From socialism to drug hub: The evolution of Syria's economy

The Syrian Army’s Fourth Division partners with an unlikely cast of characters to smuggle pills across borders while security men in Damascus raid currency exchanges. How did it come to this?

AFP

A painting of Syrian President Bashar al-Assad and his father, Hafez al-Assad, at an art gallery in Damascus, July 3, 2017.

From socialism to drug hub: The evolution of Syria's economy

Mohamed abi Samra

last update on 03 Jul 2024

Syria and Lebanon have long been intertwined, not least in their leaders’ rhetoric. The late Syrian president Hafez al-Assad is reported to have once said they were “one country and one people in two states.” Certainly, their border has become blurred over time. In recent years, both states have suffered the pain of long civil wars. These days, there is a great deal of overlap between the two neighbours.

Not all of their many shared interests are healthy. Some are decidedly unhealthy. Captagon—specifically its manufacture and distribution—falls into the latter category. A stimulant, Captagon is an addictive fenethylline compound that produces a sense of euphoric intensity in users, allowing them to stay awake for long periods. It is popular in the Middle East and known to be favoured by some jihadist fighters.

Years of war have reshaped Lebanon and Syria's economies, lowering living standards and career prospects. Forced to look elsewhere for income, the two countries are now central players in the Captagon trade. Its impact on society and government has been stark, although the process dates back further than many appreciate. This is the story.

Civil war economies

In many ways, both Syria and Lebanon no longer function as states. Their border is hazy at best, which opens the door to armed groups and insecurity. In Lebanon, Hezbollah controls most cross-border operations. This has been a long-term project.

For a generation, the Shiite party-cum-militia has undermined the cultural, political, and economic foundations of the Lebanese state. It succeeded. The state today resembles more of a hollowed-out shell. In Syria, similar operations are managed with Hezbollah by pro-regime organisations and forces from the Syrian army and security apparatus.

Syria and Lebanon are fragmented and fractured. Power is held by sectarian militant groups of varying loyalties. This has produced a series of interlinked 'civil war economies'. In effect, their economies equate to politically-controlled black markets.

Nash Weerasekera — Armed groups, both pro and non-regime, pose myriad threats to the fundamental functions of the Syrian state.

While Hezbollah dominates Lebanon, Syrian authorities vary according to region—fertile ground for an illegal drug trade. The cash this generates helps finance arms and militancy, while the smuggling networks can be used for other goods.

Porous borders are proving a boon. Evading Western sanctions on Syria and Hezbollah is proving easy. Those with weapons are even stepping back from the unprofitable business of providing basic governance to citizens. This is letting international humanitarian aid organisations fill in the gaps as they try to contain the refugee flow towards Europe.

Diaspora cash

Those who have escaped often send money home in the form of remittances. Money from abroad can make all the difference to family members who stay to face criminality, looting, and poverty. Some analysts trace the current situation to 2005, when the Syrian army withdrew from Lebanon after the assassination of the popular former prime minister, Rafic Hariri. This changed the political balance in the country, allowing Hezbollah to dominate.

Syrian economic expert Jihad Yazigi said the policy of economic openness adopted by Bashar al-Assad, who assumed the Syrian presidency in 2000, significantly weakened smuggling operations between Syria and Lebanon.

Since the early 1990s, Syria's political and security control over Lebanon provided financial returns that partially covered Syria's economic deficit and mostly enriched the two states' military, security, and political elites. This ended in 2005. Two months after Syrian troops withdrew, Syria's Ba'ath Party leaders decided to adopt what they called a "social market economy". Ostensibly, this was to adjust to lost income. In fact, the actual goal of the change was to replace it.

President Hafez al-Assad had already initiated partial economic openness in the mid-1980s to address his regime's crises caused by the dilemmas faced by single-party socialist systems. The depreciation of the Syrian and Lebanese currencies due to the Israeli invasion of Lebanon and the retreat of the Syrian Army to the Bekaa Valley added to the problems. This sparked a political and economic crisis in Syria in the early 1980s.

Ravaged by war and forced to look elsewhere for income, Syria and Lebanon are now key players in the drug trade.

The era of al-Assad

The partial economic openness approved by Law No. 10 in Syria in 1991 was little more than ink on paper because the significant oil reserves found in Deir ez-Zor in 1987 had been producing around 600,000 barrels of oil per day since 1996, which covered much of Syria's healthcare and education budgets. However, oil production soon began to decline.

The economy, in turn, began to stagnate, Syria's population boomed, agricultural yields decreased, extreme poverty rose (especially in rural areas), and young Syrians migrated to the cities, notably Damascus, where hundreds of thousands settled in miserable conditions. This came to a head shortly before Hafez died in 2000 when he began to talk about establishing a new and effective banking sector in Syria, but internal social or economic issues were new territory for him, such was his grandiose and delusional view that Syria played a significant role in regional and international politics.

In the early 1980s, his regime faced another economic crisis, precipitated by conflict with the Muslim Brotherhood and Israel's expulsion of the Syrian army from Beirut to the Bekaa Valley in 1982. To get through that crisis, al-Assad had allowed his main military, intelligence, and commercial allies to invest in the private sector under contracts granted by the regime in exchange for a share of the profits.

Four prominent businessmen (three Sunni, one Shiite) acted as the regime's liaison with Iran. A fifth (an Alawite and Assad's relative by marriage) became a billionaire, taking a cut on most serious business deals facilitated by his family and security connections.

Enter Bashar

After Bashar al-Assad assumed the presidency, the formula broke down. The change in presidency signalled a generational change, too. This was the era of globalisation, the internet, and modern communication. His father's security and military team and Ba'ath Party leaders were getting old. They had taken power in the 1970s and used it to accumulate wealth via the state ever since.

