With a struggling economy in the painful throes of economic liberalization, diminishing oil reserves, and a rapidly growing population pushing up the unemployment rates, Syria is in need of economic props – and trade and investment in Iraq could be a major one of them.
Iraq is already an important trade partner – the primary destination for Syrian exports, according to 2008 figures from the European Union – but historically tense relations between Damascus and Baghdad have capped the exchange below its potential.
Syrian-Iraqi trade reached $800 million in 2009, but that is still lower than trade prior to the 2003 invasion of Iraq, according to Syrian officials.
“There have been real missed opportunities,” says Peter Harling, the Damascus-based analyst for the International Crisis Group. “It is absurd that economic relations between Syria and Iraq aren’t better, because the potential is huge for both countries. It would also increase Syrian buy-in to stability in Iraq.”
Syria: Iraq's gateway to Europe?
If Baghdad’s new regime is willing to turn the page, Syria is interested in acting as a gateway between Iraq and Europe as reconstruction efforts gather pace. A train line between Iraq and Turkey via Syria, which opened in February this year, was seen as a boost to the trade potential.
Oil, too, is piquing Syria’s interest – both Iraqi oil imports for domestic use and opportunities to process oil-based products. Better relations are likely to lead to the reopening of the Kirkuk-Banias oil pipeline between Iraq and Syria (shut since 2003), the construction of a second pipeline, and the use of a Syrian refinery in the eastern city of Deir Ezzor for processing Iraqi oil to send back to Iraq.
Syrian industrialists are as eager as the authorities for better economic relations with Iraq. Many have been hit hard by the opening up of Syria's market, finding they are unable to compete with Chinese and Turkish goods.
It may not solve the economic situation in Syria in the long-term, but Iraq is regarded as a market still open to accepting Syrian products. Nizar Nassab Kabbani, the vice-president of the Damascus Chamber of Commerce, says the market in Iraq for Syrian goods is crucial.
“We will export a lot more to Iraq if it becomes stable domestically and relations with Syria improve,” he said.
Efforts to boost trade derailed over 2009 bombings
Attempts last year to boost trade were thwarted by soured relations following bombings in Baghdad in August 2009 – attacks which the Iraqi government blamed on Syrian-harbored Baathists.
Earlier in 2009 the two countries had signed trade agreements with the aim of increasing bilateral trade to $2 billion by 2011 and discussed the establishment of oil pipelines and free-trade zones. Syrian companies were invited to work on reconstruction in Iraq.
Investment in Syria’s eastern region close to the Iraqi border is under way, with businesses offered tax advantages to locating there with the aim of transforming Deir Ezzor into a strategic hub and enticing Iraq to avail itself of services over the border.
“Syria is on the starting blocks and ready to go,” says Mr. Harling.