This piece was prepared as part of the 2013–2014 Syrian Economic Reconstruction Project run by the Carnegie Middle East Center, which sought to help map the social, political, and institutional dynamics that will be generated when postconflict reconstruction begins in Syria. This piece was drafted in September 2013 and updated in 2015.
The war economy, as once described by the scholar David Keen, is the “continuation of economics by other means.”1 Its distinctive features, particularly in civil wars that pit governments against rebels, include, as listed by the authors Karen Ballentine and Heiko Nitzschke, “The destruction or circumvention of the formal economy and the growth of informal and black markets,” as well as “pillage, predation, extortion, and deliberate violence against civilians is used by combatants to acquire control over lucrative assets . . . and exploit labour.” Also according to them, “War economies are highly decentralised,” and combatants “thrive on cross-border trading networks.”
This publication seeks to track Syria’s war economy after the conflict has entered its fourth year and to show how the features mentioned above apply in practice there. It will also document the destruction of the formal economy against the backdrop of thriving black markets, as well as the recourse by the conflict’s parties to new means and methods to sustain their survival. In addition, the publication will shed light on the new methods that civilians have increasingly employed to meet their daily basic needs.
A study by the Arab Encyclopedia of the Syrian presidency showed that the war economy and the militarization of the economy have long prevailed in Syria, even before the outbreak of the crisis: “Defense expenditures have significantly surpassed allocations that Syria could have earmarked for development since 1990.” It is thanks to this ongoing economic militarization that the diverse components of the Syrian economy have been relatively able to cope with the crisis and avert sudden collapse. In a 2013 seminar with journalists, then Syrian deputy prime minister Qadri Jamil boasted, “We have always had basic and reserve bakeries and enough wheat reserves for two years. . . . This is the war economy that we have always been preparing for.”2
This publication will attempt to answer a number of questions. How has the Syrian government coped with the war economy? Have its preparations and plans worked? What about the armed opposition? How has it created its decentralized economic system? How have ordinary Syrians coped with the war economy, regardless of their position—whether as supporters of the ruling regime, the opposition, or silent neutrality?
The war economy in Syria will be examined from four different axes encompassing the government, the population at large, the opposition and other armed groups, and traders and investors. Each of these four categories will be tackled separately before their correlations and linkages are considered.
Syria’s War Economy: Evolution and Diversity
A 2014 report produced by the Syrian Center for Policy Research (SCPR) for the United Nations Relief and Works Agency (UNRWA) highlighted a number of facts, including: “Syrian human development regressed by more than four decades during the conflict.”3 With a Human Development Index measurement of 0.472 by the end of 2013, compared to 0.646 in 2010, “Syria has fallen from the ‘medium human development’ cluster of nations into the ‘low human development’ group, largely as a result of weakening performance in education, health and income."4
Also according to the report, entitled Syria: Squandering Humanity, the poverty rate had reached 75 percent by the end of 2013. It explained that,
While poverty varies among regions, those governorates that witnessed intensive conflict and had higher historical rates of poverty suffered most from poverty. Thus, people in Idlib were poorer than the rest of the country with 83 per cent of residents falling below the overall poverty line, while those in Deir Ezzor, Rural Damascus, and Al-Raqqa also suffered from high rates of overall poverty. . . . While the poverty rate increased in all governorates . . . the lowest rate was in Latakia at 65 per cent, followed by Sweyda, Hassaka and Tartous respectively.5
In addition, a 2015 SCPR report estimated Syria’s total economic loss since the start of the conflict at $202 billion by the end of 2014, equivalent to 383 percent of the 2010 gross domestic product (GDP) in constant prices.6
The United Nations Refugee Agency’s (UNHCR’s) periodically updated figures on Syrian refugees shed light on what the SPCR report has termed the “Syrian catastrophe.” As a matter of fact, the UNHCR’s updates provide researchers with important indicators about the economic effects of the war and the management of the economy in times of war. The UNHCR’s figures showed that, by February 2015, around one-quarter of the 3.8 billion Syrian refugees were in the working-age group (eighteen to fifty-nine) and in need of total assistance of $3.7 billion, of which only 61 percent was available.
To clarify the economic impact of the continued influx of refugees into neighboring countries and the profiles of potential entrants into the labor market among that group, the Beirut Institute revealed, in a report published in July 2013, that Jordan was hosting around 580,000 refugees, representing one-fifth of its population. One-third of these refugees lived in camps, while the rest lived in Jordanian cities.7
In Lebanon, in addition to around 400,000 Syrian workers already in the country, the UNHCR had registered 585,000 refugees by July 5, 2013. According to official statements cited by the Beirut Institute report, the total number of Syrian refugees in Lebanon, both registered and unregistered, was more than 1.2 million, representing 25 percent of Lebanon’s population.8
These figures on the massive exodus of Syrian refugees are indicative of the precarious security and economic living conditions in Syria. The Economist newspaper ranked Damascus as the worst city in the world to live in as of August 2013, while a study by the consulting firm Aon Hewitt covering 138 cities worldwide identified Damascus as the city with the highest risk for people in 2013.
