Will China reenter Syria's oil market?

In 2016, reports emerged that Sinopec dispatched experts to assess the state of its oil fields, along with discussions about their future with the autonomous administration. However, these talks led nowhere.

Despite being a significant political backer of the Syrian regime in the UN Security Council, China's economic engagement in the embattled nation has been timid.

Over time, several Chinese enterprises have expressed a strong interest in investing in Syria. However, these endeavours have yielded no tangible results due to the unfavourable economic conditions prevailing in the country.

Chinese motivations

Contrary to assumptions, Sinopec's recent move to appoint new management for its assets in Syria is not a response to improved conditions within the country. Instead, it seems motivated by China's proactive attempt to thwart other oil companies from gaining a competitive edge in the Syrian market.

These companies are strategically preparing for a controlled reentry into the market, and Sinopec's action likely aims to secure its position within this evolving landscape.

Among these players, the UK-based Gulfsands Petroleum, boasting significant assets in northeast Syria, is the most proactive. The company has spearheaded an initiative to expedite the resumption of operations in Syria, aiming to funnel oil sale revenues into a range of UN-led projects across the nation.

However, this initiative hit a roadblock, failing to rally key local, regional, and international stakeholders to support its cause. While Sinopec arguably wields more influence than Gulfsands, it remains uncertain if this will be sufficient to break through the obstacles that lie ahead.

Amid the maze of sanctions encircling the Syrian regime, the prospect of oil-related investments in the nation has become labyrinthine.

A penchant for risk-taking

Yet, Chinese enterprises display a distinct penchant for risk-taking, a trait glaringly evident in the robust flow of oil coursing from Iran to China despite the formidable sanctions that shroud Tehran. Beyond the financial gains, China's audacious defiance of sanctions functions as a potent stroke in burnishing its image as a global powerhouse.

While sanctions against the Syrian regime certainly loom as a factor, they are not the principal hurdle impeding China's resurgence in Syrian oil endeavours.

A notable incident unfolded in 2019 when the United States cautioned businesses against participating in an annual trade fair in Damascus, stressing that involvement could expose them to the grim prospect of US sanctions.

Feng Biao, China's envoy in Damascus, remained undeterred by US warnings, asserting that the threats of imposing sanctions on Chinese companies would not dissuade them from participating in the Damascus fair.

Striking the right balance

However, the risk calculus must align with potential reward, an equilibrium not convincingly struck in Syria yet. Consequently, Sinopec finds itself obliged to strike a concord with the Syrian regime and the autonomous administration.

While similar efforts failed in 2016, much has changed since then. Chief among them is the deteriorating economic situation across Syria, which, paradoxically, creates incentives for all parties. Syria needs investment, and China needs oil.

Still, two thorny issues require negotiating.

The first is finding an arrangement that would allow the autonomous administration to keep generating revenue from the respective oilfields, to say the least. The second is securing buy-in from international actors, particularly the US, which has boots on the ground. Given the current state of Sino-US relations, this seems unlikely.

China may be willing to proceed anyway.

Reaching an agreement would not only bolster Sinopec's earnings but would facilitate the return for other Chinese companies. Moreover, it could serve as a catalyst to entice other Chinese businesses to explore opportunities within Syria's borders.

While the allure of re-engaging in Syria's oil sector is obvious, the path forward for Sinopec, and other Chinese investments, is rocky.

The appointment of a new manager for its assets in Syria suggests that, at the very least, China is interested in keeping its options open. But with so much up in the air, Beijing — even after al-Assad's official visit — may still find itself compelled to exercise patience until circumstances align more favourably.