Sanctions on Syria: Iran’s Economic Gains and the Gulf-U.S. Divide

In February 2011, a group of teenagers in the southern Syrian city of Daraa spray painted a message on their high school wall, calling for the regime of President Bashar al-Assad to step down. Their arrest set off a chain of events that sparked a countrywide uprising a month later, with Syrians demanding political and economic reforms. The brutal crackdown on peaceful protestors soon led to a bloody civil war, resulting in one of the worst humanitarian crises in modern history. United Nations figures estimated the civilian death toll at 306,000 by 2022. According to the latest U.N. estimates, 14 million Syrians have been displaced due to the conflict, with roughly 7.2 million internally displaced and living under severe conditions, with the remainder living as refugees outside the country.

On the economic front, Syria’s reconstruction is projected to cost more than $400 billion. In addition to the devastating impact the conflict has had on the country’s infrastructure and its ability to provide basic services, Syria’s economic troubles have been exacerbated by the Lebanese economic crisis, the coronavirus pandemic, the Assad regime’s economic mismanagement and corruption, and Western-imposed sanctions, particularly the U.S.-led Caesar Syria Civilian Protection Act. Passed by Congress in 2019, the Caesar Act imposed primary and secondary sanctions on the Syrian regime and those conducting business with it. The United States introduced the sanctions in response to human rights violations committed against civilians and in efforts to pressure the regime into stepping aside in favor of a democratically elected government.

However, rather than achieving their intended goal of changing the regime’s behavior, these sanctions have had severe effects on Syrians’ living conditions. Today, 90% of Syrians live below the poverty line. By the end of 2023, the Syrian pound had drastically depreciated on the black market, reaching 14,000 Syrian pounds to $1, compared to approximately 50 pounds to $1 before the war started in 2011. In 2023, Johns Hopkins Professor Steve H. Hanke ranked Syria fourth globally in his economic “Annual Misery Index,” with inflation noted as the major contributing factor. Humanitarian conditions were in such decline by 2022 that the United Nations special rapporteur on unilateral coercive measures and human rights, Alena Douhan, called for lifting the sanctions on Syria.

The economic vacuum created by the sanctions has also indirectly enabled Iran to tighten its grip on Syria’s economy. The sanctions, by design, have inhibited Gulf investors, particularly Saudi Arabia and the United Arab Emirates, from economically engaging with the country. Although it remains unclear whether these Gulf states would have made substantial investments in Syria without the sanctions, the situation underscores an increasing disconnect between U.S. policy and the regional interests of its key allies.

Iran’s Expanding Economic Grip 

Iran spent an estimated $50 billion to support the Syrian regime during the country’s civil war, according to a leaked government document published by an Iranian opposition group. The document indicated that Tehran plans to invest $947 million across eight projects over the next 50 years in efforts to recover approximately $18 billion in debt repayments. These projects include investments in the oil and phosphate sectors, agriculture, telecommunications, and transportation. In addition to these projects, Iran’s minister of energy announced in May 2023 that the country intends to fund the restoration of Syria’s power plants through a major line of credit. That same month, Al-Quds Al-Arabi reported a surge in real estate purchases in the governates of Damascus and Rif Dimashq by companies with direct links to Iran. Furthermore, a private entity with ties to the Iranian government, Iloma Investment Private JSC, is set to acquire a 49% stake in Damascus International Airport. Iran and Syria also signed a zero-tariff trade deal in July 2023 and are currently in the process of establishing a joint bank.

The Syrian regime, however, has been reluctant to fully implement these agreements, arguing that they primarily serve Iran’s interests by helping recover its debt while offering little to revive Syria’s devastated economy. Nonetheless, the regime’s heavy reliance on Iranian support leaves it with little choice but to comply. This has been made clear on multiple occasions when Iran has withheld oil shipments over tensions in relations and placed pressure on the Syria regime to sign economic agreements.

A Growing Gulf-U.S. Disconnect

As Iran deepens its economic control over the country, the Syrian regime has sought investments from Russia, China, and Gulf states. However, Russia’s ability to invest in Syria has been hindered by the war in Ukraine. And despite integrating Syria into the Belt and Road Initiative in 2022, China has yet to fund any projects in the country, suggesting it may not see sufficient economic opportunity in Syria.

Meanwhile, key regional players, including Saudi Arabia and the UAE, have faced challenges reengaging economically with Syria due to U.S.-led sanctions. In 2021, the UAE reportedly signed an agreement to develop a solar power station near Damascus and announced efforts to help restore Syria’s water facilities. Similarly, at the Arab-China Business Conference in Riyadh in July 2023, Saudi officials agreed to revive investment and trade with Syria. However, these initiatives have yet to materialize, primarily due to the sanctions.

Both Saudi Arabia and the UAE have voiced frustration with the lack of a clear U.S. vision for Syria, arguing that sanctions have been ineffective, except in impoverishing the country. These regional concerns underscore a growing divide between U.S. policy, which continues to isolate the Syrian regime through sanctions, and the interests of regional actors, who want to bring Syria back into the fold. This divide became particularly evident in May 2023, when Syria was readmitted into the Arab League after a 12-year suspension. One complicating element in this otherwise clear divide is that Syrians themselves remain divided about a way forward for the country and the future of sanctions. These differences among Syrians have reinforced the inertia in U.S. Syria policy.

The growing disconnect between U.S. policy and the regional interests and assessments of its key allies highlights the complex dynamics of Syria’s political economy. While sanctions have indirectly strengthened Iran’s influence in Syria and hindered potential Gulf investments, they have done little to achieve their intended political outcome. Instead, they have worsened the living conditions of Syrian civilians, who have been left to bear the burden of these competing geopolitical interests. As regional dynamics continue to shift, the United States risks becoming increasingly out of step with its key allies, who have moved toward diplomatic engagement.