Identifier
Created
Classification
Origin
06DAMASCUS710
2006-02-22 14:01:00
CONFIDENTIAL
Embassy Damascus
Cable title:  

IRAN-SYRIA ECONOMIC COMMISSION MEETS TODAY AMID

Tags:  ECON EIND EINV ETRD IR SY 
pdf how-to read a cable
VZCZCXRO5136
OO RUEHBC RUEHDE RUEHKUK RUEHMOS
DE RUEHDM #0710/01 0531401
ZNY CCCCC ZZH
O 221401Z FEB 06
FM AMEMBASSY DAMASCUS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7249
INFO RUEHEE/ARAB LEAGUE COLLECTIVE IMMEDIATE
RUEHTV/AMEMBASSY TEL AVIV IMMEDIATE 0812
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RHMFISS/HQ USCENTCOM MACDILL AFB FL IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
RHEHAAA/WHITE HOUSE WASHDC IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 000710 

SIPDIS

SIPDIS

NEA/ELA
TREASURY FOR GLASER/SZUBIN/LEBENSON
NSC FOR ABRAMS/DORAN/SINGH
EB/EXC/TFS FOR SALOOM

E.O. 12958: DECL: 02/21/2016
TAGS: ECON EIND EINV ETRD IR SY
SUBJECT: IRAN-SYRIA ECONOMIC COMMISSION MEETS TODAY AMID
LOW EXPECTATIONS


Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d

C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 000710

SIPDIS

SIPDIS

NEA/ELA
TREASURY FOR GLASER/SZUBIN/LEBENSON
NSC FOR ABRAMS/DORAN/SINGH
EB/EXC/TFS FOR SALOOM

E.O. 12958: DECL: 02/21/2016
TAGS: ECON EIND EINV ETRD IR SY
SUBJECT: IRAN-SYRIA ECONOMIC COMMISSION MEETS TODAY AMID
LOW EXPECTATIONS


Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d


1. (SBU) Summary: The Syrian-Iranian Higher Economic
Commission meets today in Damascus, but few contacts believe
the meeting will produce any immediate results in improving
the investment climate or increasing the two countries'
anemic trade volume. Although the Commission is expected to
address barriers to trade and investment, Syrian businessmen
have expressed little interest in pursuing opportunities with
Iranian partners. However, Syria potentially could benefit
from even a marginal increase in trade, increased Iranian
tourism, and support for Syria's ailing oil sector. However,
the primary historic Syrian economic benefit- the supply of
Iranian oil at concessionary prices- is not expected to be
discussed, indicating that Iran is not yet ready to pay for
SARG support. End summary.

Iran, Syria Begin Economic Meetings


2. (U) Iran's first Vice President Parviz Davoudi is in
Damascus today for the annual meeting of the Iran-Syria
Higher Economic Commission, co-chaired by Syrian Prime
Minister Mohammad Utri. At the conclusion of the meeting on
February 23, Prime Minister Utri and his Iranian counterpart
are expected to announce the signing of a number of memoranda
of understanding (MOUs),ranging from initial agreements on
preferential trade and agricultural assistance, to new
investments in Syria's dairy, glass, petrochemical and cement
industries. In addition, the Commission is expected to
discuss the development of an Iran-Iraq-Syria oil pipeline
and railroad. Laying the groundwork for today's meeting, an
Iranian business delegation led by Iran's Minister of Housing
and Urban Development has been in Syria since Sunday. The
delegation has met with Syrian business leaders to pitch
joint venture projects, and visited ongoing projects in
Banyas and Homs in which the Iranian government has invested

financial and human capital over the past several years.

Businessmen Express Little Enthusiasm


3. (C) Most contacts with whom Post spoke dismissed the
importance of an economic relationship with Iran, arguing
that it is born more of political necessity than economic
promise. Several independent Syrian economists point to the
similar weaknesses in the two economies- double digit
inflation and unemployment; an inefficient public sector; and
heavy dependence on oil export revenue- as an indication that
Iran is not the economic partner Syria needs. To date, few
contacts among private sector companies have expressed an
interest in pursuing joint ventures with Iranian partners.
The head of a leading Damascene business family stated that
he lost money working with Iran in the 1980's, and would be
loath to repeat the experience this time around. Though he
met with the Iranian delegation, he felt strongly that it had
nothing of substance to offer. He commented that its one
concrete proposal, establishing a factory to produce fluted
glass in Syria, lacked credibility since the Iranians do not
have legal access to the necessary technology.

