This report examines the common economic factors that continue to drive conflict in Iraq, Libya, Syria and Yemen. It also makes specific recommendations to Western policymakers addressing these types of sub-economies in detail.
Executive Summary
The conflicts in Iraq, Libya, Syria and Yemen have killed hundreds of thousands of people and displaced millions. In seeking to explain the violence that has struck the Middle East and North Africa (MENA) over the past two decades, analysis to date has focused predominantly on ideological and identity-based factors.1 This report expands this discourse by incorporating approaches adopted from the literature on the political economy of war to examine the conflict economies of Iraq, Libya, Syria and Yemen.
Economic motivations, at the individual and group level, are key to understanding the wars in these countries, yet have tended to be overlooked in the MENA context. (As the wars have progressed and evolved, the national and local economies in which conflict is embedded have also changed.) Such motivations can offer an alternative or complementary explanation for armed group membership and armed group behaviour. While some groups will fight to promote or defend a particular identity, others fight for economic survival or enrichment. For many more actors, these motivations are tied together, and separating out ‘greed’ and ‘grievance’ is a difficult, if not impossible, task. Even if economic motivations did not spark the wars in Iraq, Libya, Syria and Yemen initially, it is clear that such factors now play a critical role in the persistence of open fighting, localized violence and coercion.
The objectives of this report are twofold. First, it seeks to develop a framework for comparative analysis of conflict economies at the local level in the MENA region. Traditionally, the idea of a conflict economy has been tightly linked to the funding for arms, ammunition and fighters. Further, most analyses of conflict economies are conducted at the national level. Even where research is conducted on a regional basis, discussion of the impact of conflict is brought back to the national level. In contrast, we see a broader political economy of war at work in the region. Our analysis illustrates how a conflict economy is embedded within a complex local socio-political system, in which many variables and agendas interact. We deliberately avoid characterizing conflict economies in terms of ‘black’ and ‘grey’ markets that somehow need to be ‘cleaned up’, as this erroneously implies that they can eventually be converted into licit markets like their peacetime counterparts.2 A more nuanced and multifaceted reading is essential. For the purposes of this report, we define a conflict economy as a system of producing, mobilizing and allocating resources to sustain competitive and embedded violence, both directly and indirectly.3
Second, we show that a ‘political economy of war’ framing offers new approaches for reducing competitive and embedded violence. ‘Competitive violence’ can be defined as violence ‘deployed by warring elites to contest or defend the existing distribution of power’.4 Fighting between rival armed groups for control over resources and rents, among other things, usually falls into this category. ‘Embedded violence’, in contrast, underpins ‘how a political settlement5 works, as the deals agreed between elites may revolve around who has the “right” to use violence’.6 In practice, this could mean that one group is ‘permitted’ to use violence against another group – and no punishment will be enforced. In the context of this study, the use of armed force to assert the status quo to limit the number of ruling elite members is one example of embedded violence.
Conflict sub-economies
Analysis of conflict economies has mostly focused on state-level dynamics.7 However, less attention has been paid to the development of conflict sub-economies that are specific to certain types of location. This study demonstrates three distinct types of conflict sub-economy: (1) capital cities; (2) transit areas and borderlands; and (3) oil-rich areas. Our analysis highlights how each sub-economy creates distinct location-based patterns of resource production, mobilization and allocation to sustain competitive and embedded violence. The rents available in these areas vary. In capital cities, rents focus on control of the distribution of revenues and assets from the state and private sector. In transit areas and borderlands, rents centre around taxation and arbitrage. In oil-rich areas, rents are related to control of the area itself (and therefore the ability to levy taxes upon the oil sector), bearing in mind that the level of achievable taxation depends on the extent to which a given actor controls the supply chain.
As this report will elaborate, factors specific to each sub-economy type play a role in conditioning the nature of economic activities in each locality, and in determining whether and by which means violence is dispensed. For this reason, national-level generalizations and in-country comparisons of conflict economies are inadequate: for example, the conflict sub-economy of Baghdad has more in common with that of Tripoli than that of al-Qaim, an Iraqi town on the border with Syria. In turn, the conflict economy observed in al-Qaim has more in common with that of al-Mahra in Yemen than al-Mahra does with Sanaa, the Yemeni capital.
