IN A SNAKING line to use some cashpoint machines in central Damascus, patience has worn thin. Two men who have been queuing for hours in the winter chill for the chance to withdraw a maximum of $30 come to blows. “I haven’t had cash to feed my boys for two days,” shouts one. Three months after Syria’s 14-year-old civil war ended, and as the holy month of Ramadan begins, euphoria is being replaced by anger at the continuing atrophying of the economy and at the apparent inability of the new government to reverse it.

During the war Syria’s economy shrank by 85%. Exports slumped from $18bn a year before the war to $1.8bn in 2021. Foreign-exchange reserves hit $18.5bn in 2010, but only $200m remain—not enough to cover a month of imports. The Syrian lira has plunged from 50 to the dollar to almost 11,000. Typical wages are not nearly enough to cover even basic living expenses (see chart). More than 90% of Syrians live below the poverty line.

The main cause of this misery is the war, which devastated the country’s industry and infrastructure, and killed and displaced many of its people. But the web of Western sanctions imposed on Syria to punish its dictator, Bashar al-Assad, for his grotesque abuses of human rights contributed to the collapse. And whereas the war is now over and Mr Assad overthrown, the sanctions are still in place.

The sanctions take several forms. Some target vital industries, such as energy, banking and telecommunications, as well as critical institutions, including the central bank. Another batch outlaws the provision of “material support” to Hayat Tahrir al-Sham (HTS), the former rebel group that now runs Syria’s interim government.

America’s unilateral sanctions are the most severe. They bar all dealings between American and Syrian entities, as well as all use of the dollar in transactions involving Syria. It is not just Americans who are constrained: foreign firms and individuals also face severe penalties in America if they do business with Syria back home. These “secondary” sanctions make it virtually impossible, for instance, for any big foreign bank to facilitate payments to Syria.

Although there is in theory an exemption for humanitarian aid, financial institutions are worried about how they would prove that payments are eligible. By the same token, though some American sanctions were suspended in January for six months, others remain in place. The EU, too, has suspended some but not all of its restrictions on trade and investment. Most financiers have no wish to navigate such a complicated and potentially risky system.

Lifelines severed

The Assad regime survived this suffocating embargo for so long for two reasons. First, it befriended other pariahs, including Iran and Russia, which helped prop it up, not only militarily but also economically. Second, it turned Syria into a narco-state. By the early 2020s it had become the world’s biggest producer of captagon, an amphetamine-like narcotic, which brought in perhaps $6bn a year. Most of this income stayed abroad and was used to pay for the regime’s imports.

Neither of these survival mechanisms is still functioning. Syria’s new leader, Ahmed al-Sharaa, is keen to be seen as legitimate. He has cracked down on captagon production. He also is no friend to Iran and Russia, whose forces pummelled HTS during the civil war.

Instead, Mr Sharaa has tried to liberalise the economy, in the hope of stimulating growth. He has simplified customs fees and lifted a ban on foreign currency. He is also radically reforming the bureaucracy, sacking lots of civil servants and promising to raise sharply the salaries of those who remain. He hopes to attract foreign investment to resuscitate Syria’s energy industry and rebuild its infrastructure. But without relief from sanctions, all these efforts will be in vain.

The queues at Damascus’s cash machines are an indication of how sick the economy is and how harmful sanctions are. Syria is suffering from a severe shortage of banknotes. In an economy that runs overwhelmingly on cash, that is akin to cardiac arrest. Companies cannot pay wages. Families cannot buy basic goods. Cars imported to Syria after Mr Assad fell are gathering dust, a trader notes, since no one is able to pull together enough cash to pay for them. Both firms and individuals may have money in their bank accounts, but the banks do not have enough notes to pay it out. Instead, the central bank has instructed them to limit withdrawals.

The shortage of cash is so severe that the value of Syria’s pound is rising against the dollar, despite all Syria’s economic woes. The prices of everyday goods are falling, partly because importing them is now easier but perhaps also because there is ever less cash with which to buy them. The government has not provided any clear explanation of what is happening. Some suspect that allowing Syrians to own foreign currency, and the proliferation of money-changing operations that followed, has sucked lots of cash out of the banking system. Others point to the suspension of most electronic transfers as prompting greater recourse to cash.

Press call

The obvious solution would be for the central bank to release more banknotes. Syria used to have its money printed in Austria, before sanctions forced it to turn to Russia. In February Syria received a planeload of currency under an Assad-era contract. Russia could presumably print more, but Russia and the new regime are not on good terms. Western firms, meanwhile, would be worried about breaching sanctions. The cash drought may last some time.

Anyway, the government may be unable to pay to have more money printed, since it is broke. Even before the 400% pay-rise Mr Sharaa has promised civil servants, public-sector wages already accounted for around a third of state expenditure. As it is, the government is in arrears on wages and pensions, even before higher payments begin. Efforts to weed out phantom workers and claimants are unlikely to yield big enough savings to solve the problem. The new regime has also cut subsidies for bread, raising the price of the main staple eight-fold and further impoverishing ordinary Syrians.

Electricity is another problem. The power is on in most neighbourhoods for only an hour or two a day. Syria’s generating capacity has dropped from nine gigawatts in 2010 to less than two today. The power plants that are still functioning run on natural gas, which Syria produces, but not in sufficient quantities. Its output has fallen to 2bn-3bn cubic metres a year, around a third of the level of 2010 and half of what it needs to keep the remaining power plants running at full tilt.

It is not clear the government can pay for foreign gas, or alternatives such as oil or electricity imported directly from neighbouring Jordan or Turkey. Iran used to provide Syria with 70,000 barrels a day (b/d) of oil—half of its needs. That tap has been turned off. When the new government issued a public tender for roughly two months’ supply in January it got no offers. Prospective bidders worried both about complying with sanctions and about the government’s creditworthiness.

Syria used to produce enough oil both for its own needs and for lucrative exports. Oil revenue used to account for 30% of the state budget. But output has collapsed from 400,000 b/d before the war to perhaps 50,000 now. Many of the wells still in operation are in the north-east, in areas controlled by a Kurdish militia. John Bell of Gulfsands, a Western firm which produced 24,000 b/d in Syria when the war erupted, says that, with enough foreign investment and expertise, output could rebound to 150,000 b/d in a year and 500,000 b/d in four years. But sanctions are preventing foreign firms from returning.

Fuel shortages further hobble the economy. Agricultural exports used to be Syria’s second-biggest earner of hard currency, after oil. Government wheat stores were enough to feed the country for two years. Syrian lamb, cotton and cumin were prized. Irrigation has largely stopped, however, for lack of fuel. The manufacture of fertiliser has also plunged, along with output of natural gas, the main ingredient. Harvests have withered.

A surge in humanitarian aid would provide a reprieve from these problems. Yet sanctions make that difficult, too. In late February Qatar said it was thinking of transferring $120m a month to the central bank, but has so far held back for fear of breaking the rules. Saudi help, also mooted, has likewise failed to materialise.

In the long run, Syria needs vast foreign investment for reconstruction. Perhaps a third of homes, roughly half of schools and hospitals have been destroyed or damaged. The government hopes the diaspora will pour money into the country. Turkish firms are eyeing up contracts. Yet a big influx of capital from abroad is impossible while the sanctions remain in place. Syria is a low priority for America’s new administration. It is not clear what Mr Sharaa can do to get its attention.