A Poor Track Record


4. (U) Although the SARG has used government dailies to
trumpet the importance of its present and future economic
ties with Iran, the track record of Iranian investment in
Syria provides a weak foundation on which to build. None of
the approximately $700 million worth of public sector Iranian
investments over the past several years have come to
fruition. The $200 million project to expand a cement plant
near Hama has undergone five management changes since
February 2004, and local press recently reported that
construction is only 60% complete even though the plant was
supposed to begin producing 1 million tons of cement annually
by the end of last year. After a delay of six years,
construction finally began on the $208 million project to
build ten cement grain silos throughout Syria after the
Iranian government was able to pull together the financing.
The Iranian Khodro Industrial Group, which has partnered with
the Syrian El-Sultan Company to build 5,000 sedan-style cars
at a plant 30 kilomteres north of Damascus, still has not
delivered the assembly line and spare parts for the plant
although the first car was expected in January.

DAMASCUS 00000710 002 OF 003




5. (C) However, contacts believe that these and other
investment projects will continue to limp along, benefiting
from the significant Iranian assets, denominated in Syrian
Pounds (SYP),that are being held in accounts at the
Commercial Bank of Syria. These funds source back to the
1980's, when Iran and Syria last had a significant economic
relationship. Syria negotiated two deals worth $1 billion
each for Iranian light crude, which Iran shipped to Syria
free of charge through the Suez to the Syrian refinery in
Banyas. Syria paid for the oil in SYP because it had limited
reserves of foreign currency. Contacts say that the High
Commission probably will negotiate how to use this money-
which cannot be transferred overseas due to Syria,s strict
currency restrictions- to fund future investment projects.

Hope for Economic Benefit despite Problems


6. (C) Some contacts say that there are several discrete ways
that Syria could modestly benefit from increased economic
interaction despite the problematic history. The first is
through increased trade. Although President Ahmadinejad had
announced Iran's intention to sign a free trade agreement
with Syria, contacts report that Iran recently insisted on
discussing only a preferential trade agreement because of
concerns that a free trade agreement could complicate Iran's
future WTO acession negotiations. However, any trade
agreement could be expected to increase the current
insignificant volume of trade, which amounted to only $60
million in 2005, $3 million of which was Syrian exports. A
contact at Nahas Enterprises, whose CEO Saeb Nahas, a Shi'a
who recently stepped down as President of the Joint Business
Council and who has been the primary beneficiary of Iranian
business since the 1980's, stated that Syria sees Iran as a
potential market for finished textiles, pharmaceuticals and
agricultural products. A trade agreement also could bring
low-end Iranian cars to the Syrian market duty-free, which
would help meet the large demand for affordable cars and have
wide populist appeal.


7. (C) The second area for improved economic relations is
Iranian tourism. In the 1980's, Iran and Syria negotiated a
deal to fund pilgrimages from Iran to Syria to visit Seit
Zeinab, the third holiest site in Shi'a Islam. According to
Fouad Sandouk, Manager of Public Relations at Nahas
Enterprises, the SARG pays for the pilgrims' travel and
lodging expenses from the above mentioned Iranian accounts at
the CBS, and the Government of Iran gives each pilgrim $100
from a martyrs fund for the families who lost children in the
Iran-Iraq war to cover their expenses. Presently, 700-1000
Iranian pilgrims travel to Syria each week. This constitutes
a significant drop from the 1980's when two 747's brought
approximately twice that number each week to Syria. Contacts
comment that each pilgrim spends hundreds of dollars on the
local economy and sells goods that they bring with them such
as carpets and pistachios, bumping up the actual volume of
trade between the countries.


8. (C) The third, and least likely area for additional
cooperation, is if Iran becomes a partner in increasing
Syria's oil production. Our Nahas contact stated that the
state-owned Syrian Petroleum Company (SPC) is counting on
taking advantage of Iranian expertise to help manage Syria's
declining reserves, and sees Iran as a future source for
spare parts. In addition, local press announced that the
High Commission is expected to discuss the development of a
pipeline from Iran, via Iraq, to the refinery in Banyas, an
issue that the two countries first raised in 2004. However,
contacts within Syria's oil sector say that Iran's public
sector companies are too poorly managed themselves to be of
much assistance to the SPC, and lack the technical expertise
to reverse Syria's declining oil production. In addition,
there is no indication that Iran is serious about entering
Syria's oil sector since no Iranian company bid for oil and
gas exploration in the SARG's recent bidding rounds.


9. (C) Comment: So far, Iran has brought very little to the
table economically. The meetings of the High Commission
today and tomorrow will produce announcements of new MOUs for
a range of questionable investment projects between
inefficient and money-losing public sector companies. There

DAMASCUS 00000710 003 OF 003


is little indication that these projects will fare
differently from the projects that have floundered for years.
The economic relationship between these two countries cannot
be expected to become more serious until they begin
discussing issues like restarting the supply of low-cost oil
to Syria, which formed the foundation of the two countries'
economic relationship in the 1980's. The two countries
appear content at present to announce MOUs that are more
important for their media impact than their economic
substance.
SECHE