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Saturday, August 27, 2011

Syria starts feeling the pain of Western sanctions



Western sanctions start to hit home in Syria’s oil sector (Source: Syrian Oil and Gaz News)

By James M. Dorsey

Embattled President Bashar al Assad is feeling the pain of Western sanctions for the first time since anti-government protests erupted in Syria five months ago.

Already deprived of $8 billion a year in tourism receipts, Syria was this week forced to halt all US dollar denominated transactions as a result of new US sanctions announced last Tuesday. As if that were not bad enough, some of the world’s largest oil companies have severed their ties to Syria in anticipation of a new European Union sanction regime.

Taken together, the measures aimed at forcing Mr. Assad to halt his brutal crackdown on the protesters are the first by Western governments and institutions to be more than symbolic in the short term. The halt on US dollar transactions was prompted by US Treasury sanctions against the state-owned Commercial Bank of Syria, which handles most of Syria’s oil business and a ban on imports and exports to Syria, including oil and gas.

Tuesday’s US targeting of Syrian oil exports and imports was designed to prompt Europe, the main buyer of Syrian oil, to follow suit. The EU has yet to decide whether it too will target the Syrian oil sector, which funds up to a third of the budget of Mr. Assad’s government.

Even so, the effective sanctioning of US dollar transactions and the anticipation of European sanctions was sufficient for the likes of Trafigura, British Petroleum, Royal Dutch Shell and Total to quietly cut their ties to Syria. The four companies are among the most important buyers of Syrian crude, which is refined in European refineries, or the country’s main suppliers of refined products such as gasoline and diesel.

The four companies stopped doing business with Syria as Britain’s oil explorer Gulfsands Petroleum was this week forced to defend itself against mounting criticism of its links to Mr. Assad’s cousin Rami Makhlouf, who by some estimates controls more than half of Syria's economy. Mr. Makhklouf is on a list of 35 people that includes Mr. Assad on whom the EU and the United States imposed sanctions earlier this year.

The decision by the oil companies is likely to make it easier for the EU to impose oil sanctions of its own despite fears that such a measure would impose hardship on ordinary Syrians. Syrian officials have been feeding those fears by warning that the country will have to tighten its belt as unemployment and poverty increases as a result of the sanctions.

The US sanctions and the oil companies’ refusal to do further business with Syria have increased the pressure on Mr. Assad, but like a cat with nine lives, the president is looking to China and Russia to ease his predicament. Syrian officials are certain that China will step in to take over the oil business they were conducting with Europe. At the same time, Syria’s central bank is shifting all transactions from US dollars to euros.

Syrian officials also believe that Gulf states who in recent weeks for the first time condemned Mr. Assad’s crackdown, withdrew their ambassadors from Damascus and quietly halted investments in Syria are having second thoughts. They take heart from the fact Saudi Arabia recently arrested anti-Assad demonstrators while Qatari emir Sheikh Hamad bin Khalifa al-Thani is visiting Iran, Syria’s closest ally. That could prove to be an illusion. Saudi-led criticism of Mr. Assad is motivated by the desire to further isolate Iran rather than by concern about the bloodshed in Syria.

Nonetheless, Sheikh Hamid’s visit to Iran has special significance to the Syrians. He is the first Gulf leader, albeit one who conducts an independent foreign policy, to visit Iran since anti-government-protests began sweeping the Middle East and North Africa in December of last year. Most Gulf nations accuse Iran of instigating the protests.

Russia’s United Nations ambassador Vitaly Churkin encouraged Syrian hopes that his country together with China may come to Mr. Assad’s rescue by saying that Russia was likely to continue to oppose Western efforts to get the United Nations Security Council to impose sanctions on Syria. Mr. Churkin said Russia advocated dialogue and diplomacy instead of sanctions.

The Russian approach and China’s reluctance to condemn violence failed in Libya where
Moscow unsuccessfully tried to persuade Colonel Moammar Qaddafi to seek a negotiated settlement with NATO-backed rebels who have now gained control of the capital Tripoli and most of the rest of the country. The failure of Russia and China to support the rebels or at least garner favour with them by strongly condemning Mr. Qaddafi threatens to deprive them of lucrative contracts in the post-Qaddafi reconstruction of Libya.

Mr. Assad has so far proven to be as intransigent as Mr. Qaddafi. He has rejected appeals to stop his crackdown by his closest friends, including Turkey. Shielding Mr. Assad from the pain he is starting to feel from Western sanctions theoretically would put Russia and China in a position to push the Syrian leader to halt the violence and implement the kind of political and economic reforms that would satisfy the protesters demands.

There is however little reason to believe that Mr. Assad would be susceptible to Russian or Chinese pressure. For that, it is too late. It is hard to envision any compromise after five months of brutality that has cost some 2,200 lives that would not lead to Mr. Assad’s demise. Mr. Assad may be able to cling to power for some time yet, but his demise is a question of when rather than if. That leaves Russia and China with a closing window of opportunity to plan for a post-Assad Syria in which they are not seen as in Libya as powers that opposed the very people that ultimately will replace the country’s autocratic leader.

James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore and the author of the blog, The Turbulent World of Middle East Soccer.

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