Establishing sustainable influence
Since the collapse of the Soviet Union, Russia has identified itself as a rival donor country capable of competing with international aid from the West. However, to date, Moscow has shown little interest in providing financial aid to any of the devastated countries in the MENA region including oil-rich Iraq. In terms of finance, Moscow’s role in Syria has not deviated from this pattern of behaviour, as available information suggests that Moscow has provided limited amounts of funding to Damascus, particularly when compared to the lines of credit provided by Tehran worth $6.6 billion. Instead, Russia has adopted an opportunistic approach to reconstruction efforts in the country and has secured access for its private sector to invest in potentially lucrative ventures with very little investment from Russian public funds.44
At present, the regime is dependent on business acquaintances to overcome sanctions. To bolster their credentials, both Iran and Russia are actively building their own constituencies within the Syrian business community.
Russia and Iran are arguably competing for access to the Syrian economy. Besides offering credit lines and direct funding, their chief vehicles for economic penetration in the Syrian market include obtaining investment contracts for major Russian and Iranian companies and conglomerates. The key sectors targeted in this competition include energy, agriculture, tourism and the private security sector. At present, the regime is dependent on business acquaintances to overcome sanctions. To bolster their credentials, both Iran and Russia are actively building their own constituencies within the Syrian business community. The following section details how each has engaged with the Syrian economy to maintain long-term influence.
Networking
Both Tehran and Moscow are competing for alliances with major players in the Syrian political and economic spheres to facilitate their business deals and maintain their interests. Consequently, both have established economic councils to oversee their ventures and to organize relations with their respective Syrian partners. The Russians have been more successful in this regard, with over 101 members of their council, compared to less than a dozen on the Iranian equivalent. It is important to note that the frameworks established by these councils only cover a small portion of Russian and Iranian partnerships in Syria, but they do reveal how the Syrian business community views these opportunities. Moscow and Tehran’s behaviour in networking differs. Russia uses Syria’s security services to procure allies within the state apparatus, while Iran works at the local level by building networks based on sectarian, cultural and tribal affiliations. Historically, Tehran has had relative success in infiltrating the tribal scene, in particular in Hassaka and Aleppo. This success is partially due to tribes needing financial assistance and their sense of abandonment by the regime, which prioritized the urban population in the last two decades.45
The Syrian–Russian Business Council (SRBC) includes 101 Syrian businessmen and a number of Russian counterparts. It is divided into seven committees each covering a main sector of the economy.46 The council has a substantial number of Syrian members and includes many influential names. A number of Syrian businessmen of Russian nationality, most notably George Hassouani, are also reportedly affiliated with the council. The number of Syrian companies included in the SRBC is estimated at 91.47 These companies are involved in import and export, general trade, textiles, clothing, petrochemicals, energy and, in a small number of cases, private security operations.
In comparison, Iran has had less success in attracting the business community. The Syrian–Iranian Business Council (SIBC) was established in March 2008 and was initially headed by Hassan Jawad.48 It was reconstituted in 2014, with nine members. Some of these names have significant economic influence, such as Mazen Al-Tarazi, a prominent businessman with investments in the tourism sector and in real estate (including the project to redevelop Marota City in western Damascus).49
Oil and gas
Syria is a relatively small oil producer but before the civil war the petroleum industry was a major part of its economy. According to the IMF, oil sales for 2010 constituted 25 per cent of the state’s revenue, bringing in an estimated $3.2 billion a year.50 Devastated by war, the Syrian oil sector is suffering and is a shadow of its pre-conflict days. According to the Syria Report, Syrian oil production reached 70,000 barrels per day by the end of 2018,51 a net increase on previous years when the majority of the oil fields were under the control of ISIS or the PYD, but a fraction of its former 385,000 barrels per day production in 2010.52 In its attempt to revitalize the oil sector, Damascus faces a number of challenges. First, the US and the EU have placed the sector under heavy sanctions, restricting not only its sales but also foreign investments in its infrastructure and maintenance. Second, the majority of oil fields previously under ISIS control were targeted and heavily damaged by international coalition airstrikes in an attempt to hinder their production capacities.53 Major investments are needed to rehabilitate them and the regime lacks the necessary funds to do this alone. Third, sales and distribution of oil produced in the prolific fields of Rmeilan, Souedie, Shadadi and Omar, which are under PYD control, have proven to be challenging and negotiations over their control remain uncertain, even after the US decision to withdraw from northeast Syria.
