Saturday, October 01, 2011

Europe's Embargo on Syrian Oil

FT: Syria to Look East for Oil Markets  
NYT: Europe’s Oil Embargo Leaves Syria Urgently Seeking New Customers
Washington Post: Syria Seeks Cutback in Oil Production Because of E.U. Embargo

Syria, a country whose economy is largely based on the production and sale of oil, is now facing a European embargo on its oil exports in response to political turmoil within the country. European leaders began the embargo as Syrian President Bashar Al-Assad continues to violently repress pro-democracy demonstrations. The European reaction is only part of widespread international outrage as thousands of Syrians have died as a result of the government’s actions.

So far, only the United States and Europe have passed embargos on Syrian oil. While the United States embargo is mostly symbolic (it does not import much oil from Syria in the first place), the European embargo has hit the Syrian economy hard. Because Syria sends 90% of its oil exports to Europe, the country’s revenue has decreased by 25% since the embargo has been in effect. The United Nations Security Council is currently trying to levy sanctions against Syria to increase international pressure on the Syrian government. However, Russia has thus far used its veto power to prevent the Security Council from taking action because it is unhappy with how NATO used previous Security Council sanctions to justify its bombing campaign against Libya. Nevertheless, other Security Council members continue trying to sway the Russian vote in the hopes of enlarging the scope of the embargo.

The embargo and subsequent declines in exports have forced many foreign companies to shut down their Syrian operations, which will likely compound the embargo’s effect. However, experts believe Syria will eventually find buyers for its oil, either by finding non-European countries that need oil or companies willing to help Syria avoid the embargo by shipping to Europe via some third country from which Europe allows oil imports. The Syrian diplomat to the UN stated that buyers from the Eastern Bloc had already approached Syria about the possibility of buying its oil, but did not name any countries specifically. Experts also believe that more buyers will emerge in attempts to purchase Syrian oil at a discounted rate.

While the European and U.S. governments are using this embargo to encourage political change in Syria, it is possible they are doing the country more harm than good. Aside from its substantial loss in revenue, the country is now facing a major hindrance in its future economic development. If the political situation does not improve, foreign investors may hesitate to invest in Syria if they fear the government’s actions will spur more international sanctions, and, therefore, more losses for businesses. Even if the political instability is resolved soon, foreign investors may still be reluctant to invest in Syria for a long period of time after seeing how much money oil companies are currently losing. Without resolving the foreign investor problems arising, Syria's economic and political development will not be able to continue.

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