Iraq News
Economy

Iran sinks economic teeth deeper into Syria

By Junaid Salman in Beirut

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The Milad telecommunications tower in Tehran is seen through the smog in this November 14th photo. Iran has recently signed an agreement allowing it to become a mobile network operator in Syria. [Atta Kenare/AFP]

In mid-January, Syria and Iran signed five agreements to expand economic relations in the areas of agriculture, livestock, industry and oil, with another agreement allowing Iran to become a mobile network operator in Syria.

Trade deals between Tehran and Damascus are nothing new, economists tell Al-Mashareq, but given Syria's weakened state these clearly favour Iran and support its expansionist ambitions in that country.

Economic ties between Iran and Syria "date back to the monarchy era in Iran, as the first economic agreement between the two parties was signed in July 1974", said Violette Ghazal al-Balaa, editor-in-chief of Arab Economic News, drawing on a 2015 Rawabet Centre for Research and Strategic Studies report.

Under that agreement, Iran extended a $150 million loan to Syria and funded agricultural and industrial projects totaling $50 million in value, she said.

Economic relations developed further "after the establishment of the Islamic Republic of Iran, in the context of political rapprochement between the Iranian and Syrian regimes, against the backdrop of the first war with Iraq", she said.

Iran pledged to export about nine million tonnes of oil a year to Syria in exchange for receiving imports from Syria of between 300,000 and 400,000 tonnes of phosphate a year, she said, with Iranian investments in Syria increasing in scale after Bashar al-Assad came to power in that country.

A Syrian government estimate put the level of Iranian investment in Syria in 2006 at "more than $400 million", with the two countries announcing plans that year to expand Iranian projects in Syria by $10 billion through 2012, she added.

By 2010, the value of technical and engineering services provided by Iran totaled $2.2 billion, she said, with the two countries agreeing that year to establish an Iran-Syria export bank with an initial capital of $30 million.

Syria's dependency increases

The outbreak of the Syrian conflict marked a shift in trade and economic relations between Tehran and Damascus, al-Balaa said, with Syria becoming more dependent on Iran.

"The Syrian revolution gave a strong geopolitical impetus to Tehran to strengthen its trade and economic relations with Damascus, which was part of an Iranian project that aspired to form an Iranian-Mediterranean economic bloc," she said.

In 2013, Damascus received a $1 billion loan from Iran, after seeing its revenues decline by 50% compared to 2010, its oil revenues decline by 90% as a result of the armed conflict and economic sanctions, and a decline in its tax revenues from the private sector, al-Balaa said.

The same year, Damascus received a second loan of $3.6 billion that was allocated for the import of oil derivatives, which helped stem the steep decline in the exchange rate of the Syrian pound against the dollar.

"It is no secret that Iran’s economic influence in Syria is growing", she said, adding that "Iran’s investment portfolio has expanded to include the oil and real estate sectors".

The investment co-operation will not stop at this, al-Balaa said, as the establishment of two direct maritime lines with Syria is expected to further impact the volume of trade exchange.

"Because Syria enjoys great geopolitical economic importance, Tehran has planned to export its natural gas to the eastern Mediterranean and from there to south-eastern Europe," she added.

However, the protraction of the Syrian war has impeded the laying of the gas pipeline to Syria, even as it continued in Iraq, she said.

Iran's geopolitical ambitions

"It has become known that Iran has interests and ambitions in Syria that go beyond the economic aspect," said Antoine Farah, economic editor at Lebanon's Al-Joumhouria newspaper.

"Syria is one link in an integrated axis that Iran is working to establish through its agents in the region, whether through its Islamic Revolutionary Guard Corps (IRGC) or Hizbullah," he said.

"Syria is an important geographical link in the chain of this axis," he added.

The Iranian regime has three objectives for its investment in Syria, Farah said.

"The first is to benefit financially as compensation for the losses and costs it has incurred in the Syrian war with its support of the Syrian regime," he said.

The second "is to consolidate its position in Syria as a foreign power that has priority over the regime’s allies", he added, while the third is to support the regime economically, in addition to supporting it politically and militarily through the presence of Iran-affiliated factions on Syrian territory.

"Iran’s investments are not economic in the true sense," economist Jassim Ajaka told Al-Mashareq, explaining that they also have a political dimension in that they aim to secure the interests of Syria's Shia population.

Iran does not have the ability to invest at the level it would like to, he said, because its economy is not strong and it needs to attract investments itself.

In addition to the distressed state of the Iranian economy, "the lack of clarity about the outcome of the situation in Syria and the continued fighting are inhibiting Iran’s investments ambitions", Ajaka said.

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