Yet, for a number of reasons, the oil and gas sectors were among the first targeted by Russian and Iranian companies in their drive to deepen economic engagement. The minerals sector offers the potential for a quick return on investments despite the continuous US clampdown on Syria’s oil exports. The sector is also a core source of the regime’s foreign currency and revenue, and thus gives investors significant influence over Assad. Lastly, investments in the sector allow Russian and Iranian investors a stake in pipeline geopolitics and some sway in blocking or shaping any future projects. However, it is important to note that Syria is not an important energy transit hub as it stands, though it has the potential to become one if the political situation stabilizes and substantial funds are provided. Indeed, Syria has connections to Egypt, Jordan, Lebanon and Iraq and additional pipeline projects were previously discussed but did not come to fruition for many reasons, including the worsening security situation.54
Prior to the uprising, Russian private companies, such as Soyuzneftegaz and Tatneft,55 had invested in oil and gas exploration in Syria and were among a handful of Chinese, Indian and European companies operating in the country. In comparison, Tehran has no experience of engaging with the Syrian oil and gas sectors. As such, Moscow enjoys a head start and has better knowledge of the local market, despite its temporary departure from operations in 2013–16.56 Since 2015, the Russian government has been more assertive in targeting a bigger share of the Syrian oil and gas market and new companies have positioned themselves to take advantage, including Gazprom Neft, Lukoil, Rosgeo, Sibur, Soyuzneftegaz, ST Engineering, Transnational, Stroytransgaz, Technopromexport, Zarubezhneft, Zarubezhgeologia and Evro Polis.57 These companies are either privately owned by oligarchs close to Putin or are partially owned by the Russian state. To date, Moscow has gained long-term access to Syrian oil and mineral resources through leases that cover offshore assets; gas and phosphate reserves in Homs province; and access to existing or future oil and gas pipelines running across the country.58
Iran’s ventures have been less successful. The country is impeded by international sanctions and its limited capacity to compete with Russian companies on equal terms. The latest line of credit negotiated with Damascus during the visit of Imad Khamis to Tehran in January 2017 conceded 1,000 hectares to Iran for setting up oil and gas terminals as well as an MoU for phosphate mining in central Syria. However, these prospective projects were later offered to Russian companies. Nonetheless, Iran remains the main supplier of refined oil products to Syria and has on multiple occasions leveraged this position to gain important concessions from Damascus. In addition to meeting energy demand, Iranian oil supplies generate substantial revenues for the Syrian economy. The Syrian government receives these supplies on credit and charges domestic providers for distributing them in the local market. Syria is so reliant on these products that reducing oil supplies or rising transportation costs can virtually paralyze entire industries and create revenue problems for Damascus. In the summer of 2017, Iran suspended oil and gas supplies to Syria.59 Officials from both sides did not divulge the reasons behind the freeze, but there was a general understanding that it was motivated by Tehran’s attempts at pressuring Damascus into signing a number of stalled deals and contracts.
Disruption in oil delivery is not always the product of political manoeuvring. In January 2019, following recent shortages of gas in the local market, the Syrian minister of petroleum blamed Western sanctions for the crisis. The ministry stated that 43,000 tonnes of expected supplies of liquefied petroleum gas (LPG) from Iran and Russia did not make it to Syria.60 Indeed, the US administration has recently multiplied its efforts to restrict Syria’s oil supply networks. On 20 November 2018, the US Treasury issued an advisory to individuals and companies threatening them with sanctions if involved in shipping oil products to Syria.61 On the same day, the US Office of Foreign Assets Control (OFAC) imposed sanctions on nine entities transporting Iranian and Russian oil to Syria. The list included Global Vision Group, a Russian company owned by Amer Al-Chwiki, a Syrian businessman associated with the regime.62 In January 2019, the EU followed suit and imposed sanctions on Hussam Qatirji, another Syrian businessman involved in the oil trade on behalf of the regime.63 The US and EU strategy thus far has been to track Syrian middlemen and entities implicated in breaking the sanctions imposed on the Syrian oil sector. This strategy has proven to be effective in curbing regime efforts to meets its domestic needs.
Electricity
Syria’s electricity infrastructure has been devastated by the war. Subject to neglect and attacks perpetuated by different armed groups, the capacity of power plants to meet domestic needs has greatly diminished. Costly maintenance is required to return to peak electricity output, which has pushed Damascus to look for technical expertise abroad primarily in Russia, Iran, China and India. Furthermore, the majority of the regime-controlled power plants are dependent on regular supplies of fuel oil and gas, thus increasing the demand for oil products from Iran and Russia, and putting Damascus under further financial strain to rehabilitate the sector. A few power plants generate electricity from hydraulic turbines but these also require maintenance, including the Tabqa Dam, which is under the control of the Syrian Democratic Forces (SDF).
Rehabilitating the electricity sector is a priority for the regime for two reasons. First, the sector can generate revenues quickly through charging domestic companies and individuals for their consumption on a regular basis. Second, it has the potential to increase foreign exchange reserves from selling electricity to neighbouring countries, especially Lebanon. Indeed, a recent agreement has been signed between Damascus and Beirut for the annual export of 100 megawatts (MW) of electricity for $266 million.64
Syria’s electricity infrastructure has been devastated by the war. Subject to neglect and attacks perpetuated by different armed groups, the capacity of power plants to meet domestic needs has greatly diminished.
