The first five years of the Syrian war: money, sanctions, oil and no conspiracy

Novye Izvestia together with the experts assessed the first Syrian five-years from the point of view of economic feasibility and geopolitical alignment.

Yelena Ivanova, Natalia Seibil

With the subsiding of hostilities in Syria, the question more and more often arises who, apart from Russian generals, who received stars on epaulettes and on their chest, became the beneficiary of the five-year war. Never in the history of mankind were wars, especially in foreign territory, unselfish. Bashar al-Assad, who was left in power by President Putin and Russian pilots, owes Russia. There is no doubt about that. If not for the military intervention of the Russian army, Assad would not have escaped the fate of Colonel Gaddafi, barbarously killed by the rebels. Russia defended the regime in Damascus with its breast. Over and over again politicians have blocked UN resolutions on punishing Assad and his inner circle. Meanwhile, Russian pilots bombed Assad's enemies in Syria itself, paving the way for the Syrian army and pro-Iranian formations on the ground. Now the moment is coming when Syria must start paying the bills. This does not mean direct transfers to the Russian state, but economic projects that Russian business can and, most importantly, want to implement in a Middle Eastern country. Since 2015, Assad and his entourage have been saying that whoever helps Syria will benefit from a peaceful life. The situation is complicated by the fact that the international community, although it still tolerates the ruler of Damascus, has not forgotten its claims against him. The Syrian elite is under US and European sanctions, so any company operating in Syria could also be blacklisted. This greatly reduces the number of people willing to participate in the Syrian pie section. But they are.

Money and sanctions

After 9 years since the beginning of the civil war, and then the theater of operations with the participation of many actors and troops from various countries, the country is a sad sight. Although the Syrian government controls most of the territory, the Idlib enclave is still in the hands of the opposition, and the north-east of the country is in the hands of the Kurds and the Americans who support them.

In 2017, the World Bank calculated that the Syrian GDP lost $ 226 billion due to the war, or four annual GDP in 2010, the pre-war year. If the war ended in 2017, the World Bank said, it would take Syria 4 years to recover 41% of these losses. Over the next 20 years, the country's losses will amount to 7.6 pre-war GDP. But the war did not stop, so World Bank economists cautiously assumed that the overall losses would be even greater. After 10 years of war, Syria will lose an amount comparable to the 13th GDP in 2010.

But this is also the tip of the iceberg. 400 thousand people died. 6 million people have become refugees. Destroyed a third of housing, destroyed half of hospitals and schools. Syrian President Bashar al-Assad announced the $ 400 billion figure that will be required to restore the economy.

In 2016, Russia and Syria signed an agreement to rebuild destroyed infrastructure. The total investment amounted to $ 850 million. This is only 0.3% of the required amount - a drop in the bucket. In a pandemic, neither Russia, nor Iran, nor China, on which Assad is counting, has no extra money. In July, at a summit on a Syrian settlement with the participation of Russia, Iran and Turkey, the leaders of these countries called on the "UN and its humanitarian agencies to increase their assistance to all Syrians without discrimination, politicization and preconditions".

This does not mean Iraq, Lebanon, Algeria or Egypt, with which Assad has an established relationship. These countries are not suitable for the role of investors. But those whom Bashar al-Assad's friends are hinting at - Europeans and Americans - have set tough conditions on which they are ready to give money for reconstruction. Donors are demanding political reforms from Assad in exchange for funding and lifting sanctions. The only change in their position is that they do not demand the resignation of the "doctor" immediately. But the likelihood is high that if the ruler in Damascus does not agree to these conditions, he will be left without money and only with part of Syria, informed sources say. For a clearer understanding, the EU announced the extension of sanctions against Syria for another year, and the US adopted the Syrian Civil Protection Act, known as the Caesar Act. Bashar Assad and his wife Asma, as well as other legal entities and individuals from Syria, were included in the sanctions list. The law provides for measures against everyone who cooperates with Damascus, primarily Russian and Iranian companies and citizens working in Syria. Only those with nothing to lose will want to invest in the country. Everyone else will think about whether to dream of a crane in the sky.

Oil and gas in exchange for help

In January 2018, Energy Minister Novak and his counterpart in Syria Harbutli signed a Roadmap for Energy Cooperation. Russia plans to restore about 40 infrastructure facilities. In the field of oil and gas production, the Syrians have promised to work only with Russian companies.

Experts are skeptical about such a gift.

Syrian oil production fell sharply during the war years. If in 2008 British BP produced 400 thousand barrels per day, then ten years later the production amounted to 24 thousand. But even 450 thousand at the best of times cannot be compared with Russian oil production - in Russia 10 million are pumped a day. In terms of reserves, Syria is at the very bottom of the list of producing countries in the Middle East.

Saudi Arabia remains the largest oil economy in the world. Its reserves are 300 billion barrels, while only 2.5 billion have been confirmed in Syria - 100 times less. There is another problem. Oil in Syria is deep enough - from 1500 to 3000 meters. Its production costs are $ 20-25 per barrel. In Saudi Arabia, they spend five times less on production - $ 5 per barrel.

- If we talk about the portfolio, I don't know what our oil majors are carrying out or intend to implement projects in Syria. If you look at the financial statements, then large American and European companies do not work there either. All investments that were in the reporting, they have already been written off, - says the head of the oil and gas department of KPMG International Anton Usov.

