Syria’s War Economy and Prospects of Reconstruction

Syria’s War Economy and Prospects of Reconstruction *

Publication date:
Eckart Woertz, Senior Research Fellow Associate, CIDOB

Notes internacionals CIDOB, núm. 77

After chemical attacks and the looming threat of US intervention, analysis of the Syrian conflict focuses more than ever on sectarian divides and outside interference. On a tactical level pundits exchange the names of brigades and features of weapons systems. Even the ideological preferences of thugs are likely to attract more attention than a basic question: What do Syrians eat? How do they cope in a war economy and what does their food security tell us about the prospects of reconstruction and the long-run viability of Syria?

Answers to these questions become all the more pressing as the silver lining of a peacefully negotiated settlement has appeared with the American-Russian understanding over a destruction of Syrian chemical weapons under international supervision. The Syrian Deputy Prime Minister Qadri Jamil has acknowledged that Syria’s civil war has reached a stalemate and has raised the possibility of peace talks in Geneva, while Iranian President Hassan Rouhani, an important backer of the Assad regime, has offered Iran’s help in brokering such peace negotiations. In contrast, a further deterioration of Syria’s economy could neutralize positive outcomes of a political settlement and lead to more instability.

Syria’s economy was in dire straits long before the war. Oil was its most important foreign exchange earner, but production from mature fields was in decline. Oil output in the 1990s almost doubled, but then fell from a peak of 677,000 barrels per day in 2002. In 2011, only 327,000 bpd were produced. To make matters worse, like Iran, Syria has a lack of refining capacity. Since 2008 its overall petroleum balance has turned negative. Imports of petroleum products like diesel have exceeded the value of declining crude exports ever since. The war has aggravated this situation as crude production has plummeted and the EU sanctioned Syrian oil exports. Rebels still export oil in trucks to Turkey or the government barters crude against mazot (heating oil) from Russia, but the erstwhile oil boom has stopped long before the war and is unlikely to return. The regime’s plan B was to increase production of natural gas offshore in the Eastern Mediterranean and establish itself as an energy transit hub for neighboring countries, but in the current security situation this seems like a flight of fancy.

While the oil front crumbled, agriculture did not fare better. This had negative implication as agriculture still presents 23 percent of GDP and Syria has a large share of rural population in regional comparison with over 40 percent. By Middle Eastern standards it has rich agricultural endowments; rainfed farming is possible in the west and north, while the Euphrates offers water for irrigation in the east. Agriculture as such was invented in nearby Mesopotamia and during the Second World War the Allied Middle East Supply Center in Cairo procured food from Syria, Iraq and Egypt for export to food deficient parts of the region like Palestine and the Arabian Peninsula. Unlike many of its neighbors Syria did not neglect agriculture in the wake of the oil boom. The government paid farmers above world market prices and supplied them with subsidized input factors. The system had its follies as it focused on water-intensive crops like cotton and wheat, relied on overpumping of ground water, used inefficient flood irrigation and expanded into fragile steppe eco systems, but production increased. Iraq was on the verge of famine by the mid-1990s as multilateral UN sanctions had cut off its food imports, self-reliance appeared to be prudent. The Syrian regime regarded self-sufficiency in strategic crops as vital. By 1994/95 Syria was self-sufficient in wheat and even exported a surplus. Yet like its oil boom its agricultural expansion was not sustainable. Droughts necessitated food imports in 1999/2000 and then again from 2008/09 onwards. With declining oil exports, financing of such food imports has become increasingly difficult.

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