Arak gas field in Homs province near the ancient city of Palmyra, 9/7/2017 (AFP)
AMMAN—As the Syrian government calls for recovery and reconstruction funds after eight years of devastating war, it is giving away vital economic sectors to Russian and Iranian companies piecemeal, posing a threat to Syria in both the short and long term.
In January 2018, Stroytransgaz (CTG), a Russian oil and gas engineering company, acquired the investment rights to Tartus Port for the next 49 years. This caused a media uproar: the agreement was seen as more of a form of “occupation” than an investment or lease, prompting the Syrian Minister of Transport, Ali Hammoud, to deny these claims, saying that “the economic feasibility of the project needs this period to achieve the required profit for both parties.”
The contract includes an expansion of the port through infrastructure development and modernization, as well as the construction of a new port, which will increase the productivity in the port from 4 million to 38 million tons per year, at an estimated cost of more than $500 million.
As the following interactive map shows, the so-called Russian and Iranian “investments” have spread to most of Syria’s vital sovereign sectors, particularly oil, gas, phosphates, potash, airports, as well as ports.
Mafiusu Russian Investments
Russian investments in Syria can be traced back to the 1970s. In 1971, an agreement was signed between Syria and the Soviet Union to build a Soviet naval military base in the Mediterranean city of Tartus, just two years after the city’s port was established.
After the collapse of the Soviet Union in 1991, Russian ships continued to use the port for maintenance and refueling. In 2008, as tensions between Russia and the US escalated, Moscow announced that its naval force military personnel were carrying out renovation and maintenance work on a section of the port of Tartus.
In 2009, Russia tried offering to pay off its debt to Syria in the form investments in vital economic sectors, but “the regime refused and offered, instead, marginal investments,” Younis Karim, a researcher who was previously an economic adviser to businessmen in Syria, told Syria Direct.
The Syrian government’s tone soon changed after the Russian military intervention in Syria’s civil war in September 2015. Though Russia intervened mianly “to protect the regime, the Russians, in return, got the contracts they wanted, the most important of which is a warm water port on the Mediterranean coast, along with many contracts in the salt mines and phosphates and oil sectors,” Karim said.
In recent years, however, the Russians have begun to rely on a new investment model in Syria which Karim calls, “mafiusu investment.”
In this investment model, “a company acquires an investment at a price lower than its real value and then relies on the Syrian state to fund it. So the facility is then ready to use and invest in or resell to foreign investors at a higher price,” he said.
As a consequence of such “mafiusu” contracts between the Syrian government and Russian companies, the “Syrian state has to shoulder an additional and unnecessary burden.”
One contract signed between the Syrian General Establishment of Geology and Mineral Resources (GEGMR) and Stroytransgaz, allowed the latter to invest and extract raw phosphate ore from Palmyra’s eastern mines.
Under the contract, GEGMR maintains a 30 percent share of the mines’ production and will cover the cost of licensing the mine, land use fees, employee wages and supervising expenses, in addition to 2 percent in additional taxes. The Russian company will produce 2.2 million tons annually for 50 years, depleting the entire phosphate reserve in Syria in the process.
The same “mafiusu” model can also be seen in the Tartus Port investment contract, as the Russian company did not bear the cost of the existing infrastructure, although it is standing and operational.
These contracts are transforming the structure of the Syrian economy. For example, Syria has become an importer of nitrogen fertilizer as a result of the government awarding Stroytransgaz a contract to invest in The General Fertilizer Company in Homs for the next 40 years, with a further ability to renew the contract. The company has been providing the local agricultural sector with all fertilizers it needs.
The “disaster,” as Karim said, is that “the decision is not under Syria’s sovereign control. The Tartus port, under the provisions of the contract [with the Russian company], is considered to be totally under Russian control. The regime doesn’t have any authority over this investment as long as the regime itself is under Russian control.”
