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The Economic Dimensions of Syria's Strategic Relations with Iran

Written by Memri

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May 28, 2008
Memri #443
By Dr. Nimrod Raphaeli and Bianca Gersten*
Introduction

With the outbreak of the Iran-Iraq war (1980-1988), secular Syria, under Hafez Al-Assad, sided with Iran not out of love of its Shi'ite revolutionary theocracy, but in hope that that the war would end with the demise of Syria's nemesis, namely the Ba'thist regime in Iraq. It was hatred of Saddam Hussein, above anything else, that shaped Syrian strategy in that conflict.


Hatred of Saddam was also behind Syria's decision to join in the U.S.-led multi-national military coalition of 1991, which expelled the Iraqi army from Kuwait. The Islamic Republic of Iran welcomed Syria's support as a way of breaching the wall of hostility that was erected by the Sunni Arab countries – primarily by Egypt and by the oil-rich Gulf countries – as a shield against Iran's revolutionary fervor.

Two decades later, Iran's foreign minister, Manuchehr Mottaki, was to declare in Damascus: "Actually, the strategic relations between the two [most] important countries in the region [namely Iran and Syria] are a trust placed in our hands by our late leaders Imam Khomeyni and Hafez al-Assad."

Sanctions as a Unifying Force
The sanctions imposed on Syria by the U.S. for facilitating the passage of jihad fighters into Iraq, and for supporting Palestinian terrorist organizations, as well as the sanctions imposed by the U.N. and the U.S. on Iran for  its nuclear program and for  its support of international terror, have brought the two countries – Syria and Iran – closer together. In the case of Syria, the sanctions have meant that its partnership agreement with the European Union, negotiated in Brussels in 2005, was frozen, along with its application in 2001 to join the World Trade Organization (WTO). The Syrian minister of finance told the London daily Al-Sharq Al-Awsat that the economic pressures (i.e., the sanctions) have affected his country's ability to secure much of the goods and technological abilities needed for economic health.(1)

The Economic Dimension of the Iranian-Syrian Alliance
An examination of the economic relations between the two countries reveals that, beyond their propaganda value, these relations are of small benefit to Syria and of negligible benefit to Iran. The alliance is driven first and foremost by political and strategic interests, not by economic considerations. While Syria has benefited from Iran's economic support, this support is constrained by Iran's limited resources, and by the growing public clamor within Iran to have the government address the dire economic conditions in the country, such as the burgeoning inflation, the housing shortage and the high unemployment rate, particularly among young people.

Syria requires massive investment in its promising tourism sector, and therefore needs an injection of oil money from the Gulf countries. It also needs investment in infrastructures and housing, which Iran cannot supply. To stress how important Arab investment is for Syria, it should be noted that Kuwait alone has invested $3 billion, primarily in Syrian tourism and real estate projects, and Qatar has announced an investment program of $4 billion, while Iran's total investment is estimated at $1 billion, which includes a number of commitments that remain on paper.

Trade Agreement
The trade relations between Syria and the Islamic Republic of Iran are governed by a trade agreement which was signed in March 1996, but went into effect only 8 years later, in April 2004.(2) One would suspect that it took so long for the trade agreement to go into effect because there was little trade between the two countries, and therefore little need for urgency.

The volume of trade between the two countries stood at $200 million in 2007, but trade is almost entirely one-sided, since it consists of $180 million of Iranian export to Syria versus $20 million in Syrian export to Iran, that is, a ratio of nine to one in favor of Iran. Syrian exports to Iran include cotton, textile, olives and olive oil, fruits and chemicals. The most important Iranian exports to Syria are industrial equipment, technical and engineering services, industrial spare parts, chemicals, train compartments, tractor engines, electricity cable supplies and nuts.(3)

The figures suggest that trade between the two countries is not significant and, by Tehran's own admission, is certainly not in Syria's favor.(4)  In fact, it is negligible compared with Syria's trade with Turkey, which was recorded at $1.6 billion in 2007.(5) It is even insignificant in comparison to Syria's trade with the United States.

