The Huge Economic Damages of the Fall of Assad's Regime for the Islamic Republic of Iran

The fall of Bashar al-Assad's regime, symbolized by his flight to Russia on December 9, sparked extensive discussions about the political and geopolitical consequences of this event, such as the diminishing credibility and influence of the Islamic Republic of Iran in the region. However, the economic repercussions of this fall for the Iranian government were no less significant than its political consequences. To understand the economic implications, we highlight two key points: First, the Islamic Republic's multi-billion dollar investments in Syria were based on an 'anti-Zionist and anti-Western' outlook and aimed at political empowerment in the Middle East, with little regard for economic returns. In other words, the Iranian government utilized national resources, which have increasing value in times of economic hardship, to fulfill ideological ambitions, depriving Iranians of their economic potential. Secondly, with Assad's fall, all these investments were lost. Military bases, energy projects, religious infrastructures, and trade networks built with Iranian resources fell into the hands of those who do not share the Islamic Republic's religious and political views and may even be in conflict with it. This loss exacerbates the economic situation of Iranians, who were already struggling with purchasing power crises. The International Monetary Fund and the World Bank report that Iran's economy shrank by 3.5% in 2023, and inflation increased by 50%. This article addresses the economic dimensions of the Islamic Republic's failure in Syria, which are less recognized. It will also propose solutions for overcoming the crisis. From Bashar al-Assad's 'sand castle' to Iran's 'Chinese bowl' in the 'Resistance Front', the military infrastructures of the Islamic Republic are in the hands of rival Islamic forces. The U.S. Congressional Research Office and the Stockholm International Peace Research Institute (SIPRI) report that the Islamic Republic has spent between $30 to $35 billion on military and logistical infrastructures, training Syrian forces, and deploying its military advisors from the onset of the Syrian civil war in 2011 until 2023. An example is the Deir ez-Zor base, which was built in 2013 at a cost of approximately $250 million for missile storage and housing 1,500 Iranian forces and advisors. The logistics center in Latakia was also established in 2015, costing $180 million for warehouses and underground tunnels for military weapon transportation. The T-4 airbase is another example where the Islamic Republic established facilities for housing Russian and Iranian air defense systems and underground hangars for drones and missiles near Palmyra in Homs province in 2017 at a cost of $400 million. The Center for Strategic and International Studies (CSIS) and the Middle East Institute report that the Islamic Republic has seven airbases, 15 missile warehouses, 22 forward command centers, and 85 kilometers of underground tunnels in Syria. However, these infrastructures and military bases were abandoned or fell into the hands of new rulers whose Sunni political and especially religious views differ from and may be hostile to the Shiite identity of the Velayat system. The cost of losing these assets weighs heavily on an economy that cannot meet many of its citizens' needs. The confiscation of soft power from religious pilgrimage sites: According to a report by Eurasia Review, an international media outlet focusing on various Eurasian issues, the Islamic Republic spent about $2 billion between 2012 and 2022 on renovating and maintaining Shiite religious sites in Syria. This is part of a strategy aimed at expanding the soft power and ideological influence of Shiism in the region. These pilgrimage sites symbolize this soft power. Between 2014 and 2018, the Islamic Republic, particularly through the Khatam al-Anbiya Construction Headquarters of the Islamic Revolutionary Guard Corps and the Imam Khomeini Relief Foundation, actively participated in the reconstruction of the shrines of 'Sayyida Zainab' and 'Sayyida Ruqayyah' in Damascus and building guesthouses and expanding religious tourism. Shiites believe that 'Zainab', the sister of the third Imam of Shiites, was present at the event of Karbala, and 'Ruqayyah', the daughter of this Imam, was three or four years old during the Karbala incident and was later captured and died in Damascus. At the initiative and expense of the Islamic Republic, the Zainab Palace hotel was reopened in 2016 next to the shrine of 'Sayyida Zainab'. The Middle East Institute estimates the construction cost of this hotel, which has 150 rooms, prayer space, and catering services, to be about $35 million. For several years, the Islamic Republic earned income from the tourism of pilgrims to these two shrines while also promoting its Shiite ideology. However, with the fall of Assad's regime, the Islamic Republic's investments in religious tourism in Syria are at risk. The new political power in Syria is Sunni and does not align with Shiite symbols, and even if it does not oppose them, it will not allocate a budget for them. Thus, the Islamic Republic not only loses this income source but also its tool of soft power. Khamenei's reaction to Assad's fall; 'A great fighter' whose name he did not mention. The abandonment of the Islamic Republic's infrastructure projects in Syria: Companies affiliated with the IRGC and the office of the Supreme Leader of the Islamic Republic of Iran invested billions of dollars in key sectors in Syria, such as energy and urban reconstruction, expanding their economic and political influence. The Housing Foundation of the Islamic Revolution, established in 1979 under Ayatollah Ruhollah Khomeini with the goal of providing affordable housing, is still under the Supreme Leader's supervision and made significant investments in the reconstruction of Aleppo in Syria. The Syrian Air Force, supported by Russian forces, extensively bombarded and destroyed this city between 2012 and 2016 to reclaim it from rebels. The Syrian Central Bank reports