The crisis Bashar inherited was partly due to the dilapidated, oversized, and outdated bureaucratic state apparatus that could no longer pay state officials as it once did, so he looked to the private sector for a way out. Early into his presidency, he talked about openness and investment in new sectors. From 2000-05, a young generation of Syrians pinned their hopes on these reforms.

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Just as Hafez relied on oil and a formula of state contract to enrich allies, Bashar relied on the private sector and a new generation within the state elite. He began by expanding the private banking sector with the help of Lebanese banks, some of which opened branches in Damascus. He then grew other Syrian industries, including telecoms, media, tourism, and hospitality.

Typical investors were the children of Syria's security and army chiefs, but while Sunnis were involved, the major players in these sectors were Alawites. Some Sunni traders felt left out. They later supported protests against the regime in 2011.

In 2007, two holding companies were established in Syria for new private-sector investments, primarily in telecoms. Cham Holding, with about 70 businessmen, was led by a president's relative who owned 51% of its shares alone. The expansion of businesses in the new private sector, dominated by two main magnates connected to the regime, led to the emergence of a young urban generation from the newly formed middle class.

In the cities, restaurants and nightlife flourished as young men and women mingled amid a newfound wealth. They earned high salaries by Syrian standards and benefitted from skyrocketing real estate prices in Damascus. People bought cars on installment plans and travelled abroad. Thanks to the country's newly enabled TV production industry, the life of Bashar's new business elite was even portrayed in Syrian TV programmes.

Yet, to many Syrians, this life was alien. In traditional Syria, families found putting food on the table harder and harder. Huge camps for impoverished migrants were centres of discontent. The 2011 uprising was fuelled by this extreme poverty, as two different versions of Syria existed in parallel.

But Syria's new business elites were vulnerable to Western sanctions, which duly arrived after the outbreak of civil war. This meant they could no longer fund the regime or their lifestyles. With the economy transformed by war, business elites were replaced by armed groups able to control territory during conflict, as Syrian state infrastructure collapsed. In Syria's northeast, the oil came under the control of Kurds, who made millions smuggling it out.

Based on drug seizure data worldwide, the annual value of Captagon originating in Syria is estimated at $5.6bn from 2020-23.

The Captagon army

In Damascus, groups that could provide some form of security became important. Stability and the rule of law were now just memories. This was a time for the dealmakers, adept at working the grey area between legality and illegality. Amidst the chaos and splintering, just two remnants of the Syrian order remained standing: the Syrian army's Fourth Division and another power centre more closely linked to the presidential palace.

The smuggling trade in Captagon is largely controlled by the Fourth Division and its economic office since it controls the borders with Jordan and Lebanon (not with Iraq). This is no small operation. The quantities involved are significant. In June, for instance, Jordanian forces seized 9.5 million Captagon pills and 143kg of hashish hidden in bulldozers entering Jordan from southern Syria.

According to a 2023 report from the World Bank, "Captagon may have become the most valuable sector in the Syrian economy". Syria has become "a major producer and exporter of Captagon," it said. "Based on drug seizure data worldwide, the annual value of Captagon originating in Syria is estimated at $5.6bn from 2020-23."

It further added that "Syrian regime actors and their affiliates, such as Hezbollah in Lebanon, benefit from $1.8bn annually from Captagon sales, which is nearly twice the revenues from all legitimate Syrian exports in 2023".

On Lebanon's border with Syria, Hezbollah partners with the Fourth Division in smuggling operations of all kinds. Smuggling on Syria's northern border, the Division partners Hay'at Tahrir Al-Sham (Organisation for the Liberation of the Levant). The Kurdish Syrian Democratic Forces (SDF) is the partner on Syria's north-eastern border. On the Iraqi border, the Fourth Division works with the Iraqi Popular Mobilisation Forces and Iran's Revolutionary Guards.

This picture taken on July 27, 2022, shows a view of sacks of confiscated captagon pills at the judicial police headquarters in the town of Kafarshima, south of Lebanon's capital, Beirut.

Deteriorating economy

In 2023, Syria's gross domestic product (GDP) dropped to $6.2bn and was expected to fall by a further 1.5% in 2024. Oil production was down 5.5%. Gone are the days when Syria exported food and oil. Today, it is a net importer of both.

With little money, government subsidies for essential goods continue to decline. Fuel, food, and basic medicines are often difficult to obtain and are too costly to afford. Inflation was at 93% in 2023, as the Syrian pound hit a new historic low. It is no surprise, then, that displacement and migration remain high.

Israel's war on Gaza directed international humanitarian aid to the Strip, reducing aid to Syrians. This worsened malnutrition, poverty, and disease in Syria. Furthermore, Israeli air strikes on Syria's main airports reduced the number of flights by 42% in the last quarter of 2023. This year, even more, have stayed away.

A report by academic researcher Qassem Al-Basri, published by Al-Jumhuriya in May, noted that raids by the regime's security forces on currency exchange markets in Damascus and elsewhere had intensified. These raids aimed to confiscate the money of people exchanging financial assistance received from abroad, stripping traders of their capital.

This erodes any remaining confidence in the state's ability to uphold basic norms and ensure the rule of law. The government's men now look like just another militia—a band of thieves as would have been seen during the last period of Mamluk rule, who would raid, loot, and plunder city markets.

Syria's two dominant economic power bases—the Army's Fourth Division and the presidential palace—now operate along similar lines. Both stay in the shadows, nibbling at the carcass of the state while millions suffer a form of internal colonialism. There is nothing stimulating or euphoric about that.

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