The Assad regime’s response to the devastating economic crisis in Syria, now exacerbated even further by the ramifications of Russia’s ongoing war in Ukraine, has come to be defined by myriad ad hoc, exploitative, and chaotic decisions, pushing the country into a dangerous new period of fragility. Over the past three months, the regime has implemented new austerity measures that removed hundreds of thousands of people off life-saving subsidy support; more recently, the crisis in Ukraine has caused an explosive rise in food and fuel prices, plunging swathes of the population into even deeper poverty. While there were some protests in the south earlier this year against subsidy cuts and unbearable living conditions, the chokehold of the regime’s security apparatus and a prevailing sense of despair have limited more widespread displays of popular anger. Instead, anyone who can has focused their efforts on trying to leave the country, whether through paying smugglers or obtaining a visa. The inability to provide basic goods and services, while preying on the Syrian population through corruption and extortion is indicative of Syria as a failing state. The severity of the economic crisis urgently needs skilled technocrats to steer policy and prevent it from further plunging into economic collapse. And yet the regime is now functioning as a mafia-state with crucial decisions on the population’s survival being led by palace loyalists with no economic policy expertise, who instead focus on ensuring that the Assad regime survives while the country starves.
Summary: Key Findings
- Inflation Ravages Syria: Russia’s invasion of Ukraine has unleashed a new wave of explosively high inflation that is devastating the Syrian population and placing basic staples out of the reach of growing numbers of people. This new crisis comes as the Syrian currency was already weakening in the first quarter of this year and amid months of intensifying economic hardship within Syria.
- Austerity Drives Millions into Destitution: The regime slashed aid to millions of Syrians and further reduced subsidies, implementing an era of brutal austerity during the last quarter and further nullifying the dubious social contract of state support that previously existed, to some extent, between the regime and areas under its control.
- Wheat Supply Imperiled: Uncertainty from surging global wheat prices and severe domestic crop shortages has raised doubts over a central pillar of the regime’s 2022 agricultural strategy, a plan to sell domestic durum wheat abroad in order to fund imports of grain from Russian-occupied Crimea.
- Services as Patronage: The provision of basic services is increasingly used as a form of patronage, with dwindling services made available to well-connected communities while areas perceived as disloyal or irrelevant to the corridors of power are increasingly cut off.
- Exodus of Despair: There is now little or no hope of living in Syria for many Syrians, who are increasingly seeking opportunities to leave and build a life elsewhere. These departures are not of major concern to the regime as they bring with them the promise of increased remittances to support the regime’s rent-seeking activities.
- A Beholden Regime: Having guaranteed Assad’s survival, the regime’s patrons—Russia and Iran—are bleeding dry what little remains in the country, preventing the possibility of any sort of domestic economic recovery.
Regime Response to the Ukraine Crisis & Mitigation Measures
The Assad regime’s response to the devastating economic crisis in Syria, now exacerbated by the ramifications of Russia’s ongoing war in Ukraine, is defined by myriad ad hoc, exploitative, and chaotic policy measures, pushing many Syrians to the brink of survival. These short-term and predatory policies are perpetuating socio-economic instability and decimating what economic activity does remain in Syria. Since the onset of the Ukraine crisis a month ago, the regime has implemented rationing measures on essential goods, restricted exports of basic commodities, suspended import licenses, and cancelled planned public sector wage increases. As the currency devalued to 3900 Syrian pounds (SYP) to the dollar and allocations of basic goods were cut, prices skyrocketed and shortages followed. These measures come on the back of severe austerity measures already implemented earlier this year, purging 20-30% of the population—amounting to almost 750,000 families—from state support. Subsidy cuts have become a cornerstone of regime policy in the last year, increasingly nullifying the social contract of state support that had existed to some extent between the regime and Syrians in areas under its control over the conflict.
Soaring Prices Devastate Syrians
Russia’s war in Ukraine shocked already surging global commodity prices, with the UN’s Food & Agriculture Organization (FAO) reporting that the international price of a basket of basic food commodities in March was higher than ever recorded in the last 30 years. Global food prices rose 12.6% between February and March alone, with the steepest shocks impacting grains and vegetable oils. Coupled with the regime’s subsidy cuts and devaluing currency, these price shocks have been devastating in Syria. Food prices have skyrocketed by an average of 35% due to shortages, high costs of imports, and the rising cost of fuel needed to transport goods. For example, the market price of a packet of bread is 3,500 SYP, 14 times more expensive than the subsidized price of 250 SYP—to access bread at these prices, Syrians have to queue up for hours; sometimes bread is impossible to find. Similarly, over the last quarter, the price of cooking oil has increased by 70% from January to March. Families have already been pushed to the brink and resorted to negative coping mechanisms, but as long as these global commodity shocks and economic mismanagement prevail, the numbers of Syrians facing hunger and desperately needing humanitarian assistance will keep rising.
While there was public anger against the regime’s austerity measures implemented earlier this year, it has mostly been limited to social media criticism and anonymous graffiti in regime strongholds. In the south, protests took place in early February against living conditions and subsidy cuts, as well as attacks against smart card centers and state-run bakeries. The protests in Suwayda were put down after security forces were deployed to the area, demonstrating that it is only the chokehold of Assad’s security apparatus that has curtailed widespread demonstrations and outrage in response to the dire living conditions in the country.