“This type of contract will prevent the Syrian state from using the buildings in the port at present or even after [the port] is sold again to [other] foreign investors,” Karim said. This could “cause the Syrian citizens to use, for example, the ports of Lebanon or Jordan instead of the ports of Syria because of the high costs as a result of mafiusu investments.”
Further, Russia’s economic hegemony over Syria extends to the strategic wheat sector, as Russia now supplies hundreds of thousands of tons of Russian wheat to Syria through intergovernmental deals. Sofokram, a Russian company, constructs and restores flour mills in Syria as well.
According to the president of the Syrian-Russian Business Council, Samir Hassan, 80 Russian investment companies entered Syria at the beginning of 2018 to evaluate investment prospects in the country.
The Syrian Ministry of Economy and Foreign Trade declined to respond to the inquiries of Syria Direct on contracts and agreements with Russia and Iran.
Chaotic Iranian Investments
After the Russians took control of many sovereign investment projects, Iran, according to Karim, resorted to “infiltrating micro-enterprises that deeply affect the poor.”
In doing so, it seeks to create “an incubator of poor people and buy loyalty, to be a pressure point and tool of influence, like the Sadrists in Iraq, to influence political decisions and have a decisive role in the stability of the country.”
As such, Iran is focusing on investing in “microfinance banks, financing electricity for small neighborhoods and everything for the poor.” This means that any major project will not be given to investors as long as there is political chaos in the country,” said Karim, commenting on Iran’s dominance of Syria’s economy.
It was thus no surprise that Iran occupied the largest space in the 61st Damascus International Fair, which took place between August 28 and September 6.
According to the director of the Iranian pavilion at the International Fair, Muhammad Reza Khanzadeh, more than 60 Iranian companies which various fields, including “heavy industry, automobiles, spare parts, construction materials and technical services, engineering, food, chemical and petrochemical services and houseware ” participated in the fair.
“The friendly states which stood by Syria during the crisis, should bear responsibility in cooperating with the country during the reconstruction stage, Khanzadeh said.
Assad vs. Syria
A member of the Russian military police stands guard between the portraits of Assad Putin hanging outside a guard-post near Eastern Ghouta, 1/3/2018 (AFP)
The contracts given Syrian government gives to its allies, Russia and Iran, look less like business contracts and more like gifts.
“Even if the shares of the parties [in these contracts] are made public, the environment in which such partnerships were awarded is not competitive and point to the fact that the regime gave a gift to the countries that helped it militarily and economically,” Muhammad Bassiki, a Syrian journalist focused on the Syrian economy, told Syria Direct.
According to Bassiki, it’s difficult to know and measure the Syria’s profits in these deals and contracts, especially in energy and oil projects, as a result of the international sanctions on Syria.
Further, “vital investment projects have been given to the regime allies in phases, reflecting several motives.” Through these projects, “they encouraged allies to actively participate in military efforts to bring areas back under Damascus’s control,” Karim said.
In addition to advancing the government’s agenda, Syria’s allies pursued their own interests in Syria, “striving to capture more territory controlled by the opposition, especially the [territory] contained resources or potential investment sites.”
The government also granted its allies projects from which it is unable to earn returns “as a result of corruption, or because the projects were damaged,” according to Karim. “[However,] the government is only completely incapable of [ running projects] in the oil sector,” he added, suggesting that the awarding of investment projects is due to political calculations rather than true inability to execute contracts.
The Syrian oil sector, according to Karim, is divided into two sub-sectors: the first is operational and under Syrian government control, while the second is used to fund Bashar al-Assad, his inner circle and the security forces.
However, given that both sectors are subject to international sanctions, “the government is unable to exploit them except through their allies who have become experts in dealing with European and American sanctions, despite the unfair conditions towards Syria.”
According to Bassiki, the countries that want to “widen their influence and find a permanent foothold in Syria, especially Russia and Iran, have an opportunity to extract what might bring more economic gains, given that the Syrian regime does not have the luxury to accept or refuse. Because [Assad] wants to appear as if he’s in control of [Syria], he has no objection to the management of economic facilities by his allies.”