The Syrian Government and the War Economy
For an insider’s look at how the Syrian government has coped with the war economy, it is worth revisiting the government’s previous preparations for such circumstances. As described in the Arab Encyclopedia, defense expenditures in Syria have long been high,
Accounting for more than 12 percent of the overall state budget in times of peace, and more than 25 percent in the event of war or general mobilization, with a large share of budgetary resources allocated for defense purposes. Defense expenditures make up around 50 percent of current expenses annually. . . . In 1971, defense expenditures constituted 42 percent of development expenditures, without taking up all of the development allocations, only to exceed 70 percent by 1986. As of 1990, defense expenditures have significantly surpassed allocations that Syria could have earmarked for development expenditures.
In its separate study for UNRWA published in March 2015, the SCPR showed that public and private investment dropped to around 10.8 percent of GDP as a result of the Syrian war, while off-budget government military expenditure rose to 13 percent of GDP in 2014.
The Syrian government’s announcement of its war economy policy, during President Bashar al-Assad’s first meeting with the government of then prime minister Riad Hijab in June 2012, marked its recognition of the burden of the crisis more than a year after it had attempted to mitigate or overlook its impact. On June 25, 2012, President Assad told the new government, “As I have previously said in my address to the People’s Parliament, we live in a real state of war from all angles. When we are in a war, all policies and all sides and all sectors need to be directed toward winning this war and its battles.”
The effects of economic sanctions were clearly felt in the second year of the crisis. The state budget reeled from the flight of capital, the destruction and closure of facilities, as well as rampant unemployment, with Syria recording a decreasing growth rate of -22 percent in 2013.
When the crisis began, the Syrian government boasted the economy’s strength and resilience, estimating the Central Bank of Syria’s hard currency reserves at $18 billion. But as the crisis raged on and Syrians began looking for safe havens, with the depreciation of the Syrian pound by 75 percent compared to the U.S. dollar as of 2014, the central bank had to intervene. It injected and sold foreign currencies in the market, in an attempt to ease pressure on the Syrian pound. The currency depreciation gradually continued, however.
According to the SCPR’s 2015 study, the crisis left the Syrian economy exposed and dependent on imports, foreign funding, and aid. The ratio of exports to imports dropped sharply from 83 percent in 2010 to around 30 percent in 2014.
In parallel, oil exports plunged from 383,000 barrels per day to an estimated 20,000, according to a report by the United Nations’ Economic and Social Commission for Western Asia.
The Syrian government issued a number of decisions in an attempt to avert losses, maintain its survival, and secure funding that would perpetuate economic support for its official approach to the crisis. In addition to reducing the public budget, it outlined a series of cost-cutting measures. It ordered a reduction in the use of government vehicles, which saw their monthly share of fuel contract, and launched awareness-raising campaigns on energy and paper rationalization, requiring, for instance, the use of both sides of paper in public institutions.
In its first report in late 2012, the SCPR said the government’s reduction of investment spending had a negative impact on the economy’s growth and job creation and caused public revenues to shrink. Some of the government’s decisions also increased uncertainty among businesspeople, weakening their tendency to invest.
The Central Bank of Syria also curtailed import financing, which used to account for at least $5 million a day. Traders were thus asked to finance their own imports and to explore new alternatives to their liking, in line with the government’s hands-off policy, as the president of the Federation of Syrian Chambers of Commerce put it.
As a result, the Syrian government and traders started exploring means to secure trade and external transactions in such a way that would continue to generate revenues to fund state and war management. In mid-2012, the U.S. Department of the Treasury sanctioned Syria’s largest Islamic bank, the Syria International Islamic Bank, on charges of acting for and on the behalf of the Syrian government to work around import and export sanctions.
The Syrian government also resorted to other work-arounds, with its attempts to enter into agreements with Iran and to initiate cooperation with the BRICS group of countries, consisting of Brazil, Russia, India, China, and South Africa. Its efforts paid off, and a deal was inked with Iran for a $1-billion-dollar credit facility for the supply of oil, gas, and their derivatives to Syria, alongside concerted efforts to circumvent economic sanctions. This kind of Iranian support has been renewed almost every year.