Wheat & Fuel Crises
More ominous still are the growing concerns about expected wheat shortfalls in Syria and the impact of the surging price of fertilizer, which threatens to devastate what remains of an agricultural sector suffering from severe drought and mismanagement. The FAO is predicting a domestic grain shortfall of nearly 2 million tons of wheat and just over 2 million tons of barley between July 2021 and June 2022. India recently announced that it will donate 30,000 tons of wheat and 10,000 tons of rice to Syria through the World Food Program, but this is a temporary injection of grain in a much larger-scale crisis. The regime’s agricultural strategy for this year was to sell Syrian durum wheat abroad in order to finance imports of grain from Russian-occupied Crimea. However, with global wheat prices soaring and shortages due to the Ukraine crisis, there are inevitably questions looming about the regime’s ability to finance these imports and the integrity of Russian contracts to deliver wheat in the coming period. Furthermore, Russian products such as potash, ammonia, and urea are central to the global fertilizer industry, and sanctions against Moscow are contributing to shortages and prohibitively high costs that will likely lead to declining use of fertilizers in Syria. As a result, it is expected that more disastrous crop yields lie ahead, setting up the prospect of long-term high prices and degraded Syrian agriculture for years to come.
In terms of the fuel crisis, there are expectations that the regime will soon cut fuel subsidies following statements by the minister of oil at the end of March stating that the cost of producing refined gasoline and diesel far exceeds the subsidized prices. Following this statement, sellers began hoarding diesel and gasoline to later sell at increased market prices, as often occurs following rumors of price increases. As a result, the price of a liter of gasoline on the black market increased to 4,300 SYP, an increase of 25% from last month. The price of butane tanks used for cooking have soared in Syria reaching 120,000 SYP.
Wheat & Fuel Crises
The provision of basic public services is increasingly being wielded by the regime as a form of patronage, used to reward loyalty or to influence constituents perceived as somehow valuable to the regime. How well positioned a community is in its connection to regime figures can help it access services, however this also indicates the extent to which senior-level regime figures are involved in the minutiae of local-level service provision. For example, electricity cuts, now worsening due to rising fuel prices, are becoming longer, and the dwindling electricity supply is being funneled to loyalist communities along the coast, while it is withheld as a form of collective punishment from areas that historically supported the Syrian opposition. The state is also wielding redevelopment policies to punish former opposition areas and entrench the power of regime cronies in the construction sector. A striking example is the destruction of the Qaboun neighborhood in Damascus, long a hotbed of opposition to the regime that was recaptured in 2017. Under the guise of anti-mining activity, the area has been completely bulldozed to make room for new upscale commercial development.
Exodus from Syria Intensifies
The unbearable living conditions and lack of services continue to push Syrians of all backgrounds to leave. For those who can afford the associated costs, it is the only chance at having a proper life, with conditions in Syria described as “unlivable.” Even the much-awaited Syrian soap operas released during Ramadan share this message of despair—one of the common themes this year is that there is nothing worth staying for in Syria and those who left Syria are the lucky ones. For the regime, this ongoing exodus of Syrians from the country is not of concern, as it means more remittances to be sent back in foreign exchange from which the regime can rent-seek.
The flight of businessmen and workers alike from the country has produced an overwhelming demand for passports, with wait times now exceeding five months and bribes required at every step to facilitate the process. Businessmen are fleeing in droves, seeking to evade the extortion and endless bribery of increasingly predatory state authorities. The principal destinations for these businessmen are Egypt and the United Arab Emirates (UAE), which have extended generous visa and regulatory policies to Syrian entrepreneurs as they flee Syria. On the other hand, hundreds of residents from Daraa are fleeing every month, en route to Lebanon or north-west Syria, in the hope of escaping ever-present regime violence, forced conscription, high unemployment, and poverty.
Regime Allies & Neighboring Countries
As the last quarter has been a devastating blow to Syria’s economy with sky-rocketing inflation and shortages due to the global commodities crunch, its two closest allies, Russia and Iran, remain keen to reap their rewards for saving the Assad regime. Even as Syrians go hungry and seek to leave, Russia and Iran are bleeding dry what little remains in the country, preventing any sort of domestic economic recovery from being able to happen. While Iran has focused on dominating sectors of the Syrian economy by flooding them with Iranian goods and forcing the regime to restrict Syrian businesses through no-compete policies, Russia has aimed to indenture Syria through parasitic debt and taking control of key infrastructure.
Most concerningly, a report by New Lines magazine recently revealed that between 2020-2021, Russia issued Syria two loans totaling $1 billion with extremely unfavorable terms. The loans were to purchase basic commodities from specific companies linked to Russian oligarchs under western sanctions, with a penalty to be paid if the full amount of loan was not used in a short period of time. The Assad regime is reported to have repaid $100 million on these loans to Russia to date, even though the basic commodities that they were to receive—including wheat, gasoline, heating oil, medical supplies, and animal feed—have been low quality and exorbitantly priced, far beyond global commodity prices. At times, the goods have never arrived and the Syrian regime has been unable to redress the failings of these agreements with Russia.
In March, Bashar al-Assad visited the UAE, marking his first trip to an Arab country since the beginning of the Syrian conflict in 2011. The Emirates has been making moves over the last few years to resume ties with Syria, including the Emirati foreign minister’s visit to Damascus at the end of last year, and the regime has been keen to engage with hopes of securing Emirati investment to rebuild Syria. Assad’s visit did not lead to the desired material outcomes with no commitments made for Emirati investment nor assistance to Syria. However, the ravaging of the Syrian economy and its financial institutions by the regime and its patrons begs the question why any rational investor would put their money in Syria.