BY IYAD YOUSEF
The economic impact of the Syrian civil war has battered the country and threatens a new round of unrest. As economic conditions similarly worsen in Iran—Syria’s main financial backer, whose support surpasses even that of Russia—Syria has been forced to rely on its own limited resources, to little effect. Now, the survival of President Bashar al-Assad’s regime ironically rests on the outcome of the U.S. presidential election this November and what it will mean for U.S.-Iranian relations.
The deterioration of the Syrian economy has largely been a consequence of the destruction of civilian infrastructure since the beginning of the civil war in 2011, coupled with harsh economic sanctions imposed by the United States. The World Bank reported in August 2019 that the country’s GDP had declined to almost one-third of its pre-conflict level, and, according to the report, 64 percent of the negative growth had been a result of the destruction of physical capital.
Under normal circumstances, Syria could expect to rely on Iran for financial assistance, but economic sanctions imposed by U.S. President Donald Trump in 2018 brought the Iranian economy to its knees, forcing it to focus its now-limited resources inward and leaving Syria to face its economic problems alone. The coronavirus pandemic delivered an even greater blow to Iran’s economy, causing its GDP to decrease by around 15 percent.
The U.S. policy toward Syria has enjoyed bipartisan support for the most part, and both the Obama and Trump administrations adopted similar approaches to the country, engaging in comprehensive military interventions to defeat the Islamic State and imposing harsh economic sanctions on the Assad regime. But while the U.S. intervention was instrumental in the collapse of the Syrian economy, Assad could always rely on support from Iran to boost his country’s fortunes. For that reason, it was Trump’s and former President Barack Obama’s divergent approaches to Iran that had the greatest effect on the Syrian economy.Trump’s and former President Barack Obama’s divergent approaches to Iran had the greatest effect on the Syrian economy.
Obama negotiated a nuclear deal with Iran in 2015 that, among other things, significantly eased economic pressure on the country. The deal unfroze many of Iran’s foreign assets and allowed its economy to flourish, thus giving it the capacity to continue providing support to its allies abroad, including Syria. Both Assad and one of his advisors, Bouthaina Shaaban, welcomed the deal and expected the Iranian financial backing to continue apace. Indeed, Iranian support was a critical factor keeping Assad’s regime afloat in the midst of the conflict, and it used this support to defeat both the Islamic State and opposition forces and reestablish its authority in large parts of the country. Russia also played an important role in Syria. In addition to providing logistical and air support to Assad’s forces, Moscow has played a vital political role by shielding Syria from more than 14 U.N. resolutions by exercising its veto power on the Security Council.
Trump’s decision to withdraw from the nuclear deal and reimpose sanctions on Iran in 2018 reversed this process. After the move, a news agency with close ties to the Syrian regime reported that the credit line from Iran had been severed, immediately causing the Syrian oil sector—on which the country is heavily dependent—to collapse.
The Syrian government responded to the Iranian crisis by implementing strict austerity measures. This January, the deputy minister of internal trade and consumer protection announced that each family, regardless of its size, would receive just 8.8 pounds of sugar, 6.6 pounds of rice, and 2.2 pounds of tea at a subsidized rate per month through its “smart card” program. This is in addition to a cooking gas ration the government already introduced in 2019.
Assad also issued two legislative decrees in 2019 that increased the salary of retirees and public servants with the aim of putting more money in people’s pockets in the hope that it would lead to an increase in demand for goods and services and ultimately stimulate the economy.
His rationale was sound, but his policy directives were constrained by the economy’s inherent weaknesses. In addition to the loss of physical capital, economic sanctions have cut Syria off from the international market, limiting its ability to attract foreign investment, which has in turn handicapped its production capacity. More than that, the self-financing capacity of the economy is limited, particularly as Syrian households have been forced to increasingly rely on their savings to get by.
Even the country’s rich business class is little help. They have withdrawn most of their finances from Syrian banks and reinvested in neighboring countries. What little respite the country might have found in its own natural resources has been hampered by the regime’s loss of its oil fields and the U.S. prohibition on the delivery of oil to Syria. So, even though Assad’s policy initiatives had given more money to more Syrians, they were unable to overcome the variety of challenges the economy faces.The irony of all of this is that what’s good for Syrian people in government-held areas is also good for Assad.
The Syrian Central Bank has been virtually powerless due to the depletion of its supplies of foreign currency and gold, leaving the bank unable to stabilize the exchange rate nor fund the purchase of imports. The value of its foreign exchange and gold reserves, for example, hovered around $407 million in January 2018, in contrast to their 2010 level of $20.6 billion. The low reserve level has caused the country’s currency to steadily depreciate against the U.S. dollar since May 2018, increasing the cost of imports and servicing foreign loans. In January, it fell to a paltry 1,230 Syrian pounds per one U.S. dollar, in contrast to its prewar level of around 50 Syrian pounds per one U.S. dollar.
Because so much of Syria’s economic health hinges on the government procuring financial backing from Iran, the country’s future—and, by extension, Bashar al-Assad’s future as president—depends on the outcome of the upcoming U.S. presidential election. If Trump wins a second term, Syrians can expect much of the same: The Trump administration will likely continue its maximum pressure campaign on Tehran, maintaining stringent sanctions on the country and forcing it to focus its resources on its own crumbling economy as well as the growing sense of public dissatisfaction with the regime.
If presumptive Democratic nominee Joe Biden wins, however, the United States will likely pivot back toward diplomacy, choosing to engage with Iran and, crucially, reentering his predecessor’s nuclear deal. As part of this process, a Biden administration would probably lift some economic sanctions on Iran, allowing it to again focus its resources abroad. Of course, the inherent risk of such a move is that Assad would be strengthened in Syria, undermining the U.S. sanctions regime there and strengthening Iran in the Middle East. But it would also mean alleviating public grievances and putting the Syrian economy back on the path to stabilization.
The irony of all of this is that what’s good for Syrian people in government-held areas is also good for Assad, at least for now. The inflow of cash from Iran will undoubtedly strengthen his regime, allowing him to rebuild his legitimacy at home by mitigating discontent among impoverished Syrians.
Neither a Trump nor a Biden presidency will bring economic sanctions relief for Syria, so the country’s growth potential will remain limited as long as Assad is in power. But if Syria can again rely on substantial support from Iran, expect Assad to hold the reins of power indefinitely.
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