The rebuilding of Syria’s economy will be led by sanctions

This article is based on content originally published on our partner platform, Seerist, the augmented analytics solution for threat and risk intelligence professionals.

On 24 February, the EU suspended “restrictive measures” on Syria’s energy, construction, and transport sectors and introduced measures to facilitate financial and banking transactions. The move follows Foreign Minister Asaad al-Shaibani’s renewed calls to lift sanctions on Syria to enable recovery, which he voiced at the Munich Security Conference in Germany.

In the coming months, most opportunities for foreign businesses in Syria will be associated with trade. Longer-term investment opportunities will likely be slower to materialise and will remain associated with significant country risks.

An economy in shambles

Sharaa inherited a deeply distressed economy following the December 2024 collapse of the regime of Bashar al-Assad (2000-24). Official data showed that the economy had shrunk by 54% between 2010 and 2021. However, even that scenario appeared positive as the World Bank published research in 2024 using nighttime lighting as a proxy for economic activity, suggesting that the economy had likely contracted by around 84% between 2010 and 2023. The war has caused extensive material damage, with the funds needed for the country’s reconstruction estimated at USD 250-400bn. In the critical oil and gas, agricultural, and power sectors, output is between one-third and one-fifth of pre-war levels.

The dire economic situation does not just derive from the war; it also, in large part, derives from the isolation brought about by the stringent sanctions the West imposed on Assad’s regime. In 2019, the US’ introduction of extensive secondary sanctions under the Caeser Act further exacerbated Syria’s financial vulnerability. This vulnerability was exacerbated even further as Lebanon, Syria’s main gateway to the international economy, entered a downward economic spiral caused by embezzlement and unscrupulous financial engineering by former central bank governor Riad Salameh.

Assad’s regime sought to manage the economic impact of both the war and sanctions to little avail – for instance, by intervening heavy-handedly to ban all foreign currency trading. Over time, Syria became ever more reliant on the support of foreign backers, namely Iran and Russia – both of which also faced stringent sanctions programmes. Meanwhile, predatory government extortion of local businesses, disincentivisation of growth and the favouring of just a handful of regime cronies, such as businesspeople Samer Foz and Mohammed Hamsho, compounded economic mismanagement.

Straightening up

For the new authorities, enabling a recovery will be critical to maintaining stability. After supplies started streaming into Syria through the Bab al-Hawa border crossing with Turkiye, the increase in the diversity and affordability of some goods, including fruit and vegetables, was particularly well received among the population. The reduction of endemic corruption has also decreased the cost of certain services, including transport; previously, Assad regime officials had demanded bribes from businesses and road users.

In the financial space, the new central bank governor Maysaa Sabreen, a technocrat, has taken steps to stabilise the economy. The central bank on 14 February notably announced that it had imported new banknotes from Russia to alleviate a hard currency shortage, and it had previously unified the official and black-market exchange rates, setting the rate at 15,075 Syrian pounds for 1 US dollar on 18 December. The Syrian pound has continued to rally against the US dollar in recent weeks. Still, with a dilapidated banking sector and inadequate central bank reserves, the institution will have few avenues for promoting financial stability and economic activity.

Still, the state will be broadly focused on adopting free-market economic policymaking. Sabreen announced on 14 January that she would aim to increase the central bank's independence. Meanwhile, Shaibani said on 22 January that the state had plans to privatise state-owned ports and factories and launch public-private partnerships for infrastructure investment – in part to attract foreign investment. The new authorities also appear to be rolling out a consistent corporate taxation system informally.

The sanctions obstacle

Proposed measures to revamp the economy will largely be moot without sanctions relief. In early February, the head of the Syrian Investment Agency, Ayman Hamawiye, noted that the agency had received requests from Syrian, Turkish, and Gulf businesses – as well as some European businesses –showing interest in the construction, health, and power sectors but that sanctions on the banking sector were preventing all potential transactions. Without extensive access to international financial markets, Syria is unlikely to be able to rebuild a functioning economy.

In this respect, the EU’s decision on 24 February to lift sanctions on five state-owned banks and allow transactions with the central bank is a positive development. Similarly, on 6 January, the US introduced General License 24. Valid for six months, General License 24 allows companies to conduct transactions with the government and the central bank to facilitate the provision of power, energy, water, and sanitation and to ease the flow of personal remittances.

However, in both cases, the suspensions of sanctions are conditional on the state adopting a degree of inclusivity in governance in the coming months and are rapidly reversible. In the US’ case, exemptions under General License 24 will lapse after six months unless extended again, and the new US administration has offered no guarantees in this regard. Since the transition period will be protracted, investors will lack long-term visibility. Without a clear roadmap for an end to the US’s secondary sanctions programme, the Levantine country is likely to remain largely shunned by mainstream financial conduits.

Opportunities and risks

Although sanctions have been partially eased, engagement with Syria will be dominated by actors relatively insulated from US sanctions enforcement capabilities and players in exempted humanitarian sectors. Over the coming year, Turkish businesses and traders will likely capture most business opportunities, particularly in the reconstruction and fast-moving consumer goods sectors. Meanwhile, Gulf actors will lead on the provision of humanitarian aid and funds. Without clarity on the long-term evolution of the US’s secondary sanctions regime, Western businesses will likely prioritise limited ad-hoc trade opportunities in humanitarian sectors, particularly food and health.

Over the one-to-three-year outlook, assuming that the authorities maintain a degree of inclusivity and coordination with Western powers, sanctions regimes will likely start being more extensively and durably pared back, offering greater latitude for businesses to invest in Syria. In particular, the construction and power sectors will likely provide the most material investment opportunities, with much of the funding and insurance facilities coming from multilateral and national development banks. Opportunities in the manufacturing sector will likely be seized primarily by Turkiye, which will aim to tap the cheap labour force to support its own industry.

Even with guarantees associated with concessional funding, investment risks will remain high over the coming decades. While representing an opportunity, insufficient infrastructure will also constitute a significant bottleneck in the first years of reconstruction. Meanwhile, contract and institutional risks will stay elevated as the country remains partially fragmented and the state seeks to build new free-market state foundations, a new constitution and legal framework. For instance, many oil and gas sector opportunities will likely be difficult to access due to largely autonomous Kurdish rule in hydrocarbon-rich north-eastern Syria.

More broadly, the security environment will likely remain precarious over the coming years due to the proliferation of small arms and the expansion of organized crime through a decade of the war economy. While certain areas like the capital, Damascus, and coastal cities will likely remain largely safe for security-savvy foreign businesspeople, others will remain exposed to extensive criminal activity. Meanwhile, lingering sanctions on some regime elements and likely resumption of nepotism and corruption – likely with a strong local component – will sustain significant integrity risks.