On July 21, 2013, Qadri Jamil disclosed in Moscow that the Syrian government had sought a loan from Russia, without specifying its value. His statements in 2012 bore reference to another loan from Russia. The extension of any of these loans has not been officially confirmed.
Nonetheless, the SCPR’s mention of an increase in the size of Syria’s domestic and foreign debt may be a sign that the Syrian government has received undeclared loans from Russia or other countries. As shown in the report, the government’s public debt measured against GDP reached 147 percent in 2014, including 76 percent in domestic debt and 71 percent in foreign debt. In comparison, the total debt measured against GDP was estimated at 23 percent in 2010.
Transition to a New Period
Faced with economic distress and nose-diving reserves, the Syrian government had to explore new avenues. For instance, the Ministry of Economy and Foreign Trade ordered the financing of imports with Syrian funds frozen in accounts held abroad, granting traders and banks the discretion to decide on the appropriate recovery mechanism.
In August 2013, Reuters reported that Syria was facing “its worst wheat harvest in nearly three decades due to the conflict, dealing a blow to Assad’s plan for self-sufficiency in food that was aimed at sidestepping Western moves to isolate and weaken his government through sanctions.” Reuters also reported that “Syrian state buyers have issued a series of tenders for wheat, sugar and rice amounting to over 500,000 tonnes in total” and that payments would “be made from frozen accounts with waivers obtained from countries that have imposed financial sanctions, according to documents reviewed by Reuters and confirmed by trade sources active in potential deals.”
At home, the Syrian government struck economic deals with the opposition to sustain its survival. In an article published in Al Hayat newspaper on May 4, 2013, the writer, Abdul Nasser al-Ayed, described some of the contours of this economic confrontation:
Rebels seize and confiscate all that belongs to the state as if it is their own property. Meanwhile, the regime struggles to reinvigorate and confirm its economic role, either by overpaying salaries and offering benefits to its followers or by trying to lure some of its opponents in areas under its control into believing that it could change and improve its behavior. This explains why the regime continues to offer services it can easily withhold. Interestingly, for instance, the regime continues to pay salaries for people in the liberated Aleppo and Deir Ezzor, among others, and also for former civil servants, some of whom currently command whole brigades of the Free Syrian Army.
As in military confrontations, players scrambled for influence and struck deals. As revealed by the Guardian newspaper, the regime bought oil under financial deals with the Nusra Front that controlled large swaths of land in northern and eastern Syria.
Also for economic survival purposes, the Syrian government bought wheat from farmers at competitive prices, 70 percent higher than the price paid by the opposition, which used to export it via Turkey. Officials publicly claimed that this policy had lured farmers into selling their produce to the government. By mid-2013, around 1 million tons of wheat and barley had been supplied to public institutions. These attractive prices led to the emergence of a new category of mediators, who paid royalties to gunmen in return for facilitating the transfer and sale of grains in areas controlled by the opposition and the regime alike.
The Syrian government also attempted to break the opposition-imposed siege on economic lifelines in other regime-controlled areas. In a meeting with journalists on August 4, 2013, Qadri Jamil said that the government had realized, after the outbreak of the crisis, that 40 percent of Syria’s mills were concentrated in rural Aleppo. This area was predominantly under the opposition’s control, and the government was considering alternative routes to transport wheat from northern and eastern Syria, including from Hasakah and through Iraq, all the way to Damascus. But this project was put on hold after the Yaarabiya border crossing was shut down. Jamil also said that the government had bought and stored around 2 million tons of wheat in Hasakah in 2012 but could not make use of it. Thus, Syria was obliged, for the first time in thirty years, to import flour from Iran, Lebanon, and Ukraine.9
As people in regime-controlled areas grew exasperated with monetary and price inflation, the government decided to ease the pressure and intervene in prices and trade transactions. It subsidized some basic goods and allowed other new goods to be purchased with a ration card, including tea, cooking butter, oil, and bulgur. Saddled with the high costs of war, the government eventually went back on its decision and raised the prices of bread and fuel in early 2015.
In addition, the Syrian government tried to fight a dollarization phenomenon that became rampant in 2013 and was an indication of a loss of faith in the Syrian pound. To this end, it promulgated Legislative Decree No. 54 of 2013, prohibiting the use of currencies other than the Syrian pound for payments or any other kind of commercial dealings. The decree also stipulated that offenders should be punished with a prison term ranging from six months to three years and a fine.
How Have Ordinary Syrians Coped With the War Economy?
The paragraphs above on how the Syrian government has managed and coped with the war economy give a general idea about the war-induced plight of ordinary Syrians. In the paragraphs below, more details will be provided about ordinary Syrians’ management of their daily lives amid the war economy.