Multiple Joint Agreements - A Substitute for Actual Implementation
It is almost impossible to keep track of all the bilateral agreements signed in recent years by Syria and Iran as the two countries drew closer to one another. These dealt with every conceivable subject, including tourism, education, transport, power, scientific research, health, environment, agriculture, weights and measurements, industry, tariffs, banking and more.  According to the Syrian government daily Al-Thawra, as of March 2007, the two countries had signed "over 30 bilateral agreements, memoranda of understanding, and protocols."(6) Most of these agreements remained on paper for years before additional agreements on implementation were signed. For example, the Tourism Cooperation Agreement was signed in Tehran in July 1984, but did not go into effect until an implementation agreement was signed in mid-1999. The land transport agreement was signed in 1986, but the implementation program was launched in Damascus only in February 2006.(7)

Following the March 2008 meeting of the high-level Syrian-Iranian Committee of Cooperation, no less than ten agreements and memoranda of understanding were signed, including a most unusual agreement of cooperation between the two state-owned and state-controlled news agencies, the Iranian News Agency (IRNA) and the Syrian News Agency (SANA).(8) At this meeting, it was announced that Iranian investments in Syria have reached $1.5 billion, including $950 million in the industrial sector, most of it intended for automobile production (in reality automobile assembly) and a cement factory. Neither country has ever published a breakdown of these alleged investments. During Ahmadinejad's visit to Syria in July 2007, the Syrian press quoted an investment figure of $3 billion within three years.(9) On the eve of the 2006 meeting of the joint Iran-Syrian Economic Commission, Syrian Prime Minister Mohammad Naji Otri declared that "Iran is currently involved in several economic development projects in Syria, at a value of over $1.8 billion."(10) One cannot escape the conclusion that many of these investment figures are concocted for propaganda purposes, and that the real figures are much smaller.


Key Investment Projects
Iran's investments in Syria have focused on the energy, construction, services, automotive and tourism sectors. Below is a list of projects that are underway or are being discussed. It is not clear from the available data how many of these projects have already been completed, how many are still in the preparation stage. It is also not clear how many are financed by the Iranian government and how many by private Iranian investors.

Oil Refineries: Like Iran, Syria lacks the refining facilities to meet the demand for diesel and heating oil, and it has therefore become a net importer of oil derivatives.

In October 2007, the national energy companies of Syria, Venezuela and Iran, along with a Malaysian company, signed a joint venture agreement to build a 140,000 barrel/day refinery in the Furqlus region, near the city of Homs. A memorandum of understanding for the project was signed by the Syrian, Iranian and Venezuelan governments a year earlier. According to the agreement, the founders were to set up a shareholding company to implement the project within six months of signing a final agreement.

The proposed refinery is to be owned by the Syrian Ministry of Petroleum and Minerals (15%), the Venezuelan Ministry of Energy and Petroleum (33%), the National Iranian Oil Company (26%) and the Al-Bukhari Group of Malaysia (26%). Crude oil is to be supplied by Syria (70,000 barrel/day), Venezuela (42,000 barrel/day) and Iran (28,000 barrel/day); the latter is to guarantee the supply of crude oil for at least 25 years, under an agreement to be signed with the refinery company. According to an initial feasibility study, the refinery will cost $2.6 billion, 30% of which is to be funded by the four founders and 70% by commercial loans. Given the international sanctions on Iranian and on many Syrian banks, it is not clear how the founders are to obtain this loan in order to get the construction of the refinery underway. One also wonders why far away Venezuela is to supply more crude oil than Syria's ally and neighbor, Iran. The Syrian press has not reported that construction has begun, and there is no information is available on its status.

Automobile Assembly Plant: This is a  joint venture by the Iranian company Khudro-Iran and Syrian investors to manufacture an Iranian car called "Samend" in Iran and "Sham" in Syria,  with an Iranian drivetrain, at a cost of $60 million.(11) The plant was designed to assemble 10,000 cars a year beginning in 2007, with an eventual capacity for 30,000 cars a year. Recent figures indicate that the company had assembled only 3,000 cars by the end of 2007. The Syrian government has announced that it would exempt the cars from sales tax as an incentive to local buyers, in order to make the Sham competitive with imported vehicles.

As part of its cooperation with Iran in the field of automobile manufacture, Syria announced in mid-October 2007 that it had placed an order for 5,000 Iranian-made buses to relieve the traffic pressure in its major cities. The first shipment of 1,200 buses was to be delivered in 2008. However, on May 5, the Syrian government announced the arrival of 115 Chinese buses, and the prime minister announced that another 1,000 Chinese buses had been ordered.(12)  No reference to the Iranian buses has been made in the Syrian press.

Joint Hamah Cement Plant: One of the significant projects is the Hamah cement plant, intended to produce one million tons of cement annually. The cost of the plant was estimated at $198 million. The plant was scheduled to open in the second half of 2007, but there is no record of this happening. Moreover, it has been announced in Damascus that the giant Egyptian construction company Orascom is to start the construction in Syria of the largest cement plant in the Middle East at a cost of $600 million.

Boiler for the Banias Oil Refinery: This was an $8 million project to build a boiler for the Banias refinery. The official announcement stated that the project has been implemented by the Syrian Ministry of Energy and the Adhrab Company in Banias.

