Syria - Economy

Despite repeated announcements of economic reforms, Syria's economy continues to be dominated by the state with the government budget acting as the principle tool for managing the economy. In 2002 the government announced that its program for privatization had been replaced by a priority on making state enterprises more efficient.

Statistics on the Syrian economy are subject to government manipulation and revision, and may be inaccurate and inconsistent. Traditionally, Syria is an agricultural economy, and by 2001 estimates, this sector accounted for 40% of the labor force and 27% of the GDP. Subsistence agriculture has given way in recent years to modern production and marketing methods, although 80% is still rain-fed and vulnerable to drought. Droughts in 1997 and 1999 were significant factors lowering GDP growth. Wheat and barley constitute two-thirds of the cultivated area but cotton is the main cash crop.

Development of the state-owned oil industry and exploitation of other mineral resources, notably phosphates, have helped to diversify Syrian industry, which was formerly concentrated in light manufacturing and textiles. Although Syria's oil production is small by Middle Eastern standards, in 2001 oil accounted for 70% of Syria's exports and 20% of its GDP. Syria became an oil exporter in 1987, but at present levels of proven reserves it will become an importer against within ten years.

In recent years economic growth in Syria has depended on oil prices, foreign aid and good weather. Low oil prices and drought dampened growth in the late 1980s, but in the first half of the 1990s due to increased oil production, recovery from drought and nearly $5 billion in foreign aid as a "reward" for its participation in the Gulf War, combined, to help the economy to register average annual growth rates of 5.3% in the late 1990s. Oil production peaked in 1996 at about 600,000 bbl/d, after which it declined due to technical problems and depletion. Modest growth was restored in 2000 and 2001 (about 2.1% and2.0%, respectively) with the increase in oil prices. For 2002, real GDP growth is an estimated 3.2%.

On 14 July 1998 Iraq and Syria signed a Memorandum of Understanding reopening the Iraqi Petroleum Company (IPC) pipeline built in 1934 connecting the Kirkuk oil fields with the Syrian port of Banias on the Mediterranean. Syria had closed the pipeline in 1982 when it broke off diplomatic relations with Iraq and shifted to Iran as an oil supplier. The IPC pipeline had been severely damaged during the Gulf War and it was not until March 2000 that it was reported serviceable. From mid-November 2000, numerous press reports began circulating claiming that the IPC pipeline was being used to ship Iraqi oil to Syrian refineries on favorable terms, allowing Iraq to obtain oil revenues above the limits set by the United Nation's oil-for-food program. Iraq and Syria denied the allegations, but according to the US Department of Energy (DOE), independent analysts determined that Syria's export levels of crude oil in 2001 could not have been attained without importing from Iraq in the range of 150,000 and 200,000 bbl/d. In November 2001 Iraq and Syrian reportedly signed an agreement on building a new, $200 million pipeline to replace the aging IPC line. In April, 2003, as part of the invasion of Iraq, American troops shut down the IPC pipeline. The cost to Syria of the shutdown was estimated at $500 million to $1 billion a year.