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Means To An End: The EU And Syria’s Oil Embargo – Analysis

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By Emily Boulter

After five months of a brutal onslaught, Europe’s patience with the Syrian regime is wearing thin. The EU has imposed sanctions on individuals both responsible and associated with the crackdown, as well as an embargo on the import of goods used for internal repression. Fifty four individuals in total are now subject to travel bans and asset freezes. On September 2, the EU extended restrictions on four individuals and three government entities. Other recent targets include former defense minister, Hassan Turkmani and several generals. EU members also decided to blacklist the elite Al-Quds wing of Iran’s Revolutionary Guards, who have aided Assad in dealing with the rising tide of civil unrest. In Brussels, European officials have discussed at length the options for broadening sanctions, which target Syrian firms, and other economic sectors such as financial services and telecommunications.

Syria
Syria

However, the most important lifeline for Damascus is the export of oil. Each day Syria produces 385,000 barrels of oil and exports 150,000 barrels. Its main recipients are theNetherlands, Italy, France and Spain. It earns the regime an average $2.5 billion per year in exports, which according to the International Monetary Fund accounts for 30 percent of government revenue. The United States has already made the symbolic gesture of banning Syrian oil imports. On September 2, the EU agreed to the imposition of aban on the import of crude oil. The move received wide support among its 27-member states, as it will be an important step in denying Assad a steady cash flow which is crucial for maintaining Syria’s military and paying loyal thugs such as the Shabiha. However there are concerns that even with the imposition of an oil embargo, European companies operating inside Syria will be left unaffected. For instance, both Royal Dutch Shell and French Total will be able to carry on through their consortiums. This is in addition to EU countries who expect existing contracts to be honoured, thus delaying the full force of sanctions. Therefore, if they are to truly succeed, the EU must prohibit European firms from operating inside Syria. A spokesman for the UK-based oil company Gulfsands Petroleum PLC, said that currently the measures imposed have had “no impact” on the company. It is already exploring northeast of the country for oil deposits. The firm has been criticised for its close ties to the Assad family, in particular the cousin of the president, Rami Mahklouf, who owns the country’s largest mobile-phone company, Syriatel.

For the moment Assad appears undaunted by Europe’s adopted position. On Syrian state television he confidently announced that the steps taken by the west are “meaningless.”He suggests that turning to China and India will enable him to cut his losses with the EU. He assertedthat the regime had “already decided to start looking to the east” and “will continue to look east.” Yet this may appear easier than it seems. Until the start of its own Arab Spring, Syria was a major recipient of economic and technical assistance through the European Neighbourhood Policy program. Since 1978, the European Investment Bank has given Syria close to €1.7 billion in a bid to improve infrastructure and private sector initiatives. Numerous government ministries have received financing to launch projects designed to boost trade, democratic reform and improve education. For the period 2011-2013, the EU allocated € 129 million to service priority areas within the country. However, all bilateral programmes and initiatives between the EU and Syria have now ground to a halt.

On the other hand, Damascus may think itself fortunate to have friends in Asia, who are prepared to overlook Syria’s internal upheaval, but according to the 2010 BP Statistical Review of World Energy—Syria only accounts for 0.5 percent of global oil production. From the Middle East, both China and India import five million bpd, of which Syria contributes a mere fraction. If Syrian crude is to make an impact, its price will have to drop significantly. In other words, Syria cannot survive on oil sector alone; it relies on the advantages that come from being in close proximity to a major regional bloc such as the EU, which is its largest trading partner. This is not to discount other important players such as Turkey which is keen to see an end to the crisis.

Through years of inept economic policy, the Ba’ath party has managed to ossify entrepreneurship and commercial creativity. Both Bashar and his father Hafiz al-Assad cultivated an unwieldy patronage system that was essential for their regimes survival. Besides oil, Syria has few competitive industries. In 2006, Assad launched a program of economic liberalization, but the end result served only the interests of a handful of well-connected businessmen. The tourism sector, which previously accounted for roughly 12 percent of the country’s GDP, has now ground to a halt. If the EU succeeds in the coming weeks to fully implement a total ban on imports of Syrian oil, it must also make conditions difficult for European oil firms to continue smooth operations inside Syria. This will profoundly affect the country’s means of earning hard currency. Recent reports suggest that Syria has amassed foreign reserves worth $18 billion, which is sufficient to cover more than one year of imports. However the cost of maintaining a heavy military presence on the ground is mounting. The Economisthas heard reports that Syria’s armed forces are “badly fed and underpaid.” Since the fall of the Qadhafi regime in Libya, the number of soldiers defecting has escalated. What is more, one should not forget that Assad must also honor public sector wage increases that he promised as a way to curry favor with the Syrian people at the start of the uprising.

While Europe’s embargo on Syrian crude oil is expected to have a significant impact, the EU needs to reach out to other regionalbodies such as the Gulf Cooperation Council (GCC) if it wants to send a clear message to Damascus that the regime cannot continue operating unrestricted, with the reassurance that it can look to further afield for support. GCC members export millions of barrels of oil to India and China on a daily basis. Therefore bringing the GCC on side would help rule out India and China as alternative export markets for Syria’s 150,000 bpd. Both countries would not risk alienating important trading partners in the Gulf for an insignificant amount of oil.

The European Union is reaching a point where it needs to take drastic measures against Syria. These measures should be specific enough to disrupt the government’s economic lifeline, and therefore targeting Syria’s oil sector with the cooperation of the GCC, would be an effective way of forcing the regime to desist in its hopeless campaign against the people of Syria.

Emily Boulter, Non-Resident Research Associate, INEGMA

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INEGMA

INEGMA is a Free Zone Limited Liability Company based in Dubai Media City, in the United Arab Emirates. Established in 2001, INEGMA was set up to provide media organizations, think tanks, non-governmental organizations, militaries and governments of the Middle East, and international private companies with various services related to military and strategic affairs.

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