Industry experts always assess several parameters: is it possible to invest, whether it is necessary to invest, taking into account the economic benefits and return, taking into account the need to invest in destroyed infrastructure and a stable geopolitical situation. If demand falls, and the price of oil does not rise, and your competitors leave oil projects, leaving only the most profitable, "star" projects, no sane commercial oil and gas company will now consider this region as a clearing for investment activities. The risks are high, the returns are unclear. And the reason is not only that the state where production needs to be established is called Syria, but the state of Syria is reinforcing this negative macroeconomic trend. Russian majors have no commercial interest either in the short or in the medium term.

"In the current economic conditions, no one can have an economic interest in Syria, due to the conjuncture, prospects and risks of the region, if we talk about companies. If we have geopolitical interests, this is not an issue for the industry”, - Anton Usov says.

Turkish President Erdogan has already suggested that Putin use the proceeds from the sale of Syrian oil to rebuild the country. True, in his opinion, Russia should start and pay for the restoration of mines. If Syria appears in the investment portfolio of Gazprom Neft or Rosneft, this will mean only one thing - a political decision has been made to finance the Syrian project. To what extent the Russian state is ready to expose its best assets to threats of sanctions and to bury money in the Syrian sand is unknown. In Russia, such decisions are made without witnesses. So far, the authorities have completely different problems related to overcoming the consequences of the pandemic. Maybe it's for the best.

Velada, Mercury, Stroytransgaz and Syrian oil

Nevertheless, in December last year, the Syrian parliament passed a law on the transfer of three blocks of gas and oil fields to two Russian companies: Velade with an authorized capital of 10 thousand rubles and Mercury, which serves the Defense Ministry canteens in Kamchatka. By dan nym media, the two companies, as well as "Euro Policy" part of the empire Eugene Prigogine. Four years earlier, in December 2016, following a visit to Moscow by Syrian Minister Ghanem and his meeting with Energy Minister Novak, agreements were signed between Euro Polis and the Syrian State Oil Corporation. Euro Polis, better known to the general public under a different brand - VChK Wagner, under this agreement was to release oil and gas fields in exchange for 25% of subsequent production. Journalists of "Novaya" make a reservation that Prigozhin's press service denied his involvement in these two companies.

There is information that another Russian company, Stroytransgaz, has signed a contract with Damascus for oil and gas exploration in Tartus, where the Russian naval base is located, in Baniyas and Kara. Gennady Timchenko is completing the construction of a gas processing plant in Syria. In addition, Timchenko's company received a contract for the restoration of one of the largest phosphate deposits near Palmyra. Unlike oil and gas, phosphates, a raw material for fertilizers, are not sanctioned.

However, such businessmen as Yevgeny Prigozhin and Gennady Timchenko are not afraid of international sanctions - they are already under them. Their commercial success, which depends not on sanctions, but on their role as soldiers of geopolitical fronts, is explained by their known proximity to the Russian authorities and President Putin. Therefore, their participation in the reconstruction of Syria is understandable.

“The only rational argument explaining such cooperation was the hypothesis that some Russian leaders are interested in“ sawing ”the huge funds that Moscow will have to allocate through state channels or through state-owned companies for this program. The potential revenues of Russian companies from Syrian oil and Syrian gas remain in the field of propaganda, which has nothing to do with the real potential of this industry”, - said expert Mikhail Krutikhin.

Russian economic interests in Syria

The Syrian campaign has nothing to do with protecting Russia's economic interests in the region, experts say. The country's oil and gas reserves will not justify investments in the restoration of infrastructure destroyed by the war. Before the war, Syria barely had enough to supply domestic consumption. Oil prices are showing a downward trend. Investors will invest in countries where the cost of hydrocarbons is low and the situation is stable.

There is a conspiracy theory that Russia entered Syria because it wanted to prevent the construction of a gas pipeline from Qatar to Europe. This line was supposed to deliver gas from the world's largest explored field in the Middle East to Europe and interfere with the interests of Gazprom. Gazprom owns 50% of the market in Europe.

The version about protecting the interests of Gazprom on the “distant approaches” does not stand up to criticism. First, there are enough gas suppliers in Europe, and the demand for it is weak. Secondly, it is very risky to build a trunk pipeline in politically unstable territories. Gas is easier and cheaper to liquefy and deliver by sea, says Mikhail Krutikhin.

Many Russian companies hoped to enter Syria two years ago. It was hoped that the sanctions, as in Iraq, would soon be lifted and it would be possible to work. Instead, the sanctions were not only not lifted, but new ones appeared.

And the military confrontation in Syria turned into an economic one. A month ago, the autonomous administration of Northern and Eastern Syria signed an agreement with the American oil company Delta Crescent Energy on the modernization and development of oil fields. The contract was awarded with the support of the White House. The Kurdish administration that signed the treaty views it as its own recognition.

"We will work very closely with our Kurdish allies to make sure that the revenues from this oil do not fall into the hands of Iran, do not fall into the hands of the regime, do not fall into the hands of Russia", - said US Vice President Michael Pence.

Given the richest deposits in Syria, the outrage in Damascus and Moscow is easy to understand. This step is comparable to the new sanctions. To paraphrase the famous Leninist formula, in Syria, the economy is the continuation of the war by other means. It has nothing to do with making money or improving people's lives.