that Saudi Arabia is unlikely to assume most of the costs associated with the reconstruction of Syria. According to Baklanov, Syrian diplomats view Saudi Arabia as “treacherous” for betraying Assad’s government during a time of trouble, especially as his father, Hafez al-Assad, supported Saudi Arabia’s ally Kuwait during the 1991 Gulf War. However, Saudi Arabia could view financial support to Damascus as an effective antidote against long-term Iranian hegemony in Syria, according to Alexey Khlebnikov, an expert on the Middle East at the Russian International Affairs Council. Adding to Saudi Arabia’s ambiguous position, on December 26, Riyadh denied U.S. President Donald Trump’s claims that the kingdom had agreed to fund Syria’s reconstruction, as it continues aggressive efforts to cut its budget deficit.

So far, Moscow’s greatest hope is in China. Yevgeny Satanovsky, the president of the Moscow-based Institute of the Middle East, still views Beijing as the most likely long-term financier of Syria’s reconstruction, as China—much like Russia—sees Assad as a bulwark against Islamic extremism in the region. China’s pledged investment of $2 billion into reviving Syria’s industrial capacity and enthusiastic participation at the September 2018 Damascus International Fair reveal Beijing’s willingness to assist the process of reconstructing Syria. Yet, the U.S. withdrawal from Syria and continued re-balancing toward the Indo-Pacific region could ultimately slow the pace of Chinese investment in Syria.

Russian access to lucrative reconstruction-linked contracts drive Moscow’s support for a policy of investment without preconditions in Syria. In order to maximize its economic windfall, Russia has lined up preferential contracts in major Syrian economic sectors and secured advance deals with Damascus. Given Assad’s extensive reliance on Russian military support since 2015, business leaders such as Sergey Katyrin, the president of Russia’s Chamber of Commerce and Industry, have revealed that Russian businesses will have “first priority” in the allotment of reconstruction funds that Syria receives. Once the reconstruction process is underway, Russian businesses will be most effectively placed to take on a major presence in the energy and construction sectors.

In January 2018, Moscow signed a bilateral agreement with Damascus, which gave it exclusive rights to extract oil and gas from areas of Syria under Assad’s direct control. This agreement was followed by Russian Minister of Energy Alexander Novak’s announcement that Moscow had signed a “roadmap” with Syria covering the “restoration of oil fields and the development of new deposits,” and in October 2018 by a pledge for joint Moscow–Damascus cooperation to enhance the quality of Syrian oil production facilities. While Syria’s oil reserves are largely concentrated in the northeastern regions controlled by the Kurdish Syrian Democratic Forces (SDF), Lavrov’s push to convince Kurdish groups to accept Assad’s legitimacy could eventually cause these reserves to fall under Syrian government control. This prospect has become more likely due to ongoing concerns about a Turkish military offensive in northern Syria and limited cooperation between People’s Protection Units (YPG) forces and the Syrian army in Manbij.

In addition to Moscow’s investments in the Syrian energy sector, Russian businesses have established footholds in other sectors of the Syrian economy to ensure that Damascus will commission contracts from Russian companies. In March 2018, Russian companies secured advance deals for power generation projects in Homs, a rail line linking Damascus International Airport to the city center, and an array of industrial plants that will play an instrumental role in Syria’s future development. These contracts ensure that Russia is primed to benefit economically from an influx of foreign investment in Syria, which it hopes will follow naturally from a peaceful resolution to the conflict.

Even though Russia’s role as the leading fundraiser for Syrian rebuilding, and its favorable contractual arrangements with Damascus could help it secure a long-term foothold in the country, Russia’s inability to devote substantial material resources of its own to the reconstruction process could ultimately restrict its influence. While establishing an emergency line of credit between China and Syria could give Damascus the capital it needs to commission contracts from Russian companies, Kremlin policymakers are apprehensive that Chinese companies could out-compete their Russian counterparts once the reconstruction process intensifies. China’s safety concerns regarding doing business in Syria could prevent this rivalry from surfacing in the near future, but Russia is under growing pressure to sign more advance reconstruction contracts while it still has the advantage of an active military presence.

Russia’s reconstruction deals in Syria also risk engendering tensions with Iran at a time when Moscow and Tehran are seeking to upgrade their strategic military partnership. Concerns about competition between Russian and Iranian businesses involved in the reconstruction of Syria came to a head in February 2018, when Moscow beat out Tehran for a major fifty-year deal in Syria’s phosphate industry. Figures in the Syrian real estate sector have also accused Russia of actively preventing Iran from leading rebuilding efforts in southern Damascus. Russia’s and Iran’s mutual dependence on preserving Assad’s authority has ensured that clashes over the Syrian reconstruction process are currently an issue of secondary importance. However, tensions could flare up between Russia and Iran once their joint military operations in Syria come to a close, as influential figures aligned with Iranian President Hassan Rouhani and conservatives within the Islamic Revolutionary Guard Corps (IRGC) have indirectly blamed Moscow for Iran’s struggle to secure advance contracts in the Syrian reconstruction process.

Although Russian officials remain primarily focused on defeating Hayat Tahrir al-Sham (HTS) and ensuring Assad’s survival as Syria’s uncontested leader, Moscow will continue to tread an independent course on the Syrian reconstruction process and focus on positioning itself to reap the largest windfalls from future investment in Syria’s war-ravaged economy. This approach could cause Russia to emerge as a short-term winner from the reconstruction process, but Moscow’s limited financial resources and an emerging rivalry with China and Iran for contracts could erode Russia’s long-term leverage over Syria.

This article is reprinted with permission of Sada. It can be accessed online here.

Samuel Ramani is a doctoral candidate at the University of Oxford’s Department of Politics and International Relations, specializing in post-1991 Russian foreign policy and Russia-Middle East relations. He is a regular contributor to the Carnegie Endowment for International Peace, Middle East Institute, Foreign Policy and the Washington Post. On Twitter: @samramani2.

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