1977 - When Sadat went to Israel

LONDON: Like a relic from another era, its promise long faded, the Syrian pound still lingers in the wallets of shopkeepers and shoppers in Damascus. Yet, green shoots of hope are sprouting across the war-weary nation.

That rekindled sense of optimism owes much to US President Donald Trump’s pledge to ease sanctions and signs of regional support for Syria’s economic recovery.

A major boost came on May 31, when Saudi Arabia and Qatar announced they would jointly fund salary support for Syrian state employees, many of whom have struggled for years on paltry and irregular wages.

The pledge builds on earlier Gulf efforts to stabilize Syria’s economy and signals a deeper commitment to reconstruction. On May 12, Saudi Arabia and Qatar settled Syria’s $15.5 million in arrears to the World Bank’s International Development Association — a key step that reopened access to loans and grants.

The international backing comes at a crucial moment. After 14 years of war and isolation, Syria’s economy has nearly collapsed. Exports have dried up, foreign reserves have fallen to just $200 million, the currency has lost 99 percent of its value, and more than 90 percent of Syrians live below the poverty line.

Trump’s March 13 announcement in Riyadh sparked spontaneous celebrations in the capital’s streets. But even amid the jubilation, many Syrians recognized that true recovery would take more than a policy shift — and much longer to materialize.

“Partial sanctions relief sends a political signal, not a legal guarantee,” Harout Ekmanian, public international lawyer at Foley Hoag LLP in New York, told Arab News.

“Investors remain cautious, and there is a risk of overcompliance with any remaining sanctions that are in place, particularly in sensitive sectors like banking,” he said.

He added that the need for “a complete lifting of the tangled web of sanctions to facilitate investment from compliance sensitive investors from the US and Europe” cannot be overstated.

Delaney Simon, a senior analyst with the International Crisis Group’s US program, concurred. “If Trump is actually planning to lift all or even most sanctions on Syria, he is doing something virtually unprecedented in the recent history of sanctions relief,” he told Arab News.

He cautions, though, that “lifting sanctions is not straightforward.”

“It will require a massive bureaucratic and possibly political lift in Washington, including mobilization of different arms of the US government including the Treasury, State and Commerce departments and Congress,” Simon said.

Even with formal relief, private firms may be slow to re-engage. “Relief on paper might not translate to relief in practice,” he said. “The private sector may be wary of engaging with Syria once the restrictions are lifted.”

Despite those concerns, Simon urges patience. “President Trump has a tough road ahead to make good on this commitment, but he should persevere,” he said. “He is right that lifting sanctions gives Syria a chance at greatness.”

For now, such an outcome remains uncertain. The most severe Western sanctions were imposed in 2011 by the US, EU, UK, and others in response to the Assad regime’s crackdown on protesters.

Following the ousting of Bashar Assad in December, the new interim government, led by President Ahmad Al-Sharaa, inherited a damaged economy and the sanctions that helped undermine it.

Washington’s measures were among the most sweeping: a near-total trade embargo, asset freezes, and secondary sanctions targeting foreign firms doing business with Syria. The Caesar Act of 2020 imposed additional restrictions, further isolating Assad’s regime.

Signs of change came on May 23, when the US Treasury’s Office of Foreign Assets Control issued General License 25, lifting most of those restrictions. The relief, however, comes with conditions: political reform, respect for human rights, and counterterrorism commitments from Damascus.

Soon after, the EU and UK followed suit, underscoring a broader Western alignment with the Al-Sharaa government. Still, experts say sanctions relief alone will not revive an economy ravaged by years of conflict.

A key next step is rejoining the SWIFT financial network. Bankers in Damascus expect the connection to be restored within weeks, enabling smoother international transactions and potentially unlocking billions in remittances from Syrians abroad.

Nevertheless, global banks remain cautious, awaiting clearer legal guidance from Western governments. “Syria’s financial system is a black box that nobody understands,” Stephen Fallon, a banking and sanctions expert, told The Economist newsmagazine. “If I run a Western bank and I accidentally receive funds from terrorists, it’s me the American regulators will come after.”

Foley Hoag’s Ekmanian sees potential short-term gains but says they depend on legal clarity. “Sanctions relief can act as a pressure valve by easing immediate economic distress, but without legal clarity on asset recovery and investor protections, quick wins may remain elusive,” he said.

Access to frozen reserves could help stabilize liquidity. But long-term recovery, he added, depends on structural reform and investor confidence — both difficult to achieve.

Syria’s central bank holds just $200 million in foreign exchange reserves, Reuters news agency reported — a steep decline from the $18.5 billion the International Monetary Fund estimated before the war. It also retains nearly 26 tonnes of gold, currently valued at over $2.6 billion.