While investment contracts were being distributed among its allies, Syrian parliament enacted new legislation that increased the power of companies from countries that supported Damascus during the revolution. The “new investment law,” for example, was described by the pro-Damascus newspaper, “al-Watan,” as being “unable to overcome the previous investment obstacles, and similar to Decree 8 from 2007 and some of its amendments are useless.”
Contrary to Decree 8, joint-public-private investment projects are included in the new law. It has also granted certain companies “generous” exemptions from taxes which can reach up to 100% for the duration of projects in agriculture and livestock production, and up to 50% for ten to fifteen years in other sectors.
Destabilizing the economy
“As the Syrian regime widens the scope of its killing and destruction, the bill it must pay its allied forces has increased,” Karim said.
Nonetheless, Karim stressed that although the contracts being given to the regime allies are unfair, they are “lawful” according to international law, given that the UN still acknowledges Bashar al-Assad as a legitimate president. Thus, “these contracts can[only] be challenged on the basis of being used to fund terrorism against the Syrian people.”
According to international law, “there is no fairness in investment contracts, rather just an exchange of interests and benefits,” Karim said.
“In the event of an international settlement [for the conflict in Syria] in which Bashar al-Assad is not tried, the contracts will be deemed valid. Whereas if Bashar al-Assad is tried in an international court on the charge of killing and terrorizing the Syrian people, those contracts will be considered illegal, given that they were used to cover up a war criminal.”
Syria has lost many of its economic sectors and wealth to the interests of Russia and Iran. Consequently, “the international community,” Karim said, might not be motivated to find a comprehensive political solution that includes all of Syria. In addition, there cannot be a stable society without an economy that supports the political solution.”
He called Syrians to “take legal actions before international courts to [challenge] the legality of the investments awarded by the regime [to its allies] and to tie them to the terrorism that the regime practices.”
Karim also called attention to the so-called “old guard,” which is made up of some of the most prominent Syrian government officials and officers. The influential group is delaying Russian and Iranian acquisition of investment projects, as it views them as threatening “the Syrian [government] itself.”
The old guard has been pushing for a balancing act between Syria’s allies rather than giving projects to just one state, fearing that giving one state too much economic power could allow it to influence the political solution to fit its interests.
However, even if stability is achieved in Syria via a political solution, the Syrian economy will stay beholden to Russian and Iranian interests in the long term. Their dominance of Syria’s economy could crowd out other foreign investment and close off much of Syria’s markets to other foreign companies.
According to Karim, Russian and Iranian investment have taken away Syria’s “flexibility,” which before 2010, was a hallmark of the country and enabled it to have bi-lateral trade deals with over 100 countries. “Despite most of those deals being in the regime’s [personal] interest, they still contributed to giving the Syrian state flexibility compared to today,” he added.
Russia and Iran: Cooperating or competing?
According to Bissiki, Russian and Iranian interests in Syria both overlap and diverge, depending on the context. Economic interests tend to be divided along each country’s industrial needs and interests.
“We are seeing the Iranians take an interest in infrastructure, electricity and housing projects, along with other projects in the reconstruction field,” Bissiki said. By contrast, Russian companies have taken the lion’s share of projects in the energy sector and are in talks to restore Syria’s railways.
Still, Karim said it was likely that there is “competition between the two sides. However, there is, at the same time, an agreement in interests, as the two countries know a collision between them would be a mistake.”
“There are occasional skirmishes over some investments and projects that one country had obtained at the expense of the other,” Karim said. “[A skirmish] occurred when Russia tried to eliminate Iranian control over Latakia port, and [when] Iran tried to license a new port beside the Russian port of Tartus.”
“The regime is sometimes trying to play both sides by threatening Iran with Russia, and threatening Russia with Iran,” Karim added.