Overview
Over nine months since the ouster of autocratic President Bashar al-Assad, Syria is still in the early days of a shaky stabilization process. Despite profound hope in Syria and abroad, the country’s transition remains extremely fragile: the Hayat Tahrir al-Sham-affiliated transitional government has struggled to contain eruptions of sectarian violence, damaging Damascus’ legitimacy as minority groups doubt their security, Israel maintains a presence just miles from Damascus, and, at a basic level, the government’s ability to monopolize force within Syria’s borders remains in question. The establishment of a democratic government, which Interim President Mohammad al-Sharaa has repeatedly confirmed is the end goal of the transition, has taken significant, but not decisive, steps; a February national dialogue brought together key stakeholders but failed to produce concrete results, and Damascus earlier this month canceled planned provincial elections in regions most wracked by sectarian violence. Against this troubled backdrop, economic reconstruction has become paramount, creating opportunities for foreign partners (especially in the Gulf and Turkey) even as security risks persist and the transition remains fragile.
The Scale of the Problem
Over a decade of war and crushing international sanctions has decimated Syria’s economy. The country’s GDP sat at some $67 billion in 2011, prior to the Arab Spring uprisings, and now comprises just $20 billion—an 80% drop in real terms. Inflation and currency devaluation have exacerbated the economic crisis, with the Syrian pound losing over 99.5% of its value over the last decade. An estimated 90% of the Syrian population lives below the poverty line, and around 16.7 million (almost 70% of Syria’s estimated population) urgently require humanitarian assistance. A World Bank study released in early July painted a grim picture of the Syrian economy after months of efforts by the al-Sharaa administration: oil output is down 90%, foreign currency reserves are almost depleted, and the illegal drug Captagon remains the country’s biggest export. Reconstruction is estimated to cost from $250 to $400 billion, dwarfing both the Syrian economy and the promised international aid. Syria’s interim government is urgently seeking to attract foreign direct investment (FDI) and to reintegrate with the global economy in order to fund its postwar reconstruction, offer economic opportunities to its citizens, and gain domestic and international legitimacy.
Reversing Sanctions and Subsidies
Much of the work of rebuilding Syria’s domestic economy involves reversing existing policies and lifting restrictions, at home and abroad. The most high-profile element of this shift has been moves by Western governments to relax or fully eliminate sanctions on Damascus in an effort to give breathing room to the country’s fledgling economy. In mid-May, the Trump administration announced that it would lift all sanctions on Syria (a process that is still ongoing, but was largely completed in late June), following similar moves by the EU and the UK. The easing of sanctions —which nonetheless kept in place individual restrictions for former President Bashar al-Assad and members of his regime—reduces regulatory risks in engaging with the government in Damascus, paving the way for renewed regional and international engagements, the reintegration of Syria’s economy into regional and global markets by facilitating transactions, and opening the door for FDI.
Significant work is also being done to unwind Assad-era economic policies. The new Syrian regime has expressed a desire for an economic system based on free market competition, in contrast with the Assad regime’s centralized, socialist system. In January, Foreign Minister Asaad al-Shibani told Western media that the government plans to privatize state-owned ports and factories, and will allow foreign governments and multinationals to participate in the process. The government intends to implement austerity measures to slim down the country’s bloated public sector, floating plans to lay off up to a third of government workers. This plan has sparked controversy, as Damascus did not identify a methodology or justification for determining which employees would be let go.
Perhaps the thorniest problem for Damascus to solve will be state subsidies, which Syrians have relied on for decades. As the Assad regime ended, government subsidies were in place for necessities like electricity, gas, and bread, although the previous government had also attempted to make cuts to reduce the burden on state coffers and bring prices more in line with costs. The Ministry of Electricity has said that electricity subsidies will be reduced or removed in the coming months, and subsidies for cooking gas and public transport costs have already been reduced. Government subsidies for necessities are a foundational element of government services in many Middle Eastern countries, and disruptions to this support have frequently led to unrest. Egypt, for example, experienced riots, sometimes referred to as the “bread intifada,” in 1977 when the Sadat government removed bread subsidies. Similarly, subsidy cuts contributed to the widespread unrest that led to the 2011 Arab Spring uprising. Damascus is aiming to raise public sector pay and minimum wage to keep pace with rising costs, but without significant job creation, Syrians will likely feel their relative cost of living rise sharply in the coming months.
Tourism, Oil and Infrastructure: Foreign Partners Flood In
In the weeks and months immediately after the fall of the Assad regime, foreign partners—most prominently Arab Gulf states—provided basic but crucial support to the nascent Syrian state. Saudi Arabia and Qatar are currently paying Syrian state salaries to the tune of $29 million per month, with the agreement likely to be extended in some form this month. In mid-May, the World Bank announced that Saudi Arabia and Qatar had jointly paid off Syria’s $15.5 million debt to the institution, a token amount that had nonetheless prevented Damascus from taking out new loans. Concurrently, the UAE and Germany announced plans to allow Syria to print its currency in both countries, ending a tenuous reliance on shipments of cash (that still bore Assad’s face) from Russia, where the Assads had fled.
