Syria: Returning to the Fold?

By John T. Haldane

Syrian President Hafez Al-Assad, who sees himself as the pace-setter, and is seen by Arab detractors as the holdout in matters affecting the Iran-Iraq war, Arab unity, Arab pressure on the Palestinians to unite, and a united Arab stand on negotiations with Israel, is suddenly the object of considerable attention. The reason is that Syria, whose politics are closely tied to its chronic need for external financial assistance, is about to go broke.

Among the unlikely suitors flying in and out of Damascus in late July was President Reagan's trusted emissary Vernon Walters, US Ambassador to the United Nations, who held what he called "very useful, very fruitful, very cordial" meetings with President Al-Assad.

The visit followed years of increasing estrangement between the two countries, which culminated in last year's recall of US Ambassador William Eagleton after the British government charged Al-Assad's government with backing an attempt to smuggle aboard a bomb that would have blown up an E1 A1 flight originating in Britain. Although both German and French government officials quietly let it be known that they believed the plot was in fact aimed at discrediting Al-Assad, the US only recently began talking about returning Eagleton to Damascus in late August of this year.

US Ambassador to Lebanon John Kelly says, however, that although it is "premature to talk about rapprochement between the United States and Syria, Washington officials are encouraged by the tone that marked Walters' sessions with Al-Assad." Syrian officials have hinted at further meetings, including a possible visit to Syria by Secretary of State George Shultz.

No mention has been made from either side about the possibility of a renewal of US foreign aid to Syria. The US terminated what had been significant economic assistance to Syria in November 1983, while US Marines were under fire from Lebanese militia artillery in what was supposed to be Syrian-controlled territory in Lebanon.

A week before Walters' trip, the European Economic Community lifted its ban on high-level contacts with Syria. Danish Foreign Minister Elleman-Jensen, president of the EEC Council of Ministers, said he might invite his Syrian counterpart to Denmark. This would be the first meeting since the EEC, under British pressure, barred ministerial contacts after the Israeli jetliner bomb plot.

European officials state that the decision to end the ban on high-level contacts is intended to encourage Syria to play a more constructive role in efforts to arrange a Middle East peace conference, and to secure Syria's help in getting Western hostages released in Lebanon.

Meanwhile, King Hussein of Jordan has been working for months to bring President Al-Assad and Iraq's President Saddam Hussein together for a reconciliation. Jordanian Prime Minister Zaid Rifa'i has confirmed that the two leaders met secretly in eastern Jordan earlier this year. Palestinian sources say that Al-Assad and Hussein plan to hold a public reconciliation soon, although Jordan has denied the report. King Hussein's goal is to arrange an end to the Iran-Iraq war and to set up an Arab summit meeting later this year. From that meeting, Hussein hopes to obtain united Arab backing for an international peace conference to deal with the Israeli-Palestinian dispute. Syria has a direct concern in any such settlement since Israel has occupied, since 1967, a large chunk of Syrian territory in the Golan Heights.

The Soviet Union has been strongly backing efforts to bring Al-Assad and Hussein together. High-ranking Soviet officials have been regularly flying in and out of Damascus recently, supposedly to push Al-Assad toward a more moderate stance vis-a-vis Iraq, Egypt, and the Palestine Liberation Organization. The point of this Soviet pressure is to accelerate the Middle East peace process, with the goal of full Moscow participation in any international peace conference. One quid-pro-quo for Syria was a Soviet warning to Turkey against pressuring Syria along the long border between the two countries. Turkey has accused Syria of allowing anti-Turkish Kurds to use the border for infiltration and has threatened to retaliate if further Kurdish raids took place.

As the Jerusalem Post noted on July 17: "All roads seem to lead to Damascus these days, as Syria becomes a focal point of international moves to end two of the world's most intractable disputes: the Arab-Israeli conflict and the Iran-Iraq war."

For President Al-Assad, who only eight months ago was being ostracized for allegedly sponsoring international terrorism, the attention comes just as, and because, his country is falling apart, economically speaking.

Damascus' foreign debt to the West is estimated at $3.5 billion, and its debt to the Soviet Union, largely for military equipment, is estimated at $15 billion. Syria is experiencing its worst cash flow crisis in 16 years. Its foreign currency reserves are down to about $30 billion, less than one-tenth of what they were eight years ago. Arab assistance has fallen off sharply. Syria is more than $60 million in arrears to the World Bank on repayments of more than $200 million in loans from that organization. Prices for Syria's main exports, cotton and heavy crude oil, have fallen, along with expatriate remittances. As one Western diplomat in Damascus said: "They've just plain run out of money. If Syria were a Western country, we'd consider it bankrupt."

A US Department of Commerce "Foreign Economic Trends" report confirms this view: "Overall, the Syrian economy is badly depressed. Government-controlled production is poorly managed and uncompetitive. Syria now exports little except raw materials."

The only bright spot in the Syrian domestic economy is the Al-Thayyem oil field. It may bring in some $220 million annually when it goes into full production. This revenue will be welcome, but will hardly solve Syria's pressing foreign currency problems.

While Iran has been of some financial assistance, this gain has been offset by the cut in aid from the oil-rich Arab nations. Since the spring of 1982, when Syria aligned itself with Iran in the Iran-Iraq war and closed the Kirkuk-Homs pipeline through which Iraq was transporting the bulk of its oil exports, Iran has provided Syria with six million tons of oil annually. Iran provides one million tons of this amount free of charge, and Syria is supposed to purchase the remainder at near-commercial prices. However, since Syria has been unable or unwilling to pay regularly, Tehran has grown increasingly unhappy with the arrangement. In fact, Iran stopped deliveries in late 1985. But then, fearing a Syrian-Iraqi rapprochement, Tehran renewed deliveries in the summer of 1986.

Syria is receiving from Arab states only about $540 million per year in Baghdad Agreement aid, although the pact set Syria's allotment as a "confrontation state" in the conflict with Israel at $1.8 billion annually. For this year, Rafik Hariri, a close adviser of King Fahd of Saudi Arabia, is reported to have told President Al-Assad that Saudi Arabia and Kuwait would provide Syria with up to 50,000 barrels per day of oil if Syria broke with Iran. Additional large donations of hard cash under the Baghdad or other agreements also would seem a reasonable expectation by Damascus.

Nora Bustany reported recently in the Washington Post that: "Crushing foreign debt and a cash crisis have moved Syria's economy closer to bankruptcy, a situation that other Arab states in the region hope will loosen the country's ties to Iran."

It appears that Saudi Arabia and the other wealthy Arab states are prepared to stand aside and watch Syria collapse unless Al-Assad agrees to abandon Iran and rejoin the Arab world. The Soviet Union, which supplies Syria with arms on credit, seems also to be asserting pressure on Syria aimed at Arab unity. Soviet-financed Palestinian groups headquartered in Damascus abruptly rejoined the PLO in Algiers last May, even though it is still headed by Yasir Arafat, whom Syria for several years has been seeking to destroy or isolate. If Al-Assad is half as clever as reputed, he may soon make the best deal he can and abandon his alliance with Iran. Otherwise, he may end up as a minor player in the Middle East.

John T. Haldane is a Middle East specialist who has served as a Foreign Service Officer in Baghdad, Cairo, and Beirut, and as an international economist in the Departments of Commerce and Treasury.