At the end of 2014, 82 percent of Syrian people lived in poverty, while 2.96 million people had lost their jobs because of the war. Unemployment surged to 58 percent, according to the SCPR.
Separately, the SCPR’s 2013 report “estimated that sanctions contributed to an increase of the poor in Syria by 877 thousand persons” and a rise in the prices of oil derivatives by around 200 percent.10
The agricultural situation can give a clearer picture of the great economic damage inflicted on Syrians at large and of how they have coped with the war economy. Prior to the crisis, 46 percent of Syrians—the highest proportion in the Middle East—lived in rural areas, and 15 percent of workers were employed in the agricultural sector, which accounted for 27 percent of GDP in 2010. Vegetable production in Hama has dropped by 60 percent because of the conflict, while olive oil production in Daraa has plummeted by 40 percent. Likewise, nationwide wheat production plunged from 4 million tons a year to around 2 million tons in 2013.
In 2012, the United Nations’ Food and Agriculture Organization dispatched a mission to assess the situation across Syria. The mission concluded, in its report, that agriculture had sustained $1.8 billion in losses, that 30 percent of rural households were displaced, and that 60 percent of families in rural Homs, Hama, and Daraa lived on loans from relatives after the prices of meat, chicken, and milk had increased by 300 percent.
As a result of these financial burdens—and as normally happens in war economies—the majority of Syrians, whether under the control of the government or the opposition, plunged into the informal economy, and 80 percent of the remaining population in Syria needed help by April 2015.
This came against the backdrop of a hike in the Consumer Price Index to more than 300 percent, according to a report by the Syrian government’s Central Bureau of Statistics.
As prices, inflation, unemployment, and displacement increased, ordinary Syrians reeled from the high cost of living. For instance, the prices of fertilizers, drugs, telecommunications, fuel, and diesel rose by more than 100 percent, while the quality of goods on the market was tampered with, as control weakened.
In 2013, the Syrian government promulgated Legislative Decree No. 27 with the aim of exercising tighter control. The decree introduced amendments to the Consumer Protection Law and provided, for the first time in the country’s history, for blacklists indicating the names of traders and brand chains that violated specifications and prices.
Counterfeit drugs were also put in Syrian markets, with official sources warning against the sale of expired and fake drugs. The authorities endeavored to control the markets, to no avail, hence their calls on ordinary Syrians to establish popular committees to oversee markets and bakeries and stop the smuggling of flour and other goods.
As the government failed to exercise its oversight function or find adequate solutions with its hands-off policy, ordinary Syrians started doing as they pleased. This is how they took a series of measures, dictated by necessity, to cope with the war economy.
As a matter of fact, the president of the Federation of Syrian Chambers of Commerce, Ghassan al-Qallaa, called for a change in consumer habits and a rationalization of consumption, arguing that both consumption and stocking up should remain within limits.
The majority of Syrians thus began relying on their ingenuity to run their daily lives. They changed their consumer habits as a result and devised new alternatives, both legal and illegal.
Fruit and many other basic goods disappeared from the food basket of Syrians. (They were only consumed once a month or seasonally, rather than daily.) As reported in local media outlets, exorbitant prices pushed many Syrians to replace meat or chicken with chicken broth powder and cooking butter with oil. Pharmacies also reported an increase in vitamin intake among Syrians, possibly to offset malnutrition. An economic magazine in Syria estimated that a salad had become more expensive than 1 kilogram of chicken and that Syrians were at risk of forsaking vegetables for meat.
To counter this situation, many Syrians, including those living in cities, began to grow vegetables on the rooftops of their houses and breed animals in their backyards.
And when the government-fixed tobacco prices increased, Syrian smokers went back to smoking hand-rolled, unpacked cigarettes as a cheaper alternative.
As domestic cooking gas ran short, farmers devised their own solutions: fire and wood were back in use for cooking. In addition, some farmers in Sweida and rural Tartus converted cow dung into gas, using primitive engineering techniques. On this note, a local media outlet reported the story of a Tartus farmer, Mohsen Youssef, who produced gas for his family and neighbors to use domestically. His venture came at a time when Syrians were struggling to obtain this commodity from official bodies.
Syrians also started walking more and riding bicycles not only to avoid traffic jams caused by numerous security checkpoints but also to circumvent rising transportation prices. And as intergovernorate means of communication were disrupted, relatives returned to exchanging letters via truck drivers.
War economies, often illegal, have mushroomed particularly in the provinces that have spiraled, whether partially or totally, out of the government’s control, such as Raqqa, Aleppo, Deir Ezzor, and rural Homs. As reported by the SCPR, economies of violence have taken different manifestations in the country, including through some Syrian people killing, injuring, or insulting other Syrians. The human, weapon, and drug trades have run rife, as has kidnapping for ransom.11
In Deir Ezzor and Raqqa, oil wells were seized and oil was locally refined and sold after the central government suspended salary payments in both provinces.