that between 2016 and 2021, the Housing Foundation of the Islamic Revolution spent up to $1.5 billion on the reconstruction of residential neighborhoods in Aleppo. In another project, the Khatam al-Anbiya Construction Headquarters, the largest engineering company of the IRGC, participated in the reconstruction of several strategic roads, such as the Homs-Damascus highway, at a cost of $500 million. Another IRGC-affiliated company, Sadra Marine Industries, invested over $1.2 billion in the renovation of the port of Tartus between 2015 and 2019. Another major investment was the Iran-Iraq-Syria gas corridor project, which was launched in 2013 at an estimated cost of $8 billion to transport Iran's energy resources to the Mediterranean Sea, but was halted in 2022. The aim of these investments was not only construction but also to strengthen relations with Syria and expand the influence of the Islamic Republic in this key region. However, following the fall of Assad's regime and the potential closeness of the new Syrian rulers to countries rivaling the Islamic Republic, the sustainability of these investments is at risk. The new rulers of Syria and consortiums from countries competing with the Islamic Republic have held discussions over the re-management of infrastructures such as the port of Tartus. According to the U.S. Congressional Research Service, the Islamic Republic of Iran may incur massive financial losses. The Financial Times: Assad's actions cost the Islamic Republic dearly. The loss of the strategic market for the Islamic Republic in Syria: According to the Tehran Chamber of Commerce and the Wall Street Journal, trade between the Islamic Republic of Iran and Syria reached its historical peak of $475 million in 2010. Syria was a vital market for Iranian goods such as textiles, electrical equipment, and food products, especially because it allowed Iranian goods to circumvent international sanctions and enter other regional markets. Syrian companies acted as intermediaries, exporting Iranian products to Lebanon or even Eastern European countries. This operation was complex but generated income for the Islamic Republic. The Tehran Economic and Trade Research Center reports that in 2012, nearly 15% of Iran's manufactured exports to the Middle East were transited through Syria. The fall of Assad's regime in December 2024 eliminates the possibility of goods transit and circumventing sanctions for the Islamic Republic. It is expected that trade contracts between Tehran and Damascus will either disappear or be revised to the detriment of Iranian companies. The Tehran Trade Statistics Office estimates that Iranian companies may incur losses of up to $300 million due to changes in trade under the new Syrian government. The Iranian Ministry of Industry and Mines reports that the country's struggling textile sector will have to reduce its production by at least 12% in the first half of 2025 due to the loss of the Syrian market. The closure of the Syrian market is not only a loss of an export market but also disrupts the supply chain of goods needed for Iran's economy. The Middle East Trade Monitor speculates that the management of the Latakia port, which was a transit port for Iranian goods, may be handed over to Turkish or Saudi companies. If this happens, the Islamic Republic's ability to circumvent international sanctions will be significantly reduced. The result is that the Islamic Republic's trading capacity will be further restricted, forcing it to become more dependent on trading partners like China and to accept their terms. The fall of Assad; hard days for Khamenei and the core of power. Crushing pressure on the Islamic Republic's banking system: The Iranian banking system has played a central role in financing projects in Syria. According to various sources, several notable examples include: The Central Bank of Iran reports that banks and financial institutions of the Islamic Republic played a pivotal role in financing projects in Syria with over $5 billion in cumulative loans (consortium). Bank Sepah, established in 1925, was the financial institution of the Iranian armed forces and is now under the influence of the IRGC. This bank took on financing energy projects in Syria up to $1.2 billion. Bank Melli, established in 1928, is state-owned and the largest commercial bank in the country, allocating $850 million to agricultural and industrial projects in Syria. Bank Saderat, established in 1952, is state-owned and widely supported cross-border projects in the Middle East, especially in Syria. Finally, the joint Syrian-Iranian bank, established in 2010 to facilitate trade between the two countries, provided significant credits to projects in Syria. With the fall of Assad's regime, the repayment accounts for these credits are no longer clear. The main borrowers, such as the Ministry of Energy, the Ministry of Transportation, and the Public Electricity Organization, were part of a government that has now vanished. The Central Bank of Iran estimates the losses from unpaid loans to be up to 3% of GDP. The fate of Syria after Bashar al-Assad: A final word: An unclear future for a collapsed economy. The collapse of the Assad family regime not only took away a unique geo-strategic ally from the Islamic Republic but also imposed significant economic losses, eliminating the possibility of generating income from circumventing sanctions. The Islamic Republic not only lost its strategic position of Shiite identity in the region but also, with the economic damages described, lacks the capacity to rebuild the 'Resistance Axis' of the Islamic Republic - Syria - Hezbollah. The only remaining opportunity for Iran, Syria, and any other country in the region is to transition to a market-based economy, preserving private ownership, entrepreneurship, labor freedom, and free trade with the world. Middle Eastern countries can turn their challenges into opportunities by creating a common market and expand the development, progress, and sustainable welfare of their citizens. Only a market-based economy can rebuild the Middle East and make universal peace and prosperity possible.