Economic conditions in Syria have been mired by the prolonged local conflict, turmoil in neighbouring Lebanon, and now the war in Ukraine. Spiralling inflation, weaker government spending, and elevated political instability remain key impediments to a meaningful economic recovery. While violence has diminished since the peak of the conflict, a protracted war in Ukraine could disrupt the volatile status quo in Syria, potentially endangering ceasefire agreements, tilting the power balance, and complicating reconstruction and economic revival efforts.

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The effects of the war in Ukraine were felt immediately in Syria, leading to a worsening of an already grim economic situation. Syria’s economy had already all but collapsed due to war damage, large-scale displacement, poor governance, sanctions, COVID-19, and repercussions of the financial meltdown in Lebanon. Even before the war in Ukraine, 90 percent of Syria’s population lived in poverty, two-thirds were dependent on humanitarian aid, and 55 percent were food insecure. In December 2021, the UN Food and Agriculture Organisation (FAO) warned of the risk of famine against the backdrop of severe drought and a steep decline in Syria’s wheat harvest.

Furthermore, Russia announced that it would not keep its December 2021 commitment to deliver wheat to Syrian regime-controlled areas that were meant to fill the gap. Northwest Syria, controlled by opposition forces, is also likely to suffer shortages as it usually procures wheat from Ukraine and Russia, as well as Turkey, where production has been affected by drought. In addition, the World Food Programme (WFP), which largely depends on Ukrainian production, has come under strain due to supply loss, soaring food prices, and an increase in the number of people in need worldwide. Since May 2022, it has reduced food assistance to some 1.35 million people in northwestern Syria. While the Syrian regime has adopted austerity measures such as rationing, price controls, and export restrictions, it has not been successful in preventing the spiralling of food and energy prices.


The eleven-year conflict in Syria has shifted away from large-scale military hostilities along major frontlines to localised outbreaks of fighting between armed groups and government forces (see SYRIA: AFTER TEN YEARS OF WAR, FOREIGN PARTIES SEEK AN ACCEPTABLE STATUS QUO). By March 2022, it had been two years since the last major military offensive, when the Syrian regime attempted to capture Idlib Governorate from opposition forces. While the frontlines remain frozen, the status quo is fragile, with five foreign actors – Russia, Turkey, Iran, the US, and Israel – operating on different sides of the conflict, and no progress in political negotiations. Continued Russian and Syrian government shelling and airstrikes, Turkish drone attacks in northeastern Syria, suspected Iranian proxy fire on US troops in Deir ez-Zor, and ongoing local skirmishes, and Islamic State (IS) attacks are all potential flashpoints. PANGEA-RISK assesses that heightened geopolitical tensions outside of Syria – culminating in Russia’s invasion of Ukraine in February 2022 – have now exacerbated uncertainty in Syria.

Challenging economic conditions

Beyond the immediate impact of the Russia-Ukraine war, the Syrian economy suffers from the compounding effects of the pandemic, adverse weather events, regional fragility, and macroeconomic instability. Since 2020, Syria’s external economic ties have been severely restrained by the deepening economic and financial crises in neighbouring Lebanon and Turkey, as well as the introduction of new US sanctions. The market exchange rate of the Syrian pound against the US dollar weakened by 26 percent year-on-year (YoY) in 2021, following a 224 percent YoY depreciation in 2020. Given Syria’s heavy reliance on imports, currency falls quickly fed into higher domestic prices, causing high inflation. Annual inflation reached 90 percent YoY in 2021, after hitting 114 percent YoY in 2020. The war in Ukraine shocked commodity markets, pushing food and fuel prices in Syria even higher. As a net importer of food and fuel, soaring prices have been adversely affecting Syria’s external balances, inflation, and international reserves.

Food prices, proxied by the WFP minimum food basket price index, rose by 97 percent during 2021, on top of a 236 percent increase in 2020. Driven by the noticeable increase in commodity prices, government subsidies on essential food and fuel products have dramatically risen over the past years, accounting for over half of the total budgeted expenditures for 2021 and 2022. To save its budget, Syria’s government has tightened rationing, which has inevitably deteriorated the already dire living conditions of the Syrian people. WFP data show that 52 percent of households reported inadequate food consumption in February 2022, double the early 2019 share. Syria’s food insecurity has worsened further after the war in Ukraine.

