Syria’s new rulers to audit Iran loan spending for illegalities

While financial obligations outlive regimes, Damascus may be able to show that some of the $7.6bn in loans from Tehran was spent repressing the Syrian people—and that Iran knew about it

Aaref Watad / AFP

A container crane at the port of Latakia in western Syria on 30 December 2024.

Syria’s new rulers to audit Iran loan spending for illegalities

Joseph Daher

last update on 31 Dec 2024

Following the overthrow of the Bashar al-Assad in Syria, talk has turned to the country’s relations with Iran, once a keen ally that supported Damascus militarily, diplomatically, and financially.

Tehran’s loans, which helped the regime retain power, remain outstanding. As Syrians look to rebuild, many now wonder whether the new government will have to repay the debt, or whether there are grounds to cancel it in whole or in part.

A crucial question may be whether—and how—some of the money can be identified as having been spent illegally, and if so, whether this was done with the knowledge of creditors.

Propping up Assad

Trade between Iran and Syria was relatively weak before the 2011 Syrian uprising, around $300m in 2010, but the bedrock of their relationship was not economic. As Assad sought help to put down the Syrian rebellion, Iran issued four major loans to Damascus from 2013-17, totalling $7.6bn.

This credit line had the effect of propping up Syria’s official reserves and allowed Damascus to buy imports of oil, food, and other essential items needed to sustain Syrian industry. It also let Assad buy military hardware and ammunition, and pay the salaries of his soldiers and security services.

Today, the more significant use of these funds could be anything that supported Syria’s currency, the exact amounts of which are still disputed.

After the uprising, Assad lost control of some of Syria’s most productive oil fields in the north-east, so oil imports averaged between 50,000-70,000 barrels per day (bpd) from 2011. From 2013-18, oil shipments were worth $10.3bn.

Trade between Syria and oil-rich Iran topped $1bn in 2014. In April 2016, a preferential trade agreement came into force, cutting customs duties on all bilaterally traded goods to 4%. It was hugely one-sided though, with Iranian exports making up around 95% of the total $1bn volume.

The suggestion of large Iranian land purchases in Syria during this period are still somewhat mysterious beyond the reported purchases of tracts in the Sayyida Zeinab suburb of Damascus, which is home to a Shiite shrine.

All talk, no contracts

The Syrian Iranian Joint Chamber of Commerce, which sponsors trade agreements between Iran and the Syrian government, was founded in January 2019. In October 2020, its first Iranian trade centre was opened in the capital Damascus. A month later, the two countries agreed barter goods between them.

In May 2023, during a visit from then Iranian President Ebrahim Raisi to Damascus, representatives signed trade agreements and MoUs (Memorandum of Understanding) in sectors such as oil, agriculture, rail, and free trade zones.

The question is whether—and how—some of the money was spent illegally, and if so, whether this was done with the knowledge of creditors

Most were not implemented, however, and neither the Iranian state nor Iranian private companies were awarded big Syrian contracts, despite Tehran's huge show of support in the form of the four big loans.

Iranian companies had hoped to win a mobile phone license, the concession to manage the container terminal at Latakia, and shares in Syria's phosphate mines, but in all these, they were disappointed, leaving Tehran frustrated that its geopolitical and military and financial support did not translate economically.

Most of the contracts won by Tehran were linked to its credit line, such as the deal awarded to MAPNA Group to build a $460m power plant in Latakia, or to repair another one in Aleppo for $130m.

In November 2024, the Iranian parliament ratified the free trade agreements with Syria, in what turned out to be the dying days of Assad's regime, but by then trade had already slowed and some Iranian investments had hit problems.

A deal for a SIVECO car assembly plant was pulled, and Damascus lifted an import ban that had helped protect an Iranian-funded glass factory in the capital.

Syria's national debt

Official (and reliable) statistics on Syria's debt to Iran are hard to come by, making it difficult to estimate. Even the oil imported from Iran was not paid for by the Syrian authorities, and the cashflow it provided ran mainly through local markets.

Estimates of the level of debt vary from as low as $16bn to as high as $50bn, with Assad's regime having also run up debt with Russia, although the liability is far smaller. A 2014 loan from Moscow to pay Syrian state employees is thought to be less than $1bn, while another in 2017 was for $700m.

The International Monetary Fund (IMF) estimates that Syria's public debt was more than 100% of its gross domestic product (GDP) at the end of 2015, with external debt (due to the Iranian credit line) around 60% of GDP, a huge increase from the 9% proportion of external debt in 2009.

Public debt continued to expand significantly after 2015, as revealed by provisions of the Public Debt Fund (PDF) in the Syrian Budget. From 2018-24, money allocated to paying off debt varied from a fifth to a third of the overall budget. It was highest in the 2024 budget, representing 33.4% of the total.

In the past, the PDF was used to provide loans to public entities to fund infrastructure projects, but since 2018, allocating funds to the PDF has also been a way to hide the state's defence and presidential spending (until 2017, both were clearly identified in separate lines on the budget).

Damascus paid its debts either with cash from its reserves (mainly money printed by the Central Bank of Syria), domestic loans through treasury bonds, or foreign loans. Growing public debt meant that Assad's later years were characterised by austerity measures, cutting subsidies, and a lack of state investment.

In need of an audit

Assad is now gone, but Syria's financial obligations to Iran have not gone with him. Even debts run up by despots and dictators must be repaid.

There are plenty of precedents for national debts outliving governments or even countries. For instance, the almost $10bn debt Syria owed the Soviet Union did not vanish when the USSR collapsed—it transferred to Russia instead.

Assad is now gone, but Syria's financial obligations to Iran have not gone with him. Even debts run up by despots and dictators must be repaid

Analysts have suggested that Iranian demands for Damascus to repay the money could be suspended until a future democratically-elected Syrian government is in-place and a full audit of Syrian public debt has been undertaken. An audit of the spending may categorise some of it as illegal.

This would have consequences for any repayment. The spending will have been illegal if it was used to fund actions against Syria's national interest or against the interest of the Syrian people, and if creditors cannot prove they were unaware of how such funds were to be used.

It appears that big chunks of Syria's debt to Iran were used against the interest of the Syrian people if it was spent maintaining the regime's military and economic ability to sustain its repression of opposition-held areas, such as by destroying infrastructure.

The question then turns to whether Iran would deny that it was aware of the purpose of its loans, given that Tehran's participation in Assad's operations against large sectors of the Syrian population is well documented.

The audit of the public debt is likely to be a priority for any new Syrian authorities, since a better understanding of repayment requirements could allow funds allocated to the PDF to be spent on much-needed infrastructure and services, subsidies to help ease the cost of living, paying state salaries, and boosting productivity in sectors like agriculture and manufacturing. Syrians will hope that it does.

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