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Oil Sanctions Against the Assads in Syria Can Work

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An EU ban on commercial activity by a handful of Syrian oil companies could deprive the Assad regime of the foreign exchange they critically need to fund the repression of protests. If the regime ran out of money to pay its security forces and there was a run on the Syrian pound, loss of business confidence in the Assads would accelerate. Brussels, unusually, is in a position to make a major unilateral contribution and be on the right side of history in the Arab spring.

This is because of the specifics of the Syrian oil industry. Sanctions have developed an awful reputation in recent years, and particularly oil sanctions. They're seen either as ineffective, such as Western divestment from Sudan which merely led to replacement of Canadian and Swedish by Chinese and other Asian oil companies, or as immoral, such as the UN sanctions regime on Iraq responsible for the deaths of half a million children in the 1990s while leaving Saddam Hussein's regime intact.

But in fact, sanctions are, or should be, a case by case policy tool. Can you target the regime without causing unacceptable suffering among the people? And would the people themselves support such sanctions? The answer in the Syrian case to all three questions is yes.

Syria exports about 150,000 barrels a day of a crude oil grade called Soweidie, overwhelmingly to Europe. Not a huge amount by world standards but the money it earns from that accounts for anything between a quarter and a third of the government budget. But, more than that, it represents a slush fund for the Assads - unrestricted income, as opposed to monies coming up through the regular government apparatus, ministries and bureaucracies with thousands of officials involved where, even for a single party dictatorship, appropriation is harder and more visible.

Oil, by contrast, is sold by a monopoly of one state-owned company, Sytrol, which lies outside ministry of oil structures and reports directly to the prime minister's office. A complex regime of consortia governs exploration and production which often include "mystery five percent" stakes for companies and individuals close to the regime. One of these, a London-listed company, has already had a shareholding by an investment vehicle for Rami Makhlouf, Bashar al-Assad's cousin, frozen under existing sanctions.

Industry insiders also report that the amount of oil produced is routinely under-reported after it leaves the oilfields, providing a parallel stream of totally unmonitored income. Oil income has increased in importance as tourism, another major foreign currency earner, has pretty much died since March, and banks in Lebanon report a large increase in dollar deposits, thought to be the Syrian business class voting with their assets while, in many cases, continuing to shout vocally in favour of the regime (and who wouldn't with the secret police breathing down your neck?).

The reason sanctions could work is that Soweidie is both extremely "heavy" and "sour", in industry parlance. It's a super low grade crude with very high amounts of sulphur in it, which means that refineries need to be specially adapted to run batches of it. Refineries in the Netherlands, Germany and elsewhere in Europe have been adapted but it's unlikely that the Chinese could or would be interested in taking batches of Soweidie, much heavier even than the Iranian crudes they routinely import from the Middle East. The absolute best case scenario for the regime would be to take several months to locate new buyers (Sowedie is mostly sold under term contracts, being too low grade to fetch any kind of price on spot markets), who would be further away, increasing shipping costs, and demand a whacking fire-sale discount. More likely is the collapse of its exports altogether.

A specific oil sales ban on these companies is a very different proposition than the general sanctions imposed on Iraq after the war with Kuwait, and Syria's economy is in any case configured differently. We should nevertheless acknowledge that there are two ways in which ordinary Syrians could suffer from such an EU move. First, it could accentuate power cuts which are already rampant in the country, and at times that could have critical consequences (imagine, for example, life support machines in hospitals). Second, it could lead to the salaries of Syria's vast officialdom not being paid as the government runs out of money, which includes, of course, teachers and ordinary civil servants as well as secret police and torturers. In the bloated post-communist bureaucracy that is the Syrian economy, the government remains a bigger employer than any productive sector.

But all Syrians I have spoken to who support the protests also support the idea of such sanctions. It's not as though we can conduct a public opinion poll, and weigh up the pro-s and anti-s - after all, freedom of opinion and expression are chief among the causes the protesters are risking their lives for, and which the regime, while claiming popular support, is determined to prevent.

Faced with the fact that some five percent of the population are now risking their lives in the streets each Friday (imagine what kind of cause would bring three million Britons out to protest at great personal risk), the Assad regime has started to assassinate known leaders in their cars and beds. As I write, it is making as if to demolish the country's fourth largest city, Hama, for the second time in as many generations. There is no going back and the status quo is no longer sustainable. If oil sanctions could hasten the new day Syria so badly needs, they will ultimately save hundreds, perhaps even thousands of lives.