The state-owned Tishreen newspaper ran a report entitled “High Prices Gobble Up One-Third of Wages and Push for Widespread Begging and Robbery.” New forms of dishonest means of making money also emerged, including in Aleppo, for instance, where queuing citizens would sell their spots in front of bakeries and gas stations. This profession is colloquially known as durhi, as Tishreen reported.
According to the Central Bureau of Statistics, nationwide consumer prices reached a record average of 320 percent in 2014, with Aleppo topping the ranks at 346 percent, followed by Raqqa at 331 percent, Quneitra at 327 percent, and Daraa at 326 percent.
The war has divided Aleppo, Syria’s second-largest city after Damascus, into two areas: one controlled by the government and the other controlled by the opposition. The city’s economy has also been torn apart, as the opposition has besieged almost all entrances and prevented rural areas from exporting their goods to government-controlled areas since 2013.
Perhaps the starkest manifestation of the war economy has been the so-called Bustan al-Qasr death crossing, the dividing line between the two parts of Aleppo and the only supply route from the opposition’s to the regime’s areas of the city. The crossing got its name after citizens venturing into the opposition-controlled part of town to buy goods and food at lower prices were killed by snipers. They had to take the risk when the government could only supply areas under its control with goods and fuel at 100 times the price, if at all. The situation at this crossing prompted a lawmaker to suspend his membership in the Syrian parliament to protest the government’s slackness, as he put it.
Although economic life and the war economy in Homs have long been kept away from the media spotlight, this publication has managed to form an image of the situation in the city based on interactions with an economic researcher in Homs.
Unrest did not directly affect economic activity in the quiet neighborhoods of Akrama, Zahra, and Wadi Dahab but has intermittently impacted the city’s commercial and services markets since April 2011. As the pace of incidents quickened, the markets were partially shut down, and by early February 2012, the city center was ravaged by destruction, fire, theft, and sabotage. (The Naoura market was partly burnt down then.) In early March 2012, the city center turned into a closed-off military zone.
With the city center’s closure, economic activity in the governorate came to an almost complete standstill, and discontinuations were reported, particularly against the backdrop of a massive exodus from the city. Public departments relocated their headquarters, while the city’s commercial and services markets were destroyed and plundered. Shop owners either left the town or the country. Some ended up unemployed, living off their savings, while others rented new shops or set up stalls in relatively quiet neighborhoods, particularly in al-Waer. Most local brand owners also opened new businesses in the completed but unopened Exhibition City, which the city council of New Homs had turned into a large commercial center, offering stalls for rent at affordable prices.
Workshops in the neighborhoods of Deir Baalba and al-Bayada had been rocked by violence since mid-2011. Most shops overlooking the main road in Deir Baalba closed one after another in 2011, and by early 2012, the neighborhoods were deserted as they became the scene of military clashes.
Later, the security situation deteriorated in the neighborhood of al-Waer in New Homs, particularly its older part and President’s Street. As a result, small shops belonging to the displaced traders from the industrial area were shut down, as was the alternative Souq al-Hal market on Khalid bin al-Walid Street. Other shops, including shanties close to Exhibition City on Ferdous Street, were also hit hard. The turmoil led to the economic collapse of al-Waer, home to a population of 500,000, 60 percent of whom are refugees. The situation will likely deteriorate further. Residents started deserting the area, and the Souq al-Hal market was relocated again, albeit cautiously and on a smaller scale, to Hajj Atef Square. The square’s shops had been shut down for more than a year after they had come under fire from neighboring hot spots.
The city lacks a public hospital. The National Hospital was destroyed in April 2012, while the eye hospital on the road to Hama has become inaccessible. The children’s and maternity hospital in al-Waer is located in what has become an area of recurrent clashes. In addition, most medical clinics concentrated in the neighborhood of Jouret al-Shiyyah and on the road to Hama discontinued their services after the city center’s closure. A total of nine private hospitals also suspended their services.
Financial transactions were also disrupted after the Homs Directorate of Finance and most banks suspended their activities. The Syrian Commercial Bank on al-Malaab Street and the Real Estate Bank of Syria at al-Baath University are the only operating banks in the city, with a total absence of private banks. The Finance Directorate in Tartus has been assigned the task of processing some transactions on behalf of the Homs directorate, particularly in relation to wages and salaries. Appointed delegates thus have to travel monthly to Tartus to disburse wages. In addition, many pensioners have been obliged to make the journey to Damascus to collect their pensions, and offices have sprung up, offering to collect pensions on their behalf in return for 1,000 Syrian pounds. Pensioners have found this deal acceptable given the lack of safety on the roads.