A poor economic outlook

Subject to extraordinarily high uncertainty, Syria’s real GDP is expected to contract by 2.6 percent in 2022 (to USD 15.5 billion in constant 2015 prices) after declining by 2.1 percent in 2021. Private consumption will remain subdued with continued erosion of purchasing power amid rising prices and currency depreciation. Private investment is projected to remain weak as the security situation is assumed to remain volatile and economic and policy uncertainties persist. Government spending, especially capital expenditures, will continue to be constrained by low revenues and the lack of access to financing. The current account of Syria will remain firmly in deficit because of an extremely high trade deficit that will only be partially offset by net current transfer inflows. A persistent twin deficit will further drain foreign exchange reserves, putting further pressure on the domestic currency. Inflation is projected to remain elevated in the short term, due to the associated effects of currency depreciation, persistent food and fuel shortages, and reduced food and fuel rationing.


In the event of a rapid spread of more transmissible and deadly COVID-19 variants in Syria, slow vaccination rollouts and inadequate health facilities will exacerbate its impact. Owing to its heavy reliance on food and fuel imports, Syria is particularly vulnerable to the disruptions in the commodity market and trade-policy interventions triggered by the war in Ukraine. Despite the growing need, there is a risk that donors may shift some aid away from Syria and the Syrian war-affected refugees amid the global decrease in humanitarian funding, which will exacerbate the already acute food insecurity of the country. Economic stagnation and the deterioration of public services may lead to increased social unrest. However, Syria’s improved trade relations with its Arab neighbours could reduce its economic isolation. Recently, foreign investment restrictions in northwest Syria were eased, and non-governmental organisations (NGOs) were allowed to do more business in Syria. These measures may potentially facilitate trade, investment, and humanitarian operations in Syria.

Reconstruction and normalisation efforts

With President Bashar Al Assad’s regime continuing to gain strength, supported by Russia and Iran, most Arab states are expected to keep up with their efforts to approach Syria. The Arab countries have already made steps to reduce the Iranian, Russian, and Turkish influence, as well as Al Assad’s reliance on Iran and Russia for the reconstruction of the country. Al Assad has been also looking to alleviate the impact of European and US sanctions on his regime by fostering closer relations with Arab states, as well as China and India.


After reopening its embassy in Damascus in 2018, Al Assad was hosted in the United Arab Emirates (UAE) in March 2022. The move came after the UAE and Iraq called in March 2021 for Syria to return to the Arab League, from which it was suspended in November 2011. Egypt has also intensified its efforts to bring back Syria to the Arab League with a meeting between the Egyptian foreign minister and its Syrian counterpart in late September 2021, for the first time since 2011. However, also in September 2021, the US administration announced that it had no plans to normalise relations with Syria. This statement suggests that the US will not remove the sanctions mandated by the Caesar Syria Civilian Protection Act implemented in June 2020, which punishes people or companies that do business or deals with sanctioned Syrians. On the other hand, Russia is reportedly lobbying Israel to encourage the US to ease some of its sanctions. Such a move would result in a reduction of Iranian companies’ influence in the reconstruction process and allow Russian, as well as Arab companies, to take part.

There is no serious investment perspective on the horizon for now, while the estimates of reconstruction costs of Syria’s productive capacity range between USD 250 billion to USD 400 billion. Still, there is some hope emerging from the recent improvement of ties with specific Arab countries. Although there are no specific commitments attached to these improvements, the Arab countries’ willingness to reduce Iranian influence in Syria might result in financial assistance to revive its economy. However, the fact that Syria’s territory remains dismantled will be the key obstacle to any investment decision. Consequently, lands under the control of the Al Assad regime would benefit from reconstruction efforts in the first place, but operating conditions for companies will remain very difficult.

Nonetheless, the regime’s close identification with the Russian invasion of Ukraine carries risks for Syria’s normalisation efforts. The Ukraine crisis will set back this process of gradual normalisation if Russia successfully recruits Syrian fighters to fight in Ukraine. The longer the conflict in Ukraine continues, and the more of a stalemate it becomes, the more likely it is that Syrian fighters could be used in Ukraine. Given Syria’s support for Russia in the recent United Nations resolutions, Al Assad is unlikely to draw back from Russia, even given the possible impact on regional political and economic goals. However, with the Russian military now almost wholly focused on Ukraine, Al Assad will seek enhanced support from Iran, his other main military backer. This is likely to be problematic for the Syrian regime, as it will lead to an increase in Israeli air strikes against Syrian military assets, given Israel’s stark opposition to Iran, compared with its much more cordial relationship with Russia.