In the last several months, Syria’s economic partnerships with foreign governments and multinationals have transitioned from survival to more strategic, long-term planning as Damascus aggressively seeks out FDI. In mid-May, just days after the Trump administration announced that it would lift all Syrian sanctions, Syria signed an $800 million deal with the UAE’s DP World to develop its Tartus port—its first major deal of the kind post-sanctions. The port deal ties into Damascus’ hopes that the oil and gas sector, largely dormant during the Assad regime, will be a cornerstone of the postwar economy. At its 1996 peak, Syria produced a modest but significant 582,300 barrels per day of oil. However, following years of damage due to the civil war, preceded by decades of declining reservoir pressure, Syria became a net importer of oil and gas by 2012. Optimism around the sector’s revival has spurred a flurry of deals, studies, and memoranda of understanding (MOU) in recent months: Saudi Aramco has reportedly delegated a team to assess conditions for partnership; a consortium of three major US oil producers announced their intent to develop a “master plan” for Syria’s energy sector that would be led by US producers; Iraq and Syria agreed to study the repair of the damaged Kirkuk-Baniyas pipeline; the World Bank signaled support for the country’s energy revival following spring meetings; and individual oil majors, including Gulfsands, met with government representatives to discuss individual development projects. The deals are beginning to bear fruit: on September 1, Syria exported its first crude oil shipment in 14 years—600,000 barrels of heavy crude from the port of Tartus.
Syria is also seeking to reestablish its once-vibrant tourism sector, which suffered estimated losses of $2.3 trillion since 2011. In July, Syria’s government signed a $14 billion deal—including $4 billion from Qatar, which flew the first postwar commercial flights to Syria—to build a new Damascus airport. Included in the deal is $250 million allocated for the acquisition of up to 10 new jets for the national carrier Syrian Air. The Syrian Ministry of Tourism has also trained a cohort of “Tourism Police” meant to enhance visitor security, an attempt to address what is still the largest deterrent for visitors—the risk of violence.
Foreign partners, especially Turkey and Gulf Arab monarchies, stand to benefit from the reconstruction. Bloomberg Economics estimates that Turkey could get a boost of .06% a year to its GDP from rebuilding contracts that Turkish firms are well-placed to win, as well as a revival of exports. Gulf Arab states, most prominently the UAE, Qatar and Saudi Arabia, also stand to benefit from infrastructure contracts and renewed trade. Syria has appeared open to comprehensive Build-Own-Operate (BOO) partnership models, which grant foreign governments and multinationals significant equity and control over major Syrian industries and utilities—in mid-May, for example, Syria signed an MOU valued at $7 billion with a Qatari-led consortium to develop some 5,000 megawatts of electricity via gas turbines and solar, a series of developments that will be a cornerstone of Syria’s postwar electricity grid, and turns a sector dominated by state institutions over to private, foreign-owned entities. The BOO model has sparked some backlash from Syrians who feel that Damascus is giving foreign governments too good a deal—but it has been successful in attracting partners, likely the paramount concern for the al-Sharaa administration.
Obstacles and Opportunities
Despite significant upside risks for Syria’s economy and its foreign partners, the country’s transformation is still very much on a knife’s edge. Syria is still subject to UN sanctions, despite a US-led push to reconsider, including travel bans and asset freezes on interim president and HTS member Ahmed al-Sharaa. Damascus’ inability thus far to quell sectarian conflict will create operational risks for new investments, as well as threaten the stability of the new Syrian state writ large. The revitalization of the oil and gas sector will be especially vulnerable to these risks, as the majority of Syria’s oilfields lie in the northeast under Kurdish-led authorities. While Kurdish groups began supplying oil to the rest of Syria in February and the Kurdish Syrian Democratic Forces agreed in March to integrate into the state security apparatus, simmering sectarian tensions and Damascus’ failure to fully stop violence against minority groups leaves al-Sharaa’s administration’s access to these areas far from secure.
Nonetheless, significant opportunities exist for those with a higher risk tolerance, or lots to gain from a stable, prosperous Syria. The country is looking for foreign partners to essentially rebuild its basic infrastructure and reestablish its industrial base—including power generation and basic manufacturing. In addition to more involved Build-Own-Operate deals for major infrastructure and industry investments, Syria is making major purchases abroad (such as the deal to procure 10 new jets for Syrian Air) and seeking businesses to set up within its borders for the first time. While Turkish and Gulf entities are well-positioned to lead in these arenas, they are far from the only countries successfully engaging—Syrian leaders have taken meetings and signed MOUs with agencies and multinationals from every country that has lifted sanctions and is interested in a deal.
The success of Syria’s postwar economic recovery will have implications beyond returns on investment. If al-Sharaa’s government fails to spur economic revival and create visible opportunities for Syrians, it risks losing the legitimacy and domestic buy-in needed to maintain stability. In their absence, fragmentation and sectarian violence could escalate, prompting the country to backslide once more into failed-state status. The resulting chaos would negatively impact the entire neighborhood, potentially enabling ISIL and Iran-backed proxies to use the country as a safe haven and launch pad, ferry arms to allies, and execute attacks into Israel and elsewhere.