The interim government hopes to unlock up to $400 million in frozen overseas assets to fund reforms, including recent salary hikes for public workers. But the actual value, location, and timeline for repatriation remain unclear.

Switzerland has identified $118 million in local banks, according to Reuters, while The Syria Report estimates another $217 million is in the UK.

Ekmanian emphasized that even modest gains “hinge on the credibility of the sanctions relief architecture.” He noted that “if businesses fear snapback sanctions or regulatory ambiguity, even the thawing of restrictions won’t translate into meaningful economic movement.”

Predictability, he said, underpins international investment. “International investment law tells us that predictability is key,” he said.

“While sanctions relief can unlock trade routes and aid, without legal assurances and investment protection commitments, Syria risks a piecemeal recovery vulnerable to geopolitical shifts.”

Beyond legal guarantees, Syria must overhaul its domestic institutions. “Legal frameworks must catch up with policy signals,” Ekmanian said.

“Re-engagement with Syria under international economic law requires more than opening bank accounts,” he explained. “It demands credible reforms to the domestic legal framework, judiciary, arbitration frameworks, debt transparency, and governance of sovereign assets.”

He also warned of legal risks that could deter investors: a growing docket of war-related tort and atrocity litigation in European and US courts under universal jurisdiction and terrorism exceptions to sovereign immunity.

“Even with various US sanctions and EU Council Regulation 36/2012 partially relaxed, this needs to be accompanied by steps to ensure that the new government and Syrian people are not unduly burdened by the prior regime’s liabilities,” he said.

Ultimately, he said, “modest sanctions relief can ease humanitarian transactions and marginally bolster foreign-exchange buffers, but it cannot deliver a durable uplift in trade, investment or debt restructuring without parallel movement on governance, transparency, and human-rights benchmarks that anchor international economic law.”

Syria’s external debt is another major obstacle, estimated by the new government to be between $20 billion and $23 billion — high relative to its 2023 GDP of about $17.5 billion. Much of it was accrued under Assad through military and oil-related loans from allies such as Iran and Russia, complicating restructuring efforts.

Despite these hurdles, some see progress. “US sanctions relief will be a major step not only towards economic recovery, but also towards ending the cycles of violence that have trapped Syria for over a decade,” said Nanar Hawach, a senior Syria analyst at the International Crisis Group.

He argued that economic collapse has contributed to insecurity by weakening services, deepening grievances and driving recruitment into armed groups. “Lifting sanctions could help reverse that dynamic,” he told Arab News.

Syria’s post-Assad transition remains unsettled. Renewed violence has erupted in several areas, including rural Damascus, Homs, and the Alawite-dominated coast, now largely controlled by HTS, the group that led the offensive to oust Assad.

The group has since absorbed rival factions, some still having Daesh-aligned extremists in their ranks. Elsewhere, sectarian clashes have hit Homs and rural Damascus, while the interim government struggles to contain unrest among Druze in the south and Kurds in the northeast.

Still, the psychological effect of sanctions relief may prove powerful. “The most immediate benefit is psychological: a clear boost in investor confidence,” Hawach said.

“Even when sanctions were partially eased in the past, most banks and companies, especially international ones, avoided Syria out of fear of getting blacklisted,” he said. “Simply put, the word ‘Syria’ was enough to trigger overcompliance,” but a shift is noticeable now.

He noted that some regional investors are already engaging with Syria. “Some have already taken the decision to invest and are now looking into the technical aspects of it,” he said. “There’s a lot of momentum. It’s looking very promising.”

Since May 13, several regional investors have announced major projects. On May 29, Syria signed a strategic agreement with a consortium led by Qatar’s UCC Holding to build four gas power plants and a 1,000-megawatt solar facility — a $7 billion investment expected to meet over half the country’s electricity needs.

In another sign of momentum, DP World, the Dubai-based ports operator, signed an $800 million agreement to develop and expand the port of Tartus — the largest foreign investment in Syria since sanctions relief began.

Diaspora entrepreneurs are also stepping in. Mohamed Ghazal, managing director of Startup Syria, a community-led initiative supporting Syrian entrepreneurs, says Syrian startup founders are targeting key sectors for recovery: infrastructure, public services, agriculture, digital services, and food security.

“These sectors can generate jobs quickly, particularly in construction, agriculture, and tech,” Ghazal told Arab News. He also cited healthcare, education, and fintech as areas for investment, especially given Syria’s push to reconnect with global financial systems.

“Vocational training, online learning, digital health services — these are where youth and diaspora professionals can really contribute,” he said.

As Syria begins its journey back into the international community, the road ahead is still rocky and the challenges daunting. Yet, for the first time in years, the nation appears to be moving toward a new era — one shaped not by conflict and sanctions, but by constructive diplomacy, reform and cautious optimism.