The management of the economy has been more reliant on Syrians themselves than on the government. In 2013, Syria’s then deputy prime minister Qadri Jamil even acknowledged the regime’s powerlessness in resolving economic problems amid the unrest. He bluntly told journalists in a private interview that only a political solution could resolve more than 60 percent of the people’s economic problems.12
For all these reasons, coping methods developed. Grassroots initiatives, such as the “I Want to Live” campaign, also went viral on Facebook, calling for a boycott of goods with high prices.
In addition, an oath was formulated as part of the campaign, as reported by Aliqtisadi magazine, “I swear by God Almighty that I will join my honorable fellow Syrians in expressing discontent with high prices, traders’ monopoly, high cost of the dollar, and the government’s failure to regulate markets. As of 7/7/2013, I will cut dairy products, eggs, and chicken.”
The War Economy and Armed Groups
There are different types of armed groups. They have multiple backgrounds and operate in various regions, whether controlled by the government or the opposition. Some only seek to take advantage of unrest—through kidnapping, blackmail, and illegal trade.
The opposition generally relies on three sources of funding:
- Self-financing by managing the economies of regions under its control, levying taxes, and trading in public resources, such as oil, gas, and crops, with both internal and external parties
- External funding, including clandestine support from Arab and international individuals and institutions, as well as a mixture of undeclared and public international support
- Regular international assistance to distressed cities and populations, particularly in opposition-controlled areas; this aid often eases the opposition’s burden of managing areas under its control, even if it is not intended to do so
As of late 2014, the United States had offered $3 billion in assistance to the Syrian people. Other countries, like Germany, have also organized fund-raising charity parties for the Syrian people, alongside direct government support.
A group of countries and international bodies named the Friends of Syria announced support, but not direct funding, to fighters. However, international media outlets, such as Time magazine and the Washington Post, disclosed direct support from Saudi Arabia and Qatar, as well as the United States and Canada, to the armed opposition.
This assistance had greatly eased economic hardships, including sometimes indirectly helping the Syrian government. The dollar-denominated aid was converted into Syrian pounds for trading purposes, a move that alleviated the pressure associated with the depreciation of the Syrian pound. Syria’s former minister of economy and foreign trade and an international expert, Nidal al-Shaar, said, “Donations, subsidies, and grants—all denominated in foreign currencies—pour into Syria for different reasons, floating the dollar on the market and partially offsetting the outward flight of capitals.”
The armed opposition embarked on self-financing when it controlled oil and gas facilities, selling its locally refined products to traders at home and abroad. Thus, the battles that pitted the government against the opposition over the management of the war economy were different than those fought with weapons. The two parties struck deals in areas, such as Deir Ezzor, where Islamic groups controlled most oil and gas facilities. Special agreements were reached through tribal mediators, allowing access to and refining of gas in return for providing gas supplies to opposition-controlled areas. These agreements were jeopardized when the Syrian government, in mid-2013, raised the prices of gas canisters for domestic use by 100 percent. The opposition objected to the decision and threatened to freeze supplies to the government. The agreements continued to hold, however, thanks to mediated compromises.
In addition, the Guardian revealed in 2013 that the opposition’s Nusra Front sold artifacts and factory equipment, as well as crude oil, to many parties, including the regime.
The year before, China’s Xinhua News Agency estimated the value of looted and smuggled Syrian artifacts at $2 billion, while a CNN report said that some armed groups relied on this business to arm their members.
After mid-2013, regular funding started to trickle to groups affiliated with the National Coalition of Syrian Revolution and Opposition Forces after U.S. authorities lifted the ban on trade and investment in petroleum and agricultural products, telecommunications, and transactions for the exclusive benefit of the coalition. Extremist factions that were not affiliated with the coalition continued to run their economic affairs in their business-as-usual manner, including by levying Islamic taxes on non-Muslims and zakat on Muslims, as was the case in the rural Damascus city of Yabroud, according to media reports.
Other armed groups that were not officially recognized by the opposition looted industrial facilities and smuggled the equipment to Turkey in pieces. As a result, the chairman of Syria’s Federation of the Chambers of Industry, Fares al-Shehabi, and a delegation of traders, merchants, industrialists, and lawyers, held a press conference in Damascus, announcing that they had lodged a lawsuit with European courts against the Turkish leader, Recep Tayyip Erdoğan, on charges of plundering industrial facilities in Aleppo and smuggling the equipment to Turkey.
