Analysis

Both Iran and Russia view Syria's post-war reconstruction opportunistically and compete for leverage over President Bashar al-Assad, who metes out concessions on a case-by-case basis to maintain his authority and maximise revenue.

However, the two countries' approaches differ. Iran is developing economic networks with local Syrian business allies; Russia is focusing on strengthening Syria's state institutions.

Western countries are not players, saying they will not aid reconstruction without a political solution to the conflict (see SYRIA/US: Added sanctions may prove self-defeating - March 12, 2019).

Iranian business ties

Tehran is recouping its investment in the Syrian civil war (believed to have cost 45 billion dollars) through state and private contracts, rather than viewing its involvement as a necessary cost to support an ally. Indeed, the country's intervention in Syria has not always been well received at home, where there are grumblings over the costs.

Iran has signed agreements for large-scale projects in Syria, primarily in the energy sector, including resuscitating the country's gas fields, building a 450-million-dollar power plant in Tartus and a 1-billion-dollar oil refinery near Homs.

Iranian trade with Syria is also growing rapidly, and the country is now Damascus's largest trading partner, overtaking Russia, with total trade for the last year valued at 5 billion dollars.

Exports have doubled over the past two years, aided by credits from Tehran to purchase Iranian goods.

The value of those credits has now surpassed 7.5 billion dollars, with the most recent top-up announced in February during Assad's surprise visit to Tehran. The credits are intended primarily to cover Syria's oil consumption of 2 million barrels per month. Funds are also being funnelled into smaller projects managed exclusively by Iranian companies based in Syria.

Significant effort is going into building relations with local Syrian partners in business, transportation, agriculture, manufacturing and the construction industry.

This is coupled with attempts to ramp up the presence of Iranian companies on the ground, such as the carmaker Saipa. The firm currently manufactures 1,000 cars per year in Syria but aims to double this number by year-end. To promote this business, Tehran is heavily subsidising its foreign operation. It is also investing in land, particularly around Damascus city centre.

This programme faces setbacks from Syrian state corruption, and as Tehran and Damascus are both under US sanctions, transfers of funds for parts and investment are difficult. In January, the governor of the Central Bank of Iran announced that the two countries were working to facilitate cross-border transactions in local currencies, although the precise mechanism for this is unclear.

Regional aims

Promoting Syria's recovery falls in the broader context of Tehran's aim to boost regional economic growth and integration. Indeed, during Iranian President Hassan Rouhani's visit to Baghdad earlier this month, the head of Iran's Chamber of Commerce, Gholamhossein Shafei, proposed a free-trade treaty between Syria, Iraq and Iran.

The Iranian government has even indicated that Rouhani may soon visit Damascus to incorporate the economic plan more formally into Tehran's foreign policy.

Transport links

It is in this context that Iran is pushing to take control of Latakia port. The facility is currently operated by a joint venture between Souria Holding, a Syrian investment company, and the French shipping company CMA CGM.

Their lease expires in October. Iran has been in discussions over the port since at least last November, although those negotiations have been stepped up over the last month. The port facility is one of the main points of entry and departure for Syria's imports and exports, boasting 23 warehouses and a cargo handling capacity of 3 million tonnes per year.

Iranian companies -- some linked to the Islamic Revolution Guard Corps (IRGC) -- are already shipping car parts and other goods through Latakia to avoid Israel bombing their cargo at Damascus airport.

Obtaining the licence to operate the port would not only facilitate Iranian trade with Syria, but would also be the culmination of a longer-term vision to create a transport link between Iran and the Mediterranean.

That vision would make use of existing railway lines in Iraq and Syria. An additional line is planned between the Shalamcheh border crossing and Basrah, joining the Iranian and Iraqi networks.

Tenders are currently out to build that stretch of track, just 30 kilometres long and estimated to cost just 52,000 dollars. Although most of the new track would be in Iraqi territory, Iran has committed to funding the project.

At the same time, Iranian engineers are active on the ground in Syria restoring lines that have been damaged by years of war.

Some areas of the proposed railway link between the three countries are still outside Damascus's control.

Parts of the railway are currently held by US-backed forces. Washington is unlikely to permit its use to facilitate Iranian exports, although the long-term US commitment to remaining in Syria is questionable at best (see SYRIA: Actors' next steps hinge on US withdrawal plans - February 18, 2019).

Russia's approach

In contrast to the Iranian agenda of profiting from reconstruction through more of a bottom-up approach, in which it negotiates for individual deals and contracts with local partners, Russia favours a top-down method.

Moscow aims to rebuild Syrian state institutions, over which it exerts considerable influence, that will then lead an economic recovery. In this regard, Russia demands oversight and negotiating rights over contracts formally agreed by Damascus.

Russia uses this position to muscle out competitors, notably Iran. In fact, Moscow has been known to do this even when deals have already been agreed, as was the case with the Sharqiya phosphate mines near Palmyra.

Rights to the complex were granted to Iranian operators, yet in mid-2017 -- within six months of the signing of that contract -- Russian-backed armed groups moved into the area. Damascus then awarded Stroytransgaz, a Russian private company, an exclusive 50-year contract to extract and sell phosphate from Sharqiya, with 30% of the revenues going to the Syrian state.

Moscow is likely to accept that there is space for both Russian and Iranian companies as part of Syria's reconstruction, but will look to ensure that its own firms and interests get the upper hand.