Recommendations for Western policymakers
In developing policy responses, policymakers must first accept that any aspiration to ‘do no harm’ is illusory. In conflict sub-economies, taking calculated risks with the aim of doing ‘less harm’ is the best option open to policymakers. In Syria, for example, the conundrum for donors is that humanitarian aid is instrumentalized by the regime of President Bashar al-Assad as a means of countering its economic failure, but is also critical to the coping ability of local populations. Donors must here accept that any intervention is likely to have unforeseen and/or negative consequences. These risks are best managed through developing a deep understanding of the operating environment in order to honestly assess whether there are opportunities to change conflict sub-economy dynamics (through partnerships, incentives or leverage). Such an approach also requires pragmatic acceptance of those elements of the conflict economy that policymakers cannot change.
In designing interventions, policymakers should develop incentives for peaceful cooperation rather than relying solely on enforcement mechanisms, which have demonstrated little success to date. Cracking down on illicit economic practices without offering viable alternative livelihood opportunities, for example, may have a displacement effect that can lead to something worse or simply encourage armed actors (or their associates) to take up alternative forms of profiteering.
Policymakers should develop incentives for peaceful cooperation rather than relying solely on enforcement mechanisms
When considering how to target specific illicit activities through enforcement mechanisms, policymakers should acknowledge that ‘legality’ is a relative, not fixed, concept in conflict economies.8 Legal measures therefore often lack potency as a policy intervention tool. In the four countries covered in this report, it is notable that the legality of a given practice may be decided by a single conflict actor – as in Syria, with the Assad regime. Rather than focusing on compliance with the law per se, it is more pragmatic to assess how political and economic gains and losses from conflict economy activities are distributed horizontally across groups and vertically within groups.
In choosing which illicit activities to target, policymakers should focus on those with shorter supply chains, where financial gains are not redistributed within or across groups, and where local coping economies are less likely to be affected. Financial and property crimes are good examples of this. In contrast, certain forms of smuggling – such as of subsidized goods and fuel – involve longer supply chains and wider networks of direct and indirect beneficiaries. For the greatest impact at the lowest cost to those in need, Western policymakers should therefore target bottlenecks where rent-seeking is most concentrated. In doing so, they must adopt clear, transparent, consistent and enforceable criteria in order to be taken seriously.
Recommendations specific to conflict sub-economy types
In identifying specific sub-economy typologies and their dynamics, this report concludes that it is possible to develop distinct policy approaches that target the particular rent structures of capital cities, transit areas and borderlands, and oil-rich areas. We offer insights for Western policymakers to guide them in this process.
Capital cities
Capital cities have symbolic as well as practical significance. In each of the countries, the relative strength of the state, the degree of centralization of powers in the capital, and the history of state consolidation of power differ. Yet in each case, powerful dynamics are associated with the seizure of the state’s institutional and legislative power in the capital, which in turn determines control of assets and the distribution of resources. Capital cities are also major financial centres that interface with the legal and economic institutions of the international system. Despite the political, economic and social fragmentation in Iraq, Libya, Syria and Yemen, in each state physical control of the capital remains the most prized asset.
The nature of the violence employed in each capital differs. In Iraq’s capital, Baghdad, the city’s resources are divided among a limited elite, sustaining a system of embedded violence. Libya’s capital, Tripoli, is similar, serving as the principal access point for revenues generated from the state’s oil wealth. However, in Tripoli, a sustainable division of power among rival forces representing elements from across the country remains elusive. As a result, the city has been subject to bouts of competitive violence that are likely to continue. In Syria and Yemen, the authorities in the respective capitals, Damascus and Sanaa, do not have the same largesse to distribute. Nonetheless, the role of the capital city in the conflict economy remains significant: in Syria, the regime has used the presence of financial institutions and the powers of the state in Damascus to build its economic capacity; in Yemen, the Houthis and their loose network of affiliates have seized institutions and channelled funds generated through taxation towards support of their war effort. In both cities, the actions of the dominant forces are underwritten by coercion. In Sanaa, before the war, the city’s role as a central clearing house for various forms of revenue reflected its economic importance. These financial inflows included receipts from oil and gas exports from the governorates of Mareb, Shabwa and Hadramawt; customs receipts from ports such as Aden and Hodeida; and revenue from manufacturing in Taiz. However, the Houthi takeover of Sanaa in 2014 precipitated a breakaway of these regions from the jurisdiction of the capital, and the subsequent loss of revenues for the central state.
