Iran has long battled with Gulf states over influence in the Middle East, despite being under U.S. sanctions. Its financiers and traders have outsmarted Western authorities with a labyrinthine economic system built across mostly friendly countries. This economic system has funded proxies, made arms deals with Russia, and received oil payments from India and China. At least that was the case until October 7, 2023, when Hamas’ attacks on Israel threw the region into chaos and began to puncture Iran’s networks. A year later, the Islamic Republic appears to be the major economic loser in the war. Saudi Arabia, the United Arab Emirates (UAE) and Turkey are likely to emerge victorious as they vie to regain lost trade and influence.
To avoid sanctions, many of the supply chains Iran relies on send capital and goods overseas via (legally) allies as well as (often disguised) unfriendly countries. is moved vertically and horizontally. For example, arms shipments destined for northern Russia could be smuggled through Syria to Turkey and then traveled by sea to Europe. Other large Middle Eastern economies with open trade, such as the Gulf states and Turkey, could take simpler routes and have more options if war makes shipping difficult. But Iranian trade, banking, and aid, the backbone of regional support, are necessarily more clandestine and therefore more vulnerable.
Let’s trade first. Homs in central Syria was a trading hub for Iranian goods under US regulations. American officials say Iranian companies have sent enough supplies through Syria to make Iran one of the world’s largest arms producers. Chemicals and mechanical parts were also transported through Syria. The big buyers were Belarus, Russia, and Mr. Assad himself. Iran now needs at least one new customer and a means to reach that customer.
The loss of financiers in Damascus and Lebanon’s capital Beirut is also a sore point. Despite US sanctions, half of Iran’s revenue comes from oil exports in a typical year. Payments are made through a series of correspondent banks and small exchanges registered with international aliases and allies. One of many such arrangements takes advantage of Hezbollah supporters in the Lebanese diaspora, who, through companies affiliated with the militia, receive payment for Iranian oil from countries from Turkey to Senegal and keep a cut of the profits. were secured by themselves. However, Mohammed Kashir, who ran the network, was killed in an Israeli airstrike in October. In his absence, Iran has struggled to get things moving again, Israeli officials said.
Such a loss could be devastating for Iran’s remaining supporters in the Middle East. With Hamas and Hezbollah greatly weakened and Mr. Assad in exile, only the Houthis, Iran’s least influential proxy and fighting for control of Yemen, remain undisturbed.
Iran is currently struggling to obtain weapons and cash to replenish its forces in Beirut and the Palestinian territories, as much of its supplies arrive via Syria. An alternative is to move supplies covertly, but this limits the size of the transport to what can be concealed and is time-consuming. I desperately need extra cash. Financial institution Alkad al-Hassan, the centerpiece of Hezbollah’s banking network, was targeted during an Israeli airstrike in October. A Turkish official said Istanbul-based Hamas’ finances were stable, but it was difficult to get cash into Gaza.
Iran’s finances have also been hit by debt, which now needs to be canceled. The Syrian government has lost billions of dollars in loans to Mr. Assad, which had sustained him while Syria was locked out of world markets. Officials have suggested that Mr. Assad’s personal loans and oil lines combined amount to $5 billion a year.
Meanwhile, the Gulf states and Turkey want to regain lost influence. As the United States becomes more reluctant to spend in the Middle East, Gulf states have become the largest providers of foreign funds to poor countries. Qatar, Saudi Arabia and the UAE lent $34 billion across the Middle East and North Africa in 2021-22, compared to $17 billion in 2019-20. Their loans also lubricate economies that Iran previously helped finance, including Kuwait. Iranian officials have complained that Kuwait has recently been reluctant to trade with the Islamic Republic, despite its long-standing friendship with Iran and good relations with the West.
bay of expectations
The UAE and Saudi Arabia are negotiating with the US to receive a share of the Gaza reconstruction bill in exchange for a Palestinian state. In Syria, Turkey hopes to benefit from support for Hayat Tahrir al-Sham, the new government’s largest presence. Some Western officials fear that Syria under Turkish President Recep Tayyip Erdogan will fare little better than Syria under leaders loyal to Iran and Russia. However, on December 18, the Iranian rial fell to an all-time low against the dollar. Meanwhile, the Syrian pound has appreciated 25% in two weeks. At least the market doesn’t agree with this.
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