Preventing Business as Usual in Syria

June 25, 2012
The Friends of Syria coalition will meet in Paris on July 6 to discuss how they might stem the escalating violence in Syria. Once again there will be much hand wringing on what to do and a search for new ideas. Owen Barder and I, who have been working with our colleagues at CGD and officials in the U.S. and UK governments to promote a new policy tool called preemptive contract sanctions, are convinced that it can be a useful part of the solution in Syria and we’ve prepared a draft Declaration Regarding Illegitimate Contracts with the Syrian Government that we hope will be considered in Paris.
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Much has happened in Syria since my colleagues and I first suggested a new policy tool to help squeeze the Assad regime four months ago, and none of it is good: A UN brokered peace plan led by Kofi Annan has all but failed, violence has spilled over the border into neighboring countries, and the death toll has more than doubled (from about 7500 in February to more than 14,000 in June).  And just weeks ago, outgoing Finance Minister Mohammed Al Jleilati claimed that Syria was close to signing a deal to resume crude oil exports. This is possible because Russia has blocked global sanctions at the United Nations Security Council, and it and other key countries –  including China and India – are leery of non-UN sanctions, or outright supportive of the Assad regime. While few countries and firms are eager to do business in Syria, that could change if they perceive President Assad to have the upper hand and the ability to hang on. Any increase in revenue would bolster the regime and continue to fund the violent repression of the Syrian people. Enter preemptive contract sanctions –  a new policy tool that could work by raising the risks of doing business with Syria, thereby cutting off any remaining financial lifelines that’s help to keep the regime in power.  If the United States and United Kingdom, along with other members of the Friends of Syria, declare that new contracts with the Assad regime are illegitimate and will not be enforceable, it would deter new investments in Syria’s oil or other sectors and send a strong signal to the Assad regime that the economic stranglehold will not loosen. A draft of what such a declaration might look like can be found here. Before the outbreak of violence in Syria, President Assad had taken modest steps to open up the Syrian economy.  Foreign direct investment increased sharply from $0.5 billion in 2005 to more than $2.5 billion in 2009, and doubled as a share of the Syrian economy, from 2 percent to 5 percent over that period (data available from the World Bank). Much of the investment went into the crude oil production sector, which has seen declining output and exports in recent years – a major problem since that sector accounts for a quarter of the Syrian economy and a third of government revenues.  As such, a desperate Assad will surely offer enticing conditions for potential new investors, and companies that are not affected by current sanctions will be tempted to bite. Preemptive contract sanctions would raise the risks even higher to those firms, since a future Syrian government could nullify the contracts and turn to European and American investors to help it rebuild. Relative to the impact that current U.S., European, and other sanctions are imposing, preemptive contract sanctions would likely have small short-run effects. But getting them in place now is essential to demonstrate to Assad that he cannot escape the economic stranglehold no matter how long he hangs on, and to prevent new contracts that could tie the hands of a future legitimate Syrian government. In the face of continued Russian intransigence at the UN, preemptive contract sanctions are one of the few nonmilitary tools that remain to increase the pressure on the Assad regime. With little if any cost to those imposing them, preemptive contract sanctions could have a huge payoff in helping to weaken the Assad regime and save lives. Owen and I hope that the draft Declaration Regarding Illegitimate Contracts with the Syrian Government will be among the ideas that is seriously considered when the Friends of Syria meet on July 6. The time to try this tool was months ago, but better late than never.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.