Other groups in regime- and opposition-controlled areas resorted to kidnappings for ransom. A Syrian governmental committee, affiliated with Syria’s Ministry of National Reconciliation Affairs, reported 18,000 instances of kidnapping by mid-2013, 1,000 of which involved women. It blamed these acts on the ruling regime and the opposition alike, describing them as futile.
The War Economy and Traders and Investors
In its estimates of capital investment losses because of the conflict, the SCPR forecasted $28 billion in lost investments, $28 billion in idle capital, and $72 billion in damaged capital by 2014.
In his research paper on the flight of Syrian capital, researcher Samer Abboud from Arcadia University in the United States estimated total withdrawals from Syrian banks at around 100 billion Syrian pounds, equivalent to around $10 billion, by the end of 2012 (according to accounts in Syrian pounds and dollars).
The bulk of this money was reinvested abroad. Some investors relocated to Turkey, Jordan, Egypt, and the United Arab Emirates, after the Syrian government allowed them to move their equipment out. Thus, major industrial facilities, or parts of them (such as those held by Nestlé, which had sustained a fire; the Bel Group, a French cheese producer; and Elsewedy Cables Syria), were relocated.
This relocation entailed huge costs, including transportation fees and royalties.
The government also offered relocation within Syria to safer regions. But the stringent conditions imposed made doing so difficult for many, who chose to suspend their activities instead. In this respect, Syria’s former minister of industry said that only eight facilities of the 121 that had expressed interest eventually proceeded with relocation.
As the Syrian government stopped financing imports, in line with its hands-off policy, it called on traders, through the head of the Federation of Syrian Chambers of Commerce, to find their own means of self-financing on the black market. The state relinquished its role in protecting commercial facilities and convoys, leaving it to investors to set up their own security firms to protect their facilities and businesses. In August 2013, a decree was promulgated, legalizing private security companies and their armament under the supervision of the Ministry of Interior.
After traders were allowed to run their own affairs (by financing their imports at black market rates that were 70 percent higher than official rates) and protect their own facilities, consumer prices skyrocketed, which the government and ordinary Syrians blamed on traders.
A customs clearance expert, Abdu Qader Khitab, unveiled some of the unexpected costs incurred by Syrian traders to bring their products to consumers. In his article “Guide for Ordinary Citizens: Insights Into Trade in Syria in Times of Crisis and the Reasons Behind Soaring Prices Compared to the Dollar,” he wrote:
- “Imports became less frequent and of smaller scale compared to pre-crisis levels for lack of security and safety. As a result, the annual profit margin increased and was divided by the number of shipments. The pre-war profit margin of 7 percent stood at 14 percent after the start of the crisis.
- The costs of maritime shipping and insurance of goods increased significantly.
- The trade agreement with Turkey was repealed, and customs were imposed on goods imported from Turkey. This had a major impact, particularly given the huge and diversified imports from Turkey before the crisis.
- The cost of internal ground transportation increased at least tenfold during the crisis. The cost of the transport of goods in big trucks rose from 15,000 Syrian pounds before the crisis to 150,000 Syrian pounds due to the lack of road safety, the widespread confiscation of goods for ransom, and the tripling of fuel oil prices.
- Corruption in customs outpaced its pre-war levels during the crisis. Corrupt employees doubled their bribes for each formality, even as they processed less formalities than before the war.
- The government suspended its financing of more than 95 percent of imports, as it increased barriers to importers. This led to a significant increase in the costs of the majority of goods.
- Money transfers became very expensive. Before the war, it cost $55 to transfer $10,000, including $25 in SWIFT (transfer order) and a commission fee of $3 per thousand of the total amount transferred. After the war, the cost increased to $200, incorporating $50 in SWIFT (transfer order) and a commission fee of 1.5 percent.
- Warehouses too became more expensive, with all companies seeking to rent warehouses in relatively safe areas. Warehouse owners took advantage of the high demand and the low supply, which increased the total costs of the commercial transaction.
- Petrol, fuel oil, and gas expenses also increased, which affected general corporate costs.
- The exporters used to offer payment facilities to Syrian importers before the crisis. Products would be shipped and payments processed thirty, sixty, or even one hundred eighty days after the shipping date.With the outbreak of the crisis, exporters suspended these arrangements and conditioned shipment or delivery of goods on prepayment. As a result, a significant number of companies divested from the market or at least restricted their activities, as commensurate with their financial size and the capital available for use.
- Because of the significant daily exchange rate fluctuations, most companies and traders set a risk premium to avert losses should the dollar vacillate considerably within a short time span.”