To rehabilitate the sector, Damascus has signed a number of MoUs with Iran and Russia, in September 2017 and January 2018, respectively.65 The Iranian agreement consisted of rehabilitating the thermal power plants in Aleppo, Latakia, Banias and Tayem.66 Russia has signed an MoU agreeing to build new power plants and turbines with a total output of 2,650 MW in Aleppo, Mhardeh, Tishreen, Deir EzZor and al-Zara.67 However, in both cases, the Syrian government failed to secure the necessary funds for its contribution and as a result the Russian and Iranian counterparts pulled out. Theoretically, Iran could relieve some of the pressure on Damascus and finance these projects through its lines of credit, but Tehran seems to give a higher importance to projects it views as strategic. Moreover, the Public Establishment for Electricity Generation and Transmission (PEEGT) is reluctant to use Iranian technology, which it perceives to be inefficient based on prior experiences. To date, the only reported power sector reconstruction projects carried out are those by the United Nations Development Program (UNDP), which used Japanese funding to build plants in Jandar and Banias.68 Both plants were constructed by Mitsubishi Heavy Industries.
Agriculture
The agricultural sector contributed 19 per cent to Syria’s GDP in 2011.69 The Food and Agriculture Organization (FAO) of the UN has estimated that losses in the Syrian agricultural sector have amounted to $16 billion dollars or more in the five years since 2011.70 There have been significant losses in harvests of the sector’s strategic crops such as wheat, which declined by 60 per cent over the last seven years, as well as cotton and animal feed. The agricultural sector also has significant strategic importance for its potential to re-invigorate trade between Syria and its neighbours. Previously, Syria exported citrus, vegetables and livestock to Lebanon, Jordan and the GCC.
Russia has positioned itself to control strategic crop fields in Syria. For instance, it has taken advantage of the decline in Syrian wheat production to become the leading supplier of wheat to the country. The quantities of annual Russian wheat supply to Syria have increased steadily, going from 650,000 tonnes in 2015 to 1.2 million tonnes in 2017, and were estimated to reach 1.5 million tonnes the following year.71 Since 2015, Syria and Russia have increased cooperation in the agricultural sector. This included the signing of agreements licensing the export of vegetable oil72 and fertilizers, as well as agreements to rehabilitate, build and manage flour mills, grain silos, and water treatment facilities.73 In exchange, monopolies over exporting and marketing Syrian agricultural products in the Russian and former Soviet markets (mainly of citrus and olive oil) were granted to specific Russian companies suspected of maintaining a close relationship with the Kremlin.74
Besides relative success in marketing Iranian animal vaccines and poultry products,75 Iran has failed to match Russia’s influence in the Syrian domestic agricultural sector. Since 2015, Tehran and Damascus have signed a number of MoUs for the construction of flour and sugar mills in southern Syria, the export of agricultural mechanical equipment, and the marketing of surplus Syrian agricultural products.76 While Iranian investments are still being negotiated or at the MoU stage, Russia’s investments are already in operation and generating revenue. Iran’s contracts in Syria have suffered severe setbacks since 2016, partly due to the failure to agree conditions of a new line of credit, including Iran’s demands for the construction of a seaport in Syria. Russia’s increased agricultural trade with Syria has also hindered the expansion of Iran’s own trade objectives in the sector.
Tourism and real estate
The tourism sector is also a significant contributor to Syria’s economy, accounting for 14.4 per cent of the country’s GDP in 2011 ($64 billion). The war has caused tourism revenues to drop from SYP 297 billion (approximately $577 million) in 2010 to SYP 17 billion (approximately $33 million) in 2015, while tourism infrastructure has suffered nearly SYP 14 billion (approximately $27 million) worth of damage.77
Tehran’s investment in the tourism sector has been mostly in religious tourism. For instance, the Syrian minister of tourism signed an MoU with the Iranian Hajj and Pilgrimage Organization in 2015 to boost the numbers of tourists visiting religious sites in Syria. There are now estimated to be 225,000 religious tourists from Iran, Iraq and the Gulf countries visiting Syria each year.78
Russia attaches importance to the Syrian coastal region and has made it the centre of its tourism investment strategy.79 These investments benefit from a relatively safe and pleasant environment and the existing infrastructure that has avoided significant damage in the war. By contrast, Iran’s focus on religious tourism means its investments tend to be in Shia shrines in the countryside around Damascus and in areas in the governorates of Deir EzZor, Aleppo and Homs, which have seen heavy fighting, as well as in Latakia and Tartous, which have suffered little damage from the war.
The tourism sector has a direct linkage to the real estate market. A major component of Iran’s strategy is the acquisition of land and real estate, which Tehran hopes will allow it to benefit when the war ends, with or without Assad at the helm. For instance, Iran has asked the Syrian regime for large concessions in Daraya, the old city of Damascus, Seit Zeynab and Aleppo.80 Thus far Iran has mostly relied on Syrian intermediaries to purchase real estate. Tehran has also relied on Syrian associations such as Jaafari, Jihad Al-Bina, the Al-Bayt Authority and ’the Committee for the Reconstruction of the Holy Shrines’ to expand and acquire new land in or near the holy sites around Damascus, Deir EzZor and Aleppo.81