Will Syria Come in From the Cold?

ISTANBUL – Will the recent rapprochement between the United States and Syria mark a new era in Syria’s international standing?

Syria can hope for two major changes following the restoration of full diplomatic relations with the US. First, it will be removed from America’s informal blacklist of “Axis of Evil” countries, which will substantially improve its chances to enter the World Trade Organization. Second, Syria will probably receive the go-ahead for a pipeline to bring Iraqi oil across its territory to Turkey. Such a link to Turkey’s economy – and thus possibly to the European Union – would encourage Syria to open its economy even more to foreign investment.

But all of this will undoubtedly come at a price. Syria’s side of the bargain will invariably need to be an end to its support for Hezbollah in Lebanon, for which it will likely seek the return of the Golan Heights. Israel would presumably resist this outcome, and Iran – as leader of the so-called “Shia crescent” spreading from Lebanon to Tajikistan – would strongly, and perhaps violently, oppose such a bargain as well.

During Iranian President Mahmoud Ahmadinejad’s visit to Syria earlier this year, Syria’s President Bashar Assad and he reiterated their unyielding cooperation in the face of “Western manipulations.” But Assad is under growing pressure from the ranks of his Baath Party to modernize the country and its infrastructure, which is impossible without improved ties to the West.

Syria’s economy is a rust pile. With a per capita income of $2,000, it has been closed to the outside world until recently. Rationing is pervasive. But, in order to secure public support, Assad’s government has allowed for greater domestic consumption, so foreign imports are rising fast. Indeed, the country has run a trade deficit since 2005, with no path back to balance in sight.

Supposedly “friendly” countries like Iran have been giving a helping hand, but almost always in the form of oil – and not even refined oil – rather than cash. The effort to liberalize foreign investment has not taken up the slack in investment from the regime’s regional political partners. For example, the Foreign Investment Law of 2007, which fixed a 15-day deadline for projects to be authorized, has resulted in only $200 million in new inward investment.

This lack of investment has left the economy, particularly the oil industry, in a shambles. A member of OPEC, Syria is now a net importer of oil.

The ruling Shia elite that surrounds President Assad – and that, together with the military oligarchy, retains almost total control of the economy – appears to be interested mainly in preserving the stagnant status quo. In opposition stand Syria’s Sunni traders, who are joined in demanding a change in the rules of the game by the country’s various minorities, composed of two million Christians, 1.7 million Kurds, and 400,000 Druze. The combined economic weight of the Christians – Nestorians, Maronites, Catholic Greeks, and Syriacs – is greater than their actual number, and the Baathist regime has always sought to accommodate these minorities. But it was only with the accession to power of Bashir al Assad that they were given more economic and political breathing space.

Assad has good reason to do so, because the unequal distribution of wealth, combined with an official unemployment rate of 15 percent, is fueling social pressure. The $3 fare for a bus ride between Aleppo and Damascus might look cheap to someone from outside Syria, but, given that a well-trained technician may earn only $150 monthly, it is almost prohibitively expensive.

A warming of relations with the US could set in play two types of dynamics: one originates with the OECD’s development initiative for the Middle East and North Africa (MENA), created in 2004. For the first time, the OECD became directly involved with non-member countries in the Middle East, and in 2009 Syria was included in its development cooperation master plan.

The second positive dynamic may come from improved Turkish-Syrian economic ties. Bilateral relations started to thaw 12 years ago, when Syria expelled the leader of the violent Kurdish separatist PKK movement, Abdullah Ocalan. A Turkish-Syrian Business Council was established soon after with the hope of developing economic relations, but little impact has been felt, owing to Turkey’s lingering suspicion of Syria’s political alignment. The only Turkish investment was made in the textile field by the firm Akteks.

Last year, however, as Prime Minister Recep Tayyip Erdogan pushed forward on strengthening Turkey’s Middle Eastern ties, visa requirements between the two countries were eased, with cross-border car traffic increasing 22 percent in five months. Regular bus lines have been opened, and, according to a high-ranking Turkish bank official, “We were hesitating about opening a branch in Syria because of the US embargo, so the sending of an envoy is like a green light to us.”

For Syria, the choice now is between seizing this opportunity to open its economy, or retreating back into its Baathist shell. The benefits of such an opening are clear. The question is whether Syria’s rulers can make the political choices necessary to obtain them.

Kenan Mortan is Professor of Applied Economics at Istanbul Mimar Sinan University. His latest book is on Istanbul’s Grand Bazaar.