Very challenging economic conditions as the civil war continues

The economic situation will remain very weak and unstable in Syria due to a decade-long civil war, resulting in territorial divisions and the country’s population and financial devastation. According to the World Bank, the war has caused the displacement (primarily to neighboring countries) of nearly 21 million people, and the economic activity collapsed by more than 50% in 2019 compared with 2010. Neighboring Lebanon’s financial crisis worsens the economic chaos in Syria, as it further restrains the country’s economic ties with the world and feeds into the fuel and food shortages and rampant inflation. Coupled with electricity cuts, this aggravates the financial crisis. In July 2021, the government increased the price of subsidized fuel by around 178% due to the global increase in fuel prices. According to the local authorities, sanctions imposed on Syria continue to disrupt fuel imports. A collapsing currency and skyrocketing inflation are expected to persist, which will continue to erode purchasing power. The hike in prices of electricity, fuel, and butane gas due to rising energy prices will also weigh on domestic demand. Moreover, the population suffers from a poor health system. The share of people fully vaccinated was at 4% of the total population as of December 2021. There is no severe investment perspective on the horizon for now, while the estimates of reconstruction costs of Syria’s productive capacity range between USD 250 billion to 400 billion. Still, some hope emerges from the recent improvement of ties with some Arab countries. Although no specific commitments are attached to these improvements, the Arab countries’ willingness to reduce Iranian influence in Syria might result in financial assistance to revive its economy. However, the fact that Syria’s territory remains dismantled will be the key obstacle to any investment decision. Consequently, lands under the control of the Assad regime would benefit from reconstruction efforts in the first place, but operating conditions for companies will remain challenging. 

Reconstruction efforts conditional on rapprochement with Arab countries and Western attitude

With the Assad regime gaining strength, supported by Russia and Iran, most Arab states are expected to keep up with their efforts to approach Syria. However, they endorsed opposition forces against the regime since the start of the civil war in 2011. The Arab countries have already made steps to reduce the Iranian, Russian, and Turkish influence, as well as Assad’s reliance on Iran and Russia for the reconstruction of the country. After reopening its embassy in Damascus in 2018, the United Arab Emirates (UAE) announced a plan to develop economic relations with Syria, and its foreign minister visited the country. The move came after the UAE and Iraq called in March 2021 for Syria to return to the Arab League, from which it was suspended in November 2011. In October, both leaders of Syria and Jordan had a phone call. Jordan reopened its border with Syria, which could offer some economic support. Egypt has also intensified its efforts to bring Syria back to the Arab League with a meeting between the Egyptian foreign minister and its Syrian counterpart late in September for the first time since 2011. However, in late September 2021, the U.S. administration announced that it had no plans to normalize relations with Syria. This statement suggests that the U.S. will not remove the sanctions mandated by the Caesar Syria Civilian Protection Act implemented in June 2020, which punishes people or companies that do business or deal with sanctioned Syrians. On the other hand, Russia is lobbying Israel to encourage the U.S. to ease some of its sanctions, some media reported. Such a move would result in a reduction of Iranian companies’ influence in the reconstruction process and allow Russian, as well as Arab companies, to take part. The Assad regime is striving to gain control of the south of Idlib canton, the last stronghold of the Syrian armed rebellion in the northwest, and of the northeast, which harbors the oil fields and is currently administered by the U.S.‑backed Syrian Democratic Forces (SDF), the main Kurdish fighting forces. Russian and U.S. troops are present in that zone. Additionally, long strips of land along the border with Turkey are controlled by Turkish‑backed parties. Meanwhile, Israel regularly air strikes Iran’s positions all over the country. Given the presence of these different actors with conflicting interests, perspectives of a peace deal remain remote. Consequently, the security situation will take a long to stabilize, continuing to weigh on the economic conditions and business environment. Coupled with the notorious political repression, this will not encourage the millions of displaced to come back.