Syrian Civil War Impacts

The proliferation of the violent Syrian Civil War has resulted in devastatingly tragic social, economic, and environmental impacts throughout Syria. Since the 2011 uprising, the socioeconomic situation in Syria has mirrored the destruction that was felt across Europe during World War II. The war has left upwards of 400,000 dead, 11 million displaced, and nearly 13.1 million people in desperate need of humanitarian assistance (Lloyd, 2019). The scale of this tragedy is unlike anything that has been experienced in the Middle East for decades. While the casualty estimates vary widely, the number of deaths more than doubles the loss of life from the recent eight-year war in Iraq, where between 120,000 and 190,000 (mainly civilians) died.

In addition to the casualties, the Syrian Civil War has also nearly destroyed the country’s economy, which used to be primarily driven by the fossil fuel industry. During the first four years of the war, from 2011 through 2015, nearly 75 percent of the economy was destroyed, with Syrian gross domestic product (GDP) falling from $60 billion to only $12 billion (Lloyd, 2019). The persistent violence has severely disrupted the production and distribution of goods and services, while it has also contributed to a severe economic downturn that has dramatically increased the unemployment rate, amplified extreme poverty, and caused a breakdown in nearly all public services. However, as the war is drawing to a close, global economists remain optimistic about an economic comeback for Syria beginning later in 2020.

Fossil Fuel Production

Prior to the start of the Syrian Civil War, fossil fuel production made up roughly 25 percent of Syria’s budget (Bauer, 2019). Although, when the Islamic State gained nearly full control of the country’s oil reserves in 2015, the revenue from the oil industry went almost exclusively back to the Islamic State militants. When the regime of Bashar al-Assad lost control of the country’s oil industry, which was critical for everything from electricity generation to transportation and heating, Iran stepped in to provide nearly two million barrels of oil each month to keep the Syrian regime afloat (Shaar, 2019). Without a continuous supply of fossil fuels, the Syrian economy would have suffered a total economic collapse.

The medium-term macroeconomic outlook for Syria depends on the prospect of peace and finding a political resolution to the violent conflict. The war has substantially damaged the country’s public and private assets including healthcare facilities, educational institutions, energy infrastructure, water and sanitation, agriculture, transportation systems, and housing. The World Bank Damage and Needs Assessment Report, which was conducted for the cities of Aleppo, Dar’a, Hama, Homs, Idlib, and Latakia, estimated total damages between $5.9 billion to $7.2 billion (TWB, 2016). Similarly, a report conducted by the Syrian Center for Policy Research estimated that the country as a whole has sustained roughly $75 billion physical infrastructure damage. Moreover, the United Nations predicts that between $150-200 billion will be needed to bring the GDP back to pre-war levels (TWB, 2016).

Oil and fossil fuels in general have played a central role in the Syrian economy. Oil shortages during the Syrian Civil War crippled economic activity throughout the country. Syria’s unemployment rate ballooned because of the war, rising from 8.6% in 2010, to over 50% in 2017, which was the second highest unemployment rate in the world at the time (assistance (Lloyd, 2019). As Syria’s oil and gas production suffered from the conflict, the country’s GDP contracted by roughly 15 percent annually (TWB, 2016).

In order to reverse the contracting economy, it will be essential for Syria to work to revitalize its oil industry. Oil exports can play a vital role in promoting economic growth by supplying a government with revenue and foreign currency to be used to stabilize a budget deficit, improve physical infrastructure, and develop a more attractive climate for international investment. In the past, oil exports were an essential component that fueled Syria’s national income. Two thirds of Syrian foreign exchange earnings used to come from the oil and gas sector (Mohsen, 2015). The dramatic decline in oil exports beginning in the second half of 2012 and disruptions related to international trade due to the ongoing conflict have put tremendous pressure on Syria’s fiscal budget and the country’s exchange rate.

Importance of Oil Revenue

Revenue from Syrian oil exports have dropped from $4.7 billion in 2011 to an estimated $140 million in 2015 after the Islamic State captured the vast majority of Syria’s oil fields from the government (TWB, 2016). However, as the Islamic State militants have been driven primarily out of Syria, the U.S. military has taken control of much of the region’s oil fields. While the Trump administration has been opposed to allowing the Syrian government forces to recontrol the oil assets (because the Bashar al-Assad regime is under tight international economic sanctions), the prospect of revamping Syrian oil production may ultimately help to revitalize the economy as a whole.

Numerous empirical studies have revealed that revenue from oil production has had a positive impact on external debt reduction and government investment in infrastructure and social services. In a 2016 study conducted by a researcher from the University Sains Malaysia, the effect of oil returns and external debt on government investment in Syria were critically evaluated from 1970 through 2010. The study found that historically, revenue generated from Syrian oil production has been effectively allocated to support the country’s economic development through increases in financing and government investment (Mohsen, 2016).

Before the conflict broke out into a civil war, the Syrian government had worked to transform the economy from one focused on central planning to a more social market economy, which helped to improve infrastructure, reduce government bureaucracy, stimulate new investments, establish industrial regions, reorganize the public sector services, and encourage foreign investment (SCPR, 2014). However, much of the economic progress that was made ultimately was lost when the war erupted.

Since the start of the war, the Syrian economy has shifted largely to an agrarian model, where a tremendous emphasis has been placed on finding arable land to feed the country’s impoverished population. However, given the severity of recurrent dust storms and periods of perennial drought, heavy reliance on farming in the future may yield disastrous economic consequences. Instead, many international economists say that the road to an economic recovery lies within Syria’s fossil fuel industry.

