Implications of the growing Iran-Syria economic relations

Dr. Majid Rafizadeh

A considerable amount of analysis has been dedicated to Iran’s geopolitical, strategic, and military relationships with the Syrian government apparatuses. Nevertheless, the shifting economic nexus between Tehran and Damascus has been subjected less to scholarly work, policy analysis, or media attention.

The changing paradigm in Tehran-Damascus economic ties can have significant long-term implications for Iran’s geopolitical and economic influence in the region.

Iran’s shifting economic paradigm in Syria

Right before the conflict erupted, Iran ratcheted up its investment with considerable amounts of money, resources, skilled forces, and labor in various provinces in Syria.

Large sums of cash and resources were allocated to investments in several sectors such as transportation, infrastructure, and energy, including a joint bank in Damascus, 60 percent of which is owned by the Iranian government, as well as a$10 billion natural gas agreement with Syria and Iraq for the construction of gas pipeline that would start in Iran, run through Syria, Lebanon, and the Mediterranean, and reach several Western countries.

Iranian Supreme Leader Ali Khamenei, the main player alongside Iran’s Revolutionary Guard Corps (IRGC), also supported the allocation of $5.8 billion in aid to Syria by Iran’s Center for Strategic Research (CSR), which concentrates on the Islamic Republic of Iran’s strategies in six different arenas including Foreign Policy Research, Middle East and Persian Gulf research, and International political economy research.

A 17-article agreement was also signed which concentrated on “trade, investment, planning and statistics, industries, air, naval and rail transportation, communication and information technology, health, agriculture, and tourism.” The contracts are mainly between the state organizations while Iran’s main investors are various companies (transportation, food, etc) owned by Iran’s Revolutionary Guard Corps and the Office of the Supreme Leader.

Iran’s economic influence in Syria has exponentially increased contrary to common perceptions. In the long-term, if the Syrian war ends, Iran would be the most dominant player in Syria economically

Dr. Majid Rafizadeh

Iran’s long-term plan

Iran and Syria played almost equal role in economic trade and investments before the conflict, as both held some leverage against the other. But after the uprising, Iran’s economic leverage over Syria increased exponentially causing Syria's debt and dependence on Iran to increase as well.

While some argue that Iran’s economic investment in Syria has decreased, in fact statistics show otherwise. Isolated from the international community and being confined with global sanctions, the Syrian government has become more reliant on Iran. In other words, Iran has become Syria’s economic lifeline. After the conflict, free trade has increased and the trade custom fees have been significantly decreased up to 60 percent, in favor of Tehran.

These agreements are believed to increase Iran and Syria’s annual trade volume to $5 billion. Allaedin Boroujerdi stated that the recent agreements were “a firm response” to the United States and its Western allies “investing billions of dollars to change the political structure of the Syrian government.” Iran has also the dominant role in Syria’s economy since trade between Syria and Turkey and other regional players has significantly shrunk.

Iran’s investments in Syria’s infrastructure, power generation capabilities, and gas market has also increased since then, as part of the reconstruction process. The additional shift is that the investments are not only done with the Assad’s governmental apparatuses, but also with many Shiite militia groups.

Iran’s investments remain mostly in the form of credit lines and loans. Although the war has become costly for Iran, Iran has not abandoned its economic plan in Syria. Tehran’s economic and reconstruction plan in Syria is a long-term one which can pay off very well in the vast market of Damascus if the Syrian war ends. We can make the analogy that Iran’s economic agenda is similar to its plan in Iraq, after US invasion, and partially similar to the US Marshall plan of giving economic support to rebuild Western European economies after the end of World War II.

But Iran is playing a more enduring plan. Some reports indicate that Iran is getting paid back via contracts in Syrian real state by buying Syrian land. This gives Iran considerable amount of power over Syria in the long-term. If the war ends, Iran will be single most important player in Syria economically.

The nuclear deal has definitely made Iran’s economy stronger. This in return has increased Iran’s economic influence in Syria, as it has also benefited Assad as well. Larger infrastructure and energy projects will be more likely on the horizon. Almost every year, Iran is signing a new contract with Syria for nearly over a billion dollars of credit line.

Another area of increasing trade- and Khamenei and the IRGC’s priority- is arms trade with Syria in order to strengthen its defense. Syria is a matter of national security for Iran. Without Iran’s financials assistances, Assad would have not survived.

For example, although there are international economic sanctions against Syria, Iran’s crude oil sale to Syria increased to its highest record of 125,000 barrels a day in March 2015. The amount will more likely increase since sanctions were lifted against Iran.

More recently, Syria and Iran signed several agreements to invest in oil, electricity, power, energy, and other industrial sectors. They discussed “means to implement cooperation between the two countries.” Although it is billions of dollars, it is still hard to quantify the exact estimate Iran’s investment in Syria and its trade.

Iran’s trade and investment in Syria was approximately over $9 billion annually before the sanctions were lifted. This amount is expected to increase to $15-20 billion annually. Iran’s non-arms trade with Syria is still one-fifth (nearly $2 billion) of Iran’s trade with Iraq, which is intriguing since Syria is a conflict-affected state.

Iran’s economic influence in Syria has exponentially increased contrary to common perceptions. In the long-term, if the Syrian war ends, Iran would be the most dominant player in Syria economically. This also suggests that due to the above-mentioned date, Iran cannot afford any peace plan that will lead to the removal of the Alawite state from power.