A volatile stalemate


The Al Assad regime continues to strive to gain control of the south of Idlib canton, the last stronghold of the Syrian rebel forces in the northwest, and of the northeast, which harbours the oil fields and is currently administered by the US-backed Syrian Democratic Forces (SDF), the main Kurdish fighting forces. Russian and US forces are present in that zone. Additionally, long strips of land along the border with Turkey are under the control of Turkish-backed forces. Meanwhile, Israel regularly launches air strikes on Iran’s positions all over the country. Israel-Iran relations have been tense ever since the killing of two Islamic Revolutionary Guard Corps (IRGC) officers in Syria in early March 2022; this has resulted in Iranian attacks on Israel-linked targets in Iraq, as well as Israeli airstrikes on Iran-linked targets in Syria.

The Russian invasion of Ukraine has further introduced a powerful new variable that has the potential for destabilisation. Opposition forces in the northwest, including groups backed by Turkey, will probably sense that they have an opportunity to take advantage of Russian weakness, whether due to the impact of sanctions on supply lines to Russian bases or as a consequence of military setbacks in Ukraine itself. Any such moves could trigger a reaction from Iran to shore up the Al Assad regime, which in turn could elicit a strong Israeli response. In this context, the fallout from the Ukraine conflict is likely to produce some level of destabilising escalation in the short to medium term – with some renewed fighting between Turkish-backed rebels and government forces in the north – while also driving an intensification of Israeli airstrikes, which carry the low likelihood of an Iranian-Israeli escalation. Given the presence of these different actors with conflicting interests, perspectives of a peace deal remain remote.


Syria’s protracted war has entered a new phase as de facto governing bodies and armed actors have consolidated and entrenched their power. However, the current status quo remains only possible as a result of foreign powers freezing the lines of control. These same foreign powers provide protection and support to de facto local authorities. Therefore, the immediate future of Syria continues to depend on the commitment of Turkey, the US, Israel, Russia, and Iran to balance power together. In the meantime, the failure to resolve the main drivers of the conflict and the further entrenchment of a war economy provokes new local tensions amid heightened geopolitical competition. As a result, economic deterioration and prolonged displacement continue to impede more sustainable stability. These endemic issues threaten to keep Syria on an uncertain and destructive trajectory for the foreseeable future. Consequently, the security situation will take a long time to stabilise, continuing to weigh on the economic conditions and business environment.

  • The Syrian regime has solidified control over most of the country, despite the ongoing civil conflict and socioeconomic crisis, and as such the probability of regime change is low over the coming 12 months. The regime has used the period of a relative lull in violence and regional balance of power to consolidate its rule. President Bashar Al Assad has stated his ambition to reimpose control over the whole of the country. However, it is doubtful whether key military ally Russia would be prepared to support a renewed campaign in Idlib, while the Ukraine war is ongoing. The regime’s inner circle continues to issue tenders and contracts, with allies and business partners at the locus of political and economic power. The US administration is likely to pursue a mix of sanctions and compromises over Al Assad’s future given no viable alternative.
  • Tensions between Syria and Israel remain extremely high. Israel has repeatedly expressed concerns over the presence of Iranian proxies in Syria and aims to prevent a build-up of Iranian-backed forces in the region. Since 2017, the Israel Defence Forces (IDF) has launched hundreds of pre-emptive strikes in Syria, targeting suspected Hezbollah and Iranian-led fighters, weapons caches, and supply convoys. The Islamic State retains no significant territory, but maintains operational reach across much of Syria, primarily conducting attacks against government forces in the country’s desert regions and improvised explosive device (IED) attacks against Kurdish security forces. Russian redeployment from Syria due to its war in Ukraine will likely enable a wider increase of the Iranian proxy presence and IS militant operations over the coming months.
  • On the economic front, we do not expect any implementation of the comprehensive economic and institutional reforms that are required to resolve the severe domestic economic and social crisis. The government is in default owing to its extremely low foreign reserves and its large current-account and budget deficits, both of which continue to weigh heavily on the credit rating. The Syrian regime has no access to international debt markets, although it receives some support from its traditional backers, Iran and Russia. Foreign direct investment inflows are negligible, which will further weaken Syria’s capacity to meet its external obligations. The large current account deficit (which reached an estimated 13.3 percent of GDP in 2021) is a major currency risk, as Syria’s reliance on foreign-currency-denominated imports, although lower than it was, weighs on the value of the pound.