The Identity of the Iranian Investors
The identity of the Iranian investors in all these projects was not revealed. Vali Nasr, a professor at the Fletcher School of Law and Diplomacy at Tufts University, told the daily Al-Sharq Al-Awsat that state-owned and privately-owned Iranian companies often have connections to political figures such as Expediency Council and former Iranian president Ali Akbar Hashemi Rafsanjani.  This is a cause of concern to some Syrians. A senior Syrian official, who spoke on condition of anonymity, said it was not a coincidence that Iran was investing in strategic industries such as cement and refineries. These vital industries, he stressed, "could give Iranians considerable influence."(13)

However, in its discussions with Iran, Syria has demanded that goods manufactured in Syria would be presented as Syrian products, regardless of the origin of the parts or raw materials. As such, they would have the support and backing of the Damascus government in terms of pricing, licensing, taxing and the like.(14) This demand is not only motivated by national pride, but should also be seen in the context of the Arab Customs Union, which exempts from tariffs manufactured goods sold within the Union.

Gas Agreement
In January 2008, Syria and Iran signed a framework gas sales agreement according to which Syria would import Iranian gas via Turkey, from the end of 2009. The two countries have agreed to build a pipeline to convey the gas. Syria would build a 62km (38 mile) pipeline from Aleppo to the Syrian-Turkish border at Kilis, while Turkey would construct a 94km (59 mile) pipeline from Kilis to Turkoglu in Turkey.  The Syrian Minister of  Petroleum, Sufian 'Alaw, declared that deliveries of Iranian gas were expected to start at the end of 2009 at a rate of 3 million cubic meters per day, increasing to 9 million cubic meters per day in three years from the day the agreement comes into effect. The sales agreement would have a term of 25 years, renewable for a further five years.(15)

In the meantime, Syria is in the process of completing the construction of its section of the Arab Gas Pipeline, from the Jordanian border to Homs in Syria, which would allow it to import Egyptian gas. Demand for gas for power generation and industrial usage is estimated at 25 million cubic meters per day, and is expected to rise to 40-50mn cmd in 2020.

Conclusion
When examining the economic relationship between Syria and Iran one runs into a practical difficulty-- neither government is known for its meticulous or reliable data. For this reason, it is difficult to draw a clear picture on the nature and depth of the economic relations between the two countries. All that exist are anecdotal figures, often twisted beyond recognition to create a misleading reality to serve political objectives. At times, one may get the impression that the two countries are engaged in a mutual deception to create a myth of economic collaboration that exists on paper only.

Our main conclusion is that Iran's pure economic benefits from its relations with Syria are marginal at best; Syria's economic benefits from Iran are not significant. To the extent there is depth to the relationship it is political and strategic but not economic.

*Dr. Nimrod Raphaeli is the Editor of The MEMRI Economic Blog, www.memrieconomicblog.org. Bianca Gersten is a researcher at www.memrieconomicblog.org.
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Notes

(1) Al-Sharq Al-Awsat (London), January 15, 2008.
(2) http://alazmenah-ti.sy/modules.php?op=modload&name=News&file=article&sid=235&mo .
(3) Al-Thawra (Syria), July 19, 2007.
(4) Tehran Times (Iran), January 24, 2008.
(5) Teshreen (Syria), November 14, 2007.
(6) Al-Thawra (Syria), March 18, 2008.
(7) Al-Thawra (Syria), March 18, 2008.
(8) Al-Thawra (Syria), March 7, 2008. The Syrian penchant for signing multiple agreements in one stroke is not limited to its agreements with Iran. The Syrian Al-Thawra daily reported on December 31, 2007 that Syria had signed with Jordan 14 agreements, protocols and memoranda of understanding following a meeting of the joint Syrian-Jordanian High Committee (for economic cooperation). Many of these agreements are insignificant. For example, one of the 14 agreements commits Jordan to increasing its import of Syrian shoes by 23 percent while another agreement deals with the abolishing of transit fees for Australian cows from the Jordanian port of Aqaba to Lebanon via the Syrian border.  At the end of November 2007, Syria signed six economic agreements and memoranda of understanding with Iraq. Al-Rifidayn, Baghdad, November 27, 2007.
(9) Al-Thawra (Syria), April 19, 2007.
(10) IRNA (Iran), February 22, 2006.
(11) Al-Thawra (Syria), July 19, 2007.
(12) Champress (Syria), May 5, 2008, and Al-Sharq (Qatar), May 6, 2008.
(13) Al-Sharq Al-Awsat (London), October 5, 2007.
(14) IRNA (Iran), May 12, 2008.
(15) PRESSTV (Iran), January 8, 2008.
 
 

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