Western policymakers should consider three key factors in addressing these developments:
- Policies aimed at strengthening state institutions in national capitals should seek to prevent monopolies of power by supporting incremental change over time, even where a monopoly appears to be in the interests of the Western state in question. One of the possible paths is to widen the networks of beneficiaries to include people from outside the immediate circle of each conflict actor. In the long run, such an approach would dilute the influence of current networks and broaden the patronage base. Western countries have supported a broad range of civil society organizations and local councils over the years, and should use this knowledge to identify appropriate partners.
- Policy interventions must be directed towards developing processes and institutions, not just supporting personal relationships with elite actors in capitals. A case in point is the concerted support provided by the West to the losing election campaign of Iraq’s then-prime minister, Haider al-Abadi, in 2018. Maintaining solid political relationships with key actors is critical, but when their political counterparts change or power shifts occur, the terms of these relationships will need to be renegotiated. Measures that cement rules and norms (such as on the peaceful transfer of power) within the political and institutional system can provide greater predictability and stability in such relationships. In addition, the risk with seeking to resolve conflict on the basis of personalized politics is that it can inadvertently cement the power of conflict profiteers.
- Decentralization needs to be accompanied by accountability. Centralized revenue distribution has been a key driver of conflict in Iraq, Libya, Syria and Yemen because funds are distributed with little transparency or accountability. This has led many to see political decentralization as a potential solution. But structural change is no panacea. Decentralization that is not wedded to clear mandates and transparency and accountability mechanisms will merely shift rent-seeking into the regions and serve the interests of a different set of actors. Western policymakers should only support decentralization that meets minimum transparency and accountability thresholds, and that ensures that institutions with sufficient administrative capacity are available at the local level. If these conditions are met, decentralization can help mitigate profiteering and rent-seeking because diluting the power of the capital city will reduce incentives to violently take control of it as part of a winner-takes-all system.
Transit areas and borderlands
To varying extents, the conflicts in Iraq, Libya, Syria and Yemen have created internal territorial divisions. These in-country lines of territorial control have in turn distorted markets and created distinct sub-economies across the fault lines that divide areas controlled by different armed groups. ‘Transit areas’9 have risen to prominence as sources of tax revenue (levied on the movement of goods) and arbitrage income (realized from cross-border differences in the prices and availability of goods). Outside of capital cities, trans-market taxation and arbitrage have turned transit areas into prized assets for armed groups and other conflict economy participants.
In most cases, the economic activity in transit areas falls outside the control of the state. In some cases, state actors cooperate with the armed groups to take a cut of the profits from these locations, rather than reporting such activity up through the command structure.
Similar informal arbitrage and taxation opportunities are also visible in international border areas – which this report terms ‘borderlands’ – with the difference that neighbouring state actors and their economic systems become engaged.
Transit areas and borderlands are major sites of competitive violence. Although the conflicts in the region have typically been depicted as ethno-sectarian or tribal in nature, they can alternatively be understood in economic terms, as actors competing for rents along formal or informal trading routes. The consequent revenue-generation opportunities often perpetuate the existence of territorial divisions, which further reinforce ethno-sectarian or tribal divisions, with harmful welfare implications for local populations.
Western policymakers should consider the following issues when designing interventions in transit areas and borderlands:
- External interventions should support the development of local governance structures that have clear mandates and are accountable to local populations. More equitable and inclusive distribution of state resources – even accepting problems of corruption and accountability – can reduce the pressure on armed groups to use violence. Yet historically, borderlands have had limited connection to centralized state structures. Rather than simply subsuming local authorities in borderlands into the state system, the goal should be to develop systems that are appropriate for the operating environment. Given that service provision often underpins government legitimacy in MENA states, this may mean devolving more authority to local governance structures if the central state is not realistically able to provide services.
- The development of sustainable local economies can be fostered through reconstruction and development programming. However, in some cases, it will not be possible to participate in aid programming without legitimizing and strengthening conflict actors. Where regimes are hostile and there remains political pressure to ‘do something’, external actors must develop a solid understanding of the local operating environment in order to mitigate the risk of funding being diverted to unintended beneficiaries. Efforts to address conflict economy dynamics in borderlands need to be broadened to target the many root causes of smuggling, which are often linked to socio-economic inequalities across identity groups. In borderlands, Western governments could encourage negotiations with neighbouring countries to enable the free flow of goods produced in these areas. This would also encourage local production activity.