Fueling Economic Growth

Commercial quantities of petroleum were first discovered in northeastern Syria around 1956. Just over ten years after Syria gained its independence in 1946, the country started to rely on the important oil fields of Rumayl?n, Suwaydiyyah, and Qaratsh?k, to fuel the growth of the country’s economy. Oil became Syria’s principal natural resource and largest export by 1974. Production peaked in the mid-1990s, where it began a steady decline (Hourani et al, 2019). Although, while oil production had slowed after the 1990s, natural gas production remained steady, which was first discovered at the field of Jbessa in 1940. Syrian natural gas production became critically important for electricity generation. Moreover, after the conversion of many of the country’s oil-fired power stations into natural gas plants, more oil was able to be exported to the global market.

While oil production started to decline after the 1990s, it still has remained a significant part of the Syrian economy and remains as a possible path to economic recovery in 2020. According to the International Monetary Fund, 2010 oil sales generated $3.2 billion for the Syrian government and made up more than 25 percent of the government’s revenue. Syria’s two biggest oil companies are the Al-Furat Petroleum Company, which is 50 percent foreign owned, and the Syrian Petroleum Company, which is owned by the Syrian Ministry of Petroleum and Mineral Resources.

Himalaya Energy Syria, the China National Petroleum Company, and India’s Oil and Natural Gas Corporation had all invested in Syrian oil production prior to the war. However, due to ongoing conflict and European Union sanctions, these companies have suspended investment in Syria. If the Syrian government can make a deal with the European Union to end economic sanctions, foreign investment in the fossil fuel industry may be able to propel the Syrian economy once again.

Macroeconomic Projections

While the worst of the Syrian Civil War may be over, recovering from the economic ramifications of the conflict will take years. Macroeconomic and poverty projections in 2020 depend primarily on the remaining duration and overall severity of future conflict in the region. Due to the resulting escalation of violence and human rights violations conducted by the Bashar al-Assad regime, an ongoing international blockade on delivering oil to the Syrian government remains in place.

Ultimately, the oil blockade has made the political and financial situation in Syria more problematic by deepening the country’s economic depression and hindering reconstruction efforts. Although, with aerial bombardment having intensified during the winter months in southern Idlib province, it appears unlikely that the European Union sanctions will be uplifted during the first part of 2020. Oil shortages, along with the lack of domestic production, are likely to continue to hinder economic development during the first half of 2020.

If economic sanctions are lifted during the second half of 2020, the Syrian economy may finally start to experience a period of economic growth. In addition to allowing oil imports, the removal of sanctions would also allow for international investment in Syria’s oil industry, which is in desperate need of modernization. In 2008, oil production in Syria was approximately 390,000 barrels per day, which was about .5 percent of the global production (Aldahik et al, 2017).

According to the British Petroleum Statistical Review of World Energy, Syria still has an estimated 2.5 billion barrels of proven oil reserves. In order to increase production, which would bring in more revenue to stimulate the economy, international investment is needed to develop more facilities, pipelines, and technological advancements. In 1996, during the height of investment in the Syrian oil industry, the country produced about 582,000 barrels of oil per day, which still remains as the country’s all-time production peak (Aldahik et al, 2017).

The Need for Peace

Foreign investment is vital for Syria’s oil production and the economy as a whole. Oil production in the northeastern part of Syria has traditionally relied on 50 percent investment from foreign partners. Without foreign investment and guidance, the oil industry will continue to lag behind past production rates. Moreover, prior to the start of the conflict in 2011, the Syrian government was in the process of awarding offshore oil contracts with international oil companies, which would have significantly boosted the country’s oil production.

Petro-Canada was among the first companies to be granted the opportunity to exploration for offshore oil in May 2011. Although, because of the conflict, the contract was never fully fulfilled. If a formal peace agreement was achieved by the second half of 2020, contracts related to offshore oil exploration could rewarded by the end of the year, which would give the country a much-needed financial stimulus. Furthermore, Syria may also be able to move forward with several important natural gas pipeline projects, strengthening the country’s fossil fuel infrastructure. Overall, the 2020 economic outlook will rely heavily on progress made to officially end the Syrian Civil War. Although, while many international economists are optimistic of an economic comeback, this timeline remains woefully uncertain.

Sources

Aldahik, A., et al. (2017). “Crude oil families in the Euphrates Graben (Syria).” Marine and Petroleum Geology.

Bauer, S. (2019). “Behind the Lines.” Mother Jones.

Hourani, A., et al. (2019). “Syria.” Encyclopedia Britannica.

Lloyd, W. (2019). “The Economic State of Syria.” NATO Association of Canada.

Mohsen, A. (2015). “Effects of Oil and Non-Oil Exports on the Economic Growth of Syria.” Academic Journal of Economic Studies: Vol.1, No.2, pp. 69–78

Mohsen, A. (2016). “Effects of oil returns and external debt on the government investment: A case study of Syria.” University Sains Malaysia: Vol. 13, No. 1 (606), pp. 255-262

Shaar, K. (2019).  “The Syrian Oil Crisis: Causes, Possible Responses, And Implications.” Middle East Institute.

Syrian Centre for Policy Research. (2014). “Socioeconomic Monitoring Report on Syria”. Damascus: Syrian Centre for Policy Research.

TWB. (2016). “Syria’s Economic Outlook.” The World Bank Group.