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Stratfor.com's Global Intelligence Update - 03 November 2000 _________________________________________________ Also on Stratfor.com Russia: Curtailing President's Influence in Criminal Cases A draft law in the Duma would curtail the president's power to manipulate criminal investigations. If it passes, Putin could also lose his media war against oligarchs Gusinsky and Berezovsky. http://www.stratfor.com/CIS/commentary/0011040040.htm _________________________________________________ Summary Oil may once again flow in the pipeline connecting Iraq and Syria. The pipeline could produce up to $1 billion in revenue for the Syrian government. This would help stabilize the economy and President Bashar al-Assad's political base but dampen his government's appetite for economic reform. Analysis Syria and Iraq have agreed to re-open the petroleum pipeline between the two countries in November 2000. The Middle East Economic Survey reported the pipeline, closed since 1992, would open in the middle of the month and export about 200,000 barrels of Iraqi crude per day. The opening would be a boon to Syrian President Bashar al-Assad. Pipeline profits will help keep the Syrian economy afloat and Assad in power. The line reaches from Kirkuk, the heart of Iraq's northern oilfields, to the Syrian port of Banias. The pipeline had a capacity of over one million barrels per day (bpd), but Syria shut it down in 1982 at the start of the Iran-Iraq war and it fell into disrepair. Politically estranged for nearly two decades, Syria and Iraq have fixed the pipeline and their bilateral relations over the last few years. The biggest step was opening an Iraqi interests section in Syria in February of this year the first diplomatic ties between the two countries in 19 years. Syria won't actually export Iraqi oil. Rather, Damascus will receive about 200,000 bpd of Basra Light crude, to process in local refineries. Syria will then export an equivalent amount of Syrian Light crude. The kicker is that Syria will buy the Iraqi oil at reduced prices, but will export Syrian oil at market prices. _______________________________________________________________ For more on the Middle East, see: http://www.stratfor.com/MEAF/default.htm _____________________________________________________________ Iraq won't maximize its profits on the deal, but simply finding another export route for its oil is well worth it. U.N. sanctions forbid opening the pipeline, but the Security Council is unlikely to punish Syria. How much Syria will pay for Iraqi oil is unclear, but Baghdad has a similar arrangement with Jordan. Amman has no oil resources, and imports 94,000 bpd from Iraq at sweetheart prices averaging about $9.50 per barrel, according to the U.S. Department of Energy. Quite a discount, when current oil prices hover around $30 per barrel. A conservative estimate might put Syria's purchase price at $15 a barrel. That leaves about $15 of profit for the Syrian government per barrel of oil at current prices. This comes to nearly $1.1 billion in annual revenues, which will undoubtedly go straight into Syrian government coiffeurs. This amount is about 5 percent of Syria's gross domestic product (GDP), according to World Bank figures. President Assad is most likely to use the windfall to finance his new job creation plan, announced in early October. The five-year, billion-dollar plan is to create 440,000 jobs for unemployed youth between the ages of 18 and 24. The plan seemed ludicrous when first announced; Syria simply didn't have the money to fund it. But Damascus may have the cash when the pipeline opens. This is good news for Syria's youth and for Assad's somewhat tenuous hold on power. Syria's economy definitely needs help. GDP has plunged by more than 20 percent since 1995. The country had two years of recession caused by low oil prices and a severe drought. Growth should resume in 2000, but only at a rate of about 2.2 percent. But the population is growing fast about 4 percent a year and economists estimate Syria needs an annual growth rate of about 5 percent to make progress. __________________________________________________________________ For more on Syria, see: http://www.stratfor.com/MEAF/countries/Syria/default.htm _____________________________________________________________ Low investment, an overvalued currency, government subsidies, and a hard currency shortage have crippled the economy. Large, state- owned corporations continue to control 40 percent of the national wealth and strategic sectors of the economy, including oil, electricity and banking. The Syrian government claims the unemployment rate is 5 percent; some Western observers say the rate is four times that high. The existing economy relies primarily on oil exports, which account for 55-60 percent of export earnings and one-third of GDP, according to the U.S. Energy Information Agency. But production has declined over the last 5 years; many of the fields have reached maturity and further exploration is slow. Some predict Syria will need to import oil within a decade. The other major source of income for the Syrian government and the one that keeps it in power is the profit from drug smuggling through Syria and Syrian-controlled Lebanon. Syria cut back its drug production in the mid-1990s under heavy U.S. pressure, but Damascus still acts as a transit station for narcotics flowing to Europe from Central Asia, as well as into Egypt and North Africa, Israeli intelligence sources estimate the Syrian government rakes in about $1 billion a year, according to the Jerusalem Post. Hafez al-Assad used the money to enrich allies and buy off opponents; the younger Assad is likely to follow his lead. With oil money to keep the masses quiet and drug money to appease his potential rivals, Assad may have bought his regime a measure of stability. But that may be bad news for the Syrian economy in the long term, as the money may allow Assad to postpone difficult but desperately needed economic reforms. _______________________________________________ (c) 2000 Stratfor, Inc. _____________________________________________ SUBSCRIBE to the free, daily Global Intelligence Update. 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