- Negotiated zones of control need to be agreed by a wide array of actors. In eastern Yemen, a robust system of informal taxation emerged at the outset of the war, allowing for the flow of goods in and out of the area without causing unmanageable price increases. Since 2017, however, growing regional interest in the area has disrupted this arrangement, and at times has seen the eastern border cut off entirely. In southern Libya, the proliferation of checkpoints used by armed groups as sources of financing has contributed to goods shortages and high inflation. Brokering reciprocal taxation agreements between communities in these areas could help to mitigate the negative impacts of price inflation on local populations, which in turn could mitigate some security concerns (i.e., over the protection of populations, property and markets).
- Anti-smuggling measures should focus on disrupting flows of goods that are directly related to conflict, such as arms and ammunition, rather than on preventing trade in basic goods essential for economic survival. Smugglers operated in the borderlands of Iraq, Libya, Syria and Yemen prior to the outbreak of hostilities, but their activities have intensified and diversified as the conflicts have evolved. It should be noted that not all forms of smuggling are directly connected to violence, and consequently not all of these should be targeted.
Oil-rich areas
Iraq, Libya, Syria and Yemen each have regions where oil wealth is situated. However, control over the physical territory where oil infrastructure is located does not necessarily translate into taking over oil revenue streams. There are significant barriers to entry in the oil industry, with a complex supply chain that requires infrastructure, expertise and market access in order to effectively monetize geographical control. Selling crude oil internationally generally requires market access that is conditional on international legitimacy – though there are no such obstacles to selling refined fuels. The case of Islamic State of Iraq and Syria (ISIS), prior to its wide-scale loss of territory as a result of the international anti-ISIS military campaign, is instructive. Because ISIS controlled only part of the oil supply chain in Syria, it was forced to cooperate not only with the engineers responsible for operating oil rigs but also with other actors that had access (which ISIS lacked) to refining capacity and tanker fleets. This scenario provided opportunities for middlemen who were able to negotiate with armed actors on all sides. On the other hand, when actors control the entire supply chain, as in the Yemeni province of Mareb, they have much greater latitude to operate independently. In Libya, the international community has prevented sales of crude oil from unrecognized authorities in the east of the country. This has meant that their opponents in Tripoli have continued to receive the revenues from oil sales. Meanwhile, in Iraq, smuggling routes established to circumvent international sanctions under Saddam Hussein’s regime continue to operate. These routes provide a source of patronage for those in control of the oil infrastructure in the south of the country, even as the inequities of the centralized system of distribution remain entrenched.
Western policymakers should consider the following issues when designing interventions in oil-rich areas:
- The West should leverage its power to grant access to international oil markets. Insisting that only one recognized authority can market oil internationally is perhaps the most significant lever of control that Western actors possess over the conflict economies of the four states. As a policy tool, this has been particularly effective in preventing oil sales from the east of Libya, though less so in Iraq (where overland smuggling networks are extensive) or in Yemen and Syria (where oil exports are not a factor).
- Incentive mechanisms should support the redistribution of oil wealth to local communities. In some oil-rich areas, such as Basra in Iraq, poverty creates a powerful incentive for local communities to divert oil supplies. This in turn supports a local market for protection. More equitable distribution of wealth would likely reduce calls for federalism and support for separatist agendas. Western governments could encourage the allocation by the central government of a specific share of oil revenues to investment projects in the areas of production, in a similar fashion to the rule established for the Kurdistan Regional Government in Iraq. This could be based on the size of the population or on socio-economic indicators.
- Interventions should support deeper engagement between local populations and oil industry players (both public- and private-sector operators). In Libya’s south, the population has limited access to skilled employment within the sector and is reduced to competing for rents by operating protection rackets that target oil installations. Oil companies (both national and international) should be incentivized to invest in local communities (e.g. via training programmes for engineers). This should also include efforts to address the environmental impacts of production activities, such as the pollution of underground aquifers, which negatively impact water-scarce areas. Such approaches may render oil operators less susceptible to strikes and blockades by local populations.
- Policymakers must understand who profits from oil and fuel smuggling – and the supply chain mechanisms through which those profits are achieved – before attempting to disrupt such activity. Every link in the supply chain contributes to the conversion of crude oil into money, so disrupting even one upstream link can have a substantial impact on downstream communities. Policymakers need to design comprehensive strategies that address the entire supply chain rather than just one link.
