Syria's economy goes from very bad to worse as Lebanon's crisis hits

Middle East Eye

Lebanon's financial woes have further hit the flow of dollars in Syrian markets, as Damascus deals with a crumbling economy

Syrians shop in the Hamidiya bazaar in the old city of Syria's capital Damascus in 2007 (Paul Cochrane)

When the United States, the European Union and the United Nations imposed sanctions on Syria in the first year of its civil war in 2011, they were intended to financially squeeze the government of Bashar al-Assad.

But Lebanon was also caught in the crosshairs, pressured to curb Syria's access to the global financial system given the longstanding banking ties between the two states.

When Syria nationalised its banks in the 1960s, it was to Lebanon that private capital fled. Banks were established there by Syrian investors, such as BLOM Bank, the country’s third largest, which is still managed by the Azhari family.
"It's pretty historical in terms of the relations between the Syrians and the Lebanese banking sector," said Jihad Yazigi, editor of the Syria Report, an economics news bulletin.

Throughout the Lebanese Civil War (1975-1990) and the Syrian occupation until 2005, it was Lebanon that acted as a foreign exchange hub for Damascus. Syria had been a closed economy, and it had been illegal to trade dollars outside of state-owned banks.

After the Syrian withdrawal following massive demonstrations in Beirut in the spring of 2005, and the liberalisation of the Syrian economy, Lebanese banks opened five affiliates in Syria.

"The dependency on Lebanon decreased as international transfers were allowed [in Syria], although Lebanon was considered safer, and had banking secrecy," said Yazigi.

Indeed, leaked US embassy cables from 2008 stated that individuals close to the Assad elite had accounts under different names in Lebanon, including sanctioned billionaire businessman and cousin of Assad, Rami Makhlouf.

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