Russian business first in line for spoils of Syrian war

Kathrin Hille, Henry Foy and Max Seddon in Moscow

March 2, 2018

As Moscow came under pressure to exert its influence in Syria to halt a deadly bombing campaign on eastern Ghouta this week, Russian executives gathered in a conference room to discuss business prospects in the war-torn Arab state.

More than 200 executives crowded into the Russian Chamber of Commerce where they attended a Syrian-Russian business forum, hoping to cash in on Moscow’s military role in Syria. They peddled everything from power station engineering services to shipping as they eyed deals they expect to emerge when the fighting eventually ends.

“$200bn to $500bn will be needed for the reconstruction of the Syrian economy, and the first priority will, as President Bashar al-Assad has said, be given to Russian businesses,” said Sergei Katyrin, the chamber’s president.

Syrian government officials turned up at the gathering in Moscow with a file of 26 projects in which Damascus is seeking Russian investment. These included a planned rail line linking the Syrian capital to its airport, industrial plants to produce anything from cement to yeast and tyres, and power generation projects in Homs.

But the projects face significant challenges, not least the question of who will pay. Moscow, which intervened militarily in 2015 and tipped the balance of the war in Mr Assad’s favour, has been desperate to get European governments to help fund reconstruction efforts. But EU states insist there first has to be a political agreement to end the conflict and are determined not to hand reconstruction funds to Mr Assad.

“We know what we need, and we know our Russian friends can help in principle, but it is an open question where to get the money from?” said Tareq al-Jawabra, director of the European department of Syria’s State Planning Agency.

Nowhere is the question more acute than in oil and gas, the sector in which Russia is most interested. Western sanctions mean financing is not available for new investment in hydrocarbons and any Russian company supplying equipment or services to Syrian oil producers risks punitive measures.

“I visited Syria several times last year, but so far there is nothing we can do there,” said Dmitry Kapitanov, head of export at Rimera, a Russian oilfield services company. “I went to both Damascus and Homs, and it was quiet and felt safe. But it remains unclear how we can do business there given the western sanctions on Syrian oil.”

Before the war, oil and gas contributed about a quarter of the Syrian government’s revenue. But gas production in 2017 was half its pre-conflict level and oil production has fallen from 383,000 barrels per day to just 8,000b/d.

Now, Moscow is trying to get its companies in first once industry is up and running again.

Alexander Novak, energy minister, signed a co-operation agreement with his Syrian counterpart this month. It “implies the participation of Russian companies in Syrian projects, and the negotiations are conducted on a regular basis”, said Victor Khaikov, president of Russia’s National Association of Oil and Gas Service.

Civil infrastructure across Syria's towns and cities has been devastated © AFP

“Despite the fact that currently the majority of Syria’s oil and gas industry is destroyed, or in an extremely poor condition, participating in its restoration may bring good future profits to Russian companies,” said Mr Khaikov. “It is also likely that the companies involved in the projects will have the opportunity to receive additional benefits to compensate for the country’s risks.”

However, it is unclear how they could enter the Syrian industry without being hit by western sanctions. Russia’s main oil and gas companies declined to comment on the possibility of investing in Syria.

For now, some businesses are using unconventional methods to position themselves in Syria. Mr Jawabra said Evropolis, a company linked to an ally of Vladimir Putin, the Russian president, is receiving revenues from Syrian oil wells in territory captured from Isis by a Russian private military contractor.

Fontanka, a Russian website, last year reported that mercenaries had secured deals under which they would receive a cut of income from oilfields they captured, but Mr Jawabra is the first official to confirm it.

“I don’t know how many wells, and how big a cut they get,” he said. “But there are others as well. It may be one model that helps get around the problem with the sanctions.”

Nobody wants to do any work. B-52s are flying. The Kurds are attacking with the Americans backing them up. It’s not the best investment climate

Yevgeny Prigozhin, the company’s main backer, is already under US sanctions targeting Russians. Neither he or Evropolis could be reached for comment.

Several Russian mercenaries were killed and dozens wounded by US air strikes last month that halted what appeared to be a Syrian regime offensive to seize control of oil facilities.

Alexander Ionov, who runs another private security contractor operating in Syria, said he was the co-owner of a Syrian company that bought two oilfields in Homs.

“The problem is, nobody wants to do any work,” he said. “B-52s are flying. The Kurds are attacking with the Americans backing them up. It’s not the best investment climate.”

Still, Russian Middle East experts said Moscow’s unusual approach was the hallmark of a reconstruction process where the rules would be set by Russia instead of the west.

“I am convinced that even if the west takes a negative view on the rebuilding of the Syrian economy, the situation in the world is different now,” said Andrei Baklanov, a former Russian ambassador to Saudi Arabia. “Syria may become the first economic battleground where reconstruction and further economic development will follow a new model.”

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