As formal traders grappled to pursue their business without any assistance from the government, some illegal war traders gained prominence, including merchants, who seized famous commercial brands after their owners fled the country and started imitating and selling them on the market. Fake gold and currencies were also traded on the black market. The authorities arrested the owners of major exchange offices in Syria (al-Jaja, al-Shaar, al-Fuad, Western Union, and Hawl al-Khaleej, among others) on charges of manipulating the Syrian pound rate, operating on the black market, and exploiting displaced people. At least one exchange had taken displaced people’s identification cards, allegedly to register them for assistance. But instead, dollars were traded in their names on the black market without their knowledge.
Qadri Jamil said that security services arrested a trader known as al-Wazzan, who had turned his three-floor building into a safe for different currencies. Upon his arrest, security services found computers containing valuable information about unauthorized transfers, as well as the names of foreign recipients of transfers and cargo manifests for the shipment of three cars.
In a statement in September 2013, Syria’s minister for internal trade and consumer protection, Samir Kadi Amin, said, “Major traders, importers, and retail sellers should be called to account on an equal footing.” At the same time, a representative for the Ministry of Economy and Foreign Trade said the Syrian economy should be dealt with as a war economy.
In addition, the Syrian government constrained imports and exports further to serve its goal of presenting its institutions as an alternative to traders. For instance, it banned the export of vegetables, fruit, and livestock, and only authorized imports based on special permits. As state institutions faced sanctions, the government backtracked on its decision and accepted importing on par with traders, albeit under tough conditions.
The Syrian government’s management of the war economy has long mirrored its perception of political turmoil. As unrest entered its first year, the government continued to deny the true dimensions and ramifications of the crisis, while relying on alternatives, as reflected in the famous statement by Syria’s foreign minister, Walid Muallem, that Europe could be struck off the economic map and replaced with other alternatives. For this reason, the Syrian government shied away from turning its economy into a war economy until the crisis entered its second year. Only in June 2012 did President Bashar al-Assad announce that the second government led by then prime minister Riad Hijab was a war government.
Until then, it was unthinkable for the Syrian government to change the market economy mechanisms that had been in place since 2005, although its interventions in the economy and the markets were insufficient. Driven by its ambition to show off its monetary strength, the government depleted its monetary reserves, and it oversold hard currencies and gold, mostly on the black market to the benefit of swindlers. The Central Bank of Syria continues to post on its website the names of thousands of traders and citizens who bought dollars through fraudulent means, urging them to return the dollars to the treasury.
The Syrian government’s open economic policy runs against its literature, as published in the Syrian presidency’s Arab Encyclopedia. In times of war, reads this literature, “The strong need for military supplies, associated with severe shortage in civilian goods as a result of mounting demand, and market chaos may prompt governments, regardless of the economic system in place, to intervene in the market, allocate resources, and distribute goods based on administrative decisions that may sidestep market mechanisms, where need be.”
But as pressure mounted, the economic sanctions exacted their toll, and the monetary reserves faced several difficulties as the alternative economies of Iran and the BRICS group failed to bridge the import-export gap. The Syrian government adopted a two-pronged approach: on one hand, it intervened in the market to the best of its capacity—according to former deputy prime minister Qadri Jamil—and, on the other hand, it allowed traders to do as they pleased. A Syrian media outlet reflected this new hands-off policy with the following headline: “The First Official Syrian Reaction to Arab Sanctions . . . the Minister for Economy Calls on Traders to Do as They Please.”
1 David Keen, The Economic Function of Violence in Civil Wars (London: International Institute for Strategic Studies, 1998), 11.
2 From a seminar between Syria’s then deputy prime minister, Qadri Jamil, and journalists on August 4, 2013, at the headquarters of the National Media Council in Damascus.
3 Syrian Center for Policy Research, Syria: Squandering Humanity, Socioeconomic Monitoring Report on Syria (Damascus: Syrian Center for Policy Research, 2014), 7.
5 Ibid, 34.
6 Syrian Center for Policy Research, Syria: Alienation and Violence, Impact of Syria Crisis Report 2014 (Damascus: Syrian Center for Policy Research, 2015), 28–29.
7 Raghida Dergham, “Ethics and Politics: Response to the Plight of Syrian Refugees,” policy paper no. 2 (Beirut: Beirut Institute, 2013).
8 Ibid., 3–4.
9 A seminar between Qadri Jamil and journalists on August 4, 2013.
10 Syrian Center for Policy Research, Socioeconomic Roots and Impact of the Syrian Crisis (Damascus: Syrian Center for Policy Research, 2013), 13.
11 Syrian Center for Policy Research, Socioeconomic Roots and Impact of the Syrian Crisis, 16.
12 A seminar between Qadri Jamil and journalists on August 4, 2013.