Through different forms of engagement and intervention – security, political and humanitarian – Western policies play a key role in shaping the dynamics in the conflict sub-economies of Iraq, Libya, Syria and Yemen. Such interventions present many pitfalls, but there are also opportunities to help reduce violence and insecurity – though a basic requirement is that local dynamics are taken into account appropriately. Intervention targeting specific conflict sub-economies can increase policy impact, but this requires that Western policymakers invest in developing their understanding of local networks and local economies. Without such an understanding, there is a substantial risk of unintended consequences causing unanticipated harms.
1 A number of studies have examined conflict in the MENA region through the lens of sectarianism, such as Daniel Byman’s ‘Sectarianism Afflicts the New Middle East’. In Iraq, conflict has been analysed through the lens of sectarianism by scholars such as Fanar Haddad in his book Sectarianism in Iraq, and by former policymaker Emma Sky in The Unravelling. In Syria, works such as Charles Lister’s The Syrian Jihad have explored the role of Salafi-jihadist forces in the conflict. In Yemen analysts have generally pushed back against the idea that the conflict is a sectarian one, but media outlets have come to present it in terms of a regional conflict linked to identity politics: ‘Iran-backed’ ‘Shia’ Houthis versus ‘Saudi-backed’ ‘Sunnis’. See Saul, J., Hafezi, P. and Georgy, M. (2017), ‘Exclusive – Iran steps up support for Houthis in Yemen’s war: sources’, Reuters, 21 March 2017, https://uk.reuters.com/article/uk-yemen-iran-houthis/exclusive-iran-steps-up-support-for-houthis-in-yemens-war-sources-idUKKBN16S22P (accessed 6 Jun. 2019). See also Byman, D. (2014), ‘Sectarianism Afflicts the New Middle East’, Survival, 56(1), doi:10.1080/00396338.2014.882157; Haddad, F. (2011), Sectarianism in Iraq: Antagonistic Visions of Unity, Oxford: Oxford University Press; Sky, E. (2015), The Unravelling: High Hopes and Missed Opportunities in Iraq, London: Atlantic Books; and Lister, C. (2015), The Syrian Jihad: Al Qaeda, The Islamic State and the Evolution of An Insurgency, Oxford: Oxford University Press.
2 According to Vesna Bojicic-Dzelilovic and Rim Turkmani, there is a tendency in the literature to overemphasize the criminalization of the Syrian war economy. See Bojicic-Dzelilovic, V. and Turkmani, R. (2018), ‘War Economy, Governance and Security in Syria’s Opposition-Controlled Areas’, Stability: International Journal of Security and Development, 7(1): p. 12, doi:10.5334/sta.569 (accessed 19 Jan. 2019). Like Bojicic-Dzelilovic and Turkmani, we seek to avoid this approach.
3 Our definition builds on Philippe Le Billon’s characterization of a war economy as a ‘system of producing, mobilizing and allocating resources to sustain the violence’. Le Billon, P. (2005), Geopolitics of Resource Wars: Resource Dependence, Governance and Violence, London: Frank Cass, p. 288.
4 Cheng, C., Goodhand, J. and Meehan, P. (2018), Synthesis Paper: Securing and Sustaining Elite Bargains that Reduce Violent Conflict, London: Stabilisation Unit, p. 4, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/765882/Elite_Bargains_and_Political_Deals_Project_-_Synthesis_Paper.pdf (accessed 16 May 2019).
5 Here, we define ‘political settlement’ as ‘the underlying distribution of power… on which a society is based’. Ibid., p. 10.
6 Ibid.
7 Scholars have focused on regional conflict economies. For example, see Rubin, B. (2000), ‘The Political Economy of War and Peace in Afghanistan’, World Development, 28(10): 1789–1803; Pugh, M. and Cooper, N. with Goodhand, J. (2004), War Economies in a Regional Context: Challenges of Transformation, Boulder: Lynne Rienner; and Jackson, S. (2006), ‘Borderlands and the transformation of war economies: lessons from the DR Congo’, Conflict, Security & Development, 6:3, 425–47.
8 Cheng, C. (2018), Extralegal Groups in Post-Conflict Liberia: How Trade Makes the State, Oxford: Oxford University Press, pp. 304–05.
9 For the purposes of this study, a transit area is defined as a physical area in which fees (informal taxes) are levied. Such points may also provide a security function and connect two markets.