What next for Syria's battered economy amid political upheaval?

With oil production a fraction of what it was before the civil war and with a currency in turmoil, the country will need time and support to recover

People celebrate on the Lebanese side of the Masnaa Border Crossing to Syria after rebels announced the ousting of Syrian President Bashar Al Assad. Reuters

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Syria’s economy could take a decade to overcome the turmoil of the civil war, provided the political storm dies down and external support comes in, analysts say.

But with a large wealthy expat diaspora and international organisations ready to step in, the country has the opportunity for prosperity for the first time in years, they said.

On Sunday, President Bashar Al Assad fled Damascus and rebels took control of the capital, with videos emerging of rebel soldiers and others entering the Syrian presidential palace in Al Maliki, a neighbourhood of Damascus.

The civil war in Syria began after the suppression of a peaceful protest movement calling for the removal of Mr Al Assad in 2011 and subsequent fighting against the extremist groups including the ISIS that found opportunity there.

The country's economy, which had maintained a brisk pace of growth before the uprising, has struggled since, with real gross domestic product projected to contract by 1.5 per cent this year, extending the 1.2 per cent decline in 2023, a World Bank report said in May. According to official statistics, Syria’s GDP shrank by 54 per cent between 2010 and 2021. The impact of the conflict could be much larger, the World Bank said.

There are many people in Syria and abroad who can contribute to the process of restoring the economy

Khalid Al Terkawi,
Jusoor Studies Centre

“Private consumption, the primary engine of growth, will remain subdued [in 2024] as rising prices continue to erode purchasing power. Private investment is expected to remain weak amid a volatile security situation, and considerable economic and policy uncertainty,” it said.

As of 2022, poverty affected 69 per cent of the population – equivalent to about 14.5 million Syrians. Extreme poverty, while almost non-existent before the conflict, affected more than one in four Syrians in 2022 and might have further deteriorated due to the impact of the February 2023 earthquake, the World Bank said.

Numerous external factors, including the 2019 financial crisis in Lebanon, the Covid-19 pandemic and the war in Ukraine, have also contributed to further eroding the welfare of Syrian households.

“We have lost a lot of our economic resources, infrastructure and human resources,” Khalid Al Terkawi, economic consultant at Jusoor Studies Centre, told The National. "The general level of production declined and the state's gross domestic product declined.

“The good thing is that life continues and there are many people in Syria and abroad … [who] can contribute to the process of restoring the economy, in addition to early recovery programmes monitored by international organisations.”

Video shows rebels escorting Syrian prime minister from his home

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But while the country can start the process of restoring the economy with reconstruction and development, it will “need seven to eight years of work to return to zero, ie, [the level] in 2011”, Mr Al Terkawi said.

“If political conditions run smoothly and we can stabilise institutions, 10 years of work can return the economy to a much better stage than it was in 2011.”

The future of Syria will be critically shaped by how much regional and international actors are serious about being partners in building a more stable country, upon the ruins of the “hollowed-out” state of the Assad regime, said Dr HA Hellyer, senior associate fellow at the Royal United Services Institute for Defence and Security Studies in London, who specialises in the Middle East.

“The idea that Assad was the bedrock of stability, when he was in fact the core reason behind the country’s instability, cannot simply become a sarcastic expression of triumphant Schadenfreude,” Dr Hellyer said. "Regional and international actors need to follow up this stunning overthrow of Assad with genuine assistance and help, for the sake of Syrians writ large.”

The UN Financial Tracking Service recorded $2.8 billion in total humanitarian funding for Syria in 2023, a 5 per cent decrease from the previous year. Only about one third of the funding needed for the 2023 Humanitarian Response Plan was secured, with unmet funding rising dramatically from $2.1 billion in the previous year to $3.4 billion, the World Bank said.

However, the rise to power of Syrian terrorist group Hayat Tahrir Al Sham does not guarantee economic recovery and may instead “worsen” existing challenges, said Bako Kheladze, a policy analyst specialising in Iran and South Caucasus politics.

“Notably, HTS is classified as a terrorist group by the US State Department, a designation that offers little hope for ending Syria’s international isolation or lifting sanctions,” Mr Kheladze told The National.

Another critical factor is the control of the Deir Ezzor governate in Syria’s east, which is considered essential for the country’s economic revival due to its rich gas and oil reserves. Currently, this area is controlled by the US-backed Syrian Democratic Forces (SDF), a group dominated by Kurdish militia. Turkey views the SDF as a threat to its national security, further complicating the situation.

“Syria’s economic recovery remains deeply entangled in its fragmented political landscape and international rivalries,” Mr Kheladze said. “Without meaningful dialogue and resolution among these competing actors, the prospects for stability and economic revival in Syria remain bleak.”

Drop in oil production

Syria's energy sector has been in turmoil since 2011, with oil and natural gas production declining dramatically. Night-time gas flaring data showed a decrease in oil production of 3.5 per cent annually last year, partly due to earthquake and conflict-related infrastructure damage, the World Bank said.

The country’s oil production, which averaged more than 400,000 barrels a day between 2008 and 2010, had reached fewer than 25,000 bpd by May 2015, the US Energy Information Administration said. Production averaged about 91,000 bpd in 2023, according to the EIA.

"While production was already in decline before the conflict due to ageing oilfields, the war has sharply accelerated the fall,” the World Bank said.

Christof Ruhl, senior researcher of global energy policy at Columbia University in New York, said the latest political changes "will not have a major impact on oil markets, precisely because the speed with which it happened reveals the fragility of that regime and that they did have it coming”.

"There are no big sympathies around to defend that regime, not even among its closest friends. The very close ones – Russia and Iran – are being too stretched elsewhere,” Mr Ruhl said in a Gulf Intelligence podcast on Sunday.

Syria's economy at present is being driven by Captagon, with the country a "major producer and exporter” of the illegal fenethylline-based drug, the World Bank has said.

The total market value of Captagon of Syrian origin is estimated between $1.9 billion and $5.6 billion a year, almost equal to Syria’s estimated GDP of $6.2 billion last year, the multilateral lender said in its May report.

"Actors based in or linked to Syria profit from the sale of Captagon to up to $1.8 billion per year, almost twice the revenue generated from all licit Syrian exports in 2023,” it said.

The UK estimates that the global trade in Captagon is worth about $57 billion, with 80 per cent of the world’s supply produced in Syria.

Currency depreciation

The Syrian pound, which had been depreciating steadily since 2011 due to the conflict, sanctions and political developments, has dropped sharply in recent days.

The official exchange rate of the Syrian pound declined 270-fold against the US dollar between 2011 and 2023, reaching 12,562 pounds to a dollar, according to the World Bank.

The exchange rate with the US dollar has now fallen to 19,000, from 15,000 before the rebel offensive began. In Aleppo, the currency is down to about 25,000 to the dollar due to the dual use of the Turkish Lira in the area.

"The depreciation of the Syrian pound gained momentum with the start of the Lebanese currency crisis in late 2019, which is not surprising given close commercial and trade ties between Lebanon and Syria, and Syrians’ reliance on Lebanese banks for commercial and personal transactions,” the World Bank reported in May.

A deteriorating economic situation and the imposition of new US sanctions in mid-2020 that encouraged capital flight and reduced remittances, have further fuelled the depreciation of the pound.

Since 2020, the Syrian pound has lost more than 90 per cent of its value against the US dollar in the parallel market. In 2023, the average market price of the Syrian pound recorded a 141 per cent depreciation against the US dollar. Throughout 2023, the Central Bank of Syria devalued the official exchange rate a number of times, although it remained consistently below the prevailing market rate.