Russia has a new agenda when it comes to policies on the civil war in Syria. For economic, military and political reasons Moscow has positioned itself as an imperative backer of the Assad regime.
Conflict within Syria began in 2011 when anti-government protests known collectively as the Arab Spring spread across the Middle East and Northern Africa. The demonstrations in Syria were met by a violent military response sanctioned by the current dictator, Bashar al-Assad (1). His actions lead to a civil war, which tallied a death toll of 470,000 people as of early 2016, and gave rise to the world’s largest refugee crisis since WWII (2,3).
The war has become so problematic that major nations have joined the conflict supporting opposing sides and providing aid. Turkey, Saudi Arabia and the United States support the removal of Assad from power, and the US specifically backs the national coalition, or moderate rebels, by providing military aid. However, Russia chosen a very different strategy (4).
Under Assad’s command Russia began a series of air strikes in September of 2015 which Putin claimed targeted only ISIS and other jihadist groups. Despite Russia’s assertions American backed troops and civilians were killed in the airstrikes and appeared to be directly targeted (5). Currently, the city of Aleppo is Russia’s main target.
Assad wants control of the city which used to be Syria’s largest commercial center and, prior to the attacks, was one of the most strategic holdings of the rebels. As the bombing continues and the rebels begin to lose control of the city; bitterness between Russia and America grows as they are unable to come to an agreement for a ceasefire to save the civilians (6). For Putin’s strategic reasons he has refused to be cooperative with other nations seeing this as a chance to display Russia’s power. As America’s presidential election looms closer, new decisions will be made on Syrian and Russian foreign policy that may change the course of the war.
Putin and Assad have been close allies since the Cold War. The strength of their loyalty to one another was revealed in 2009 when Assad refused to sign off on a pipeline that would pass through Syria and bring oil from Saudi Arabia to Turkey (7). Completing this pipeline would have hurt Russia’s oil business drastically as Europe would have access to lower cost fuel. Europe accounts for 80% of Russia’s oil market, so Moscow would’ve faced grim conditions if Europe were to turn to other fuel sources (8). This has been one of Russia’s main financial concerns throughout the Syrian civil war and may be the central reason behind Russia’s support of Assad.
This was not the only pipeline proposal that Syria was approached with. In 2012 Syria signed off on Iran’s pipeline proposal which received Russia’s blessing. The pipeline was projected to be completed by 2016 however the civil war in Syria has brought a halt to its construction (9). If we are to take a step back and look at the civil war in Syria and other nations’ involvement it becomes evident that the major nations involved have something to gain or lose from the completion of the pipeline. Russia understands this and is making every effort to remain in Assad’s good graces.
The relationship between Assad and Putin is currently more important than ever for Russia as its economy struggles and it looks to establish world military leadership. Oil prices are falling because Saudi Arabia is able to pump at a fast rate, making it difficult for Russia to compete with their prices (10).
Western sanctions over Ukraine have also contributed to a difficult oil market for Russia. Gas and oil production account for over half of Russia’s revenues and their slide has contributed to GDP shrinking a whopping 3.7% in 2015. It is predicted that 2016 will also be a rough year for Russia’s economy as their reliance on the oil markets and lack of diversification contribute to the decline (11). Russia will hope Assad remains in power as Syria’s strategic positioning is crucial to Russia’s monopoly of oil in Europe (12).
Not only is Russia’s economic prosperity in jeopardy if Assad is removed, but Russia’s military power will also suffer. Russia has only one naval base in the Mediterranean, which is located in the Syrian port of Tartous (13). It would be unlikely as well as costly for Russia to develop another base in the Mediterranean if Assad fell largely because of their poor relationships with many NATO countries.
(1) "Syria: The Story of the Conflict." BBC News. BBC, 11 Mar. 2016. Web. 27 Oct. 2016.
(2) Boghani, Priyanka. "A Stagering New Death Toll for Syrian War." Frontline. PBS, 11 Feb. 2016. Web. 27 Oct. 2016.
(3) Foroohar, Kambiz. "West Slams Russia for Aleppo Bombings at UN Security Council." Bloomberg. Bloomberg, 25 Sept. 2016. Web. 27 Oct. 2016.
(4) "Syria Crisis: Where Key Countries Stand." BBC News. BBC, 30 Oct. 2015. Web. 27 Oct. 2016.
(6) Foroohar, Kambiz. "West Slams Russia for Aleppo Bombings at UN Security Council." Bloomberg. Bloomberg, 25 Sept. 2016. Web. 27 Oct. 2016.
(7) Lynch, Colum. "Why Putin Is So Committed to Keeping Assad in Power." Foreign Policy Comments. N.p., 7 Oct. 2015. Web. 27 Oct. 2016.
(8) Ahmed, Nafeez. "The US-Russia Gas Pipeline War in Syria Could Destabilize Putin." Middle East Eye. N.p., 30 Oct. 2015. Web. 27 Oct. 2016.
(9) Lynch, Colum. "Why Putin Is So Committed to Keeping Assad in Power." Foreign Policy Comments. N.p., 7 Oct. 2015. Web. 27 Oct. 2016.
(10) Ahmed, Nafeez. "The US-Russia Gas Pipeline War in Syria Could Destabilize Putin." Middle East Eye. N.p., 30 Oct. 2015. Web. 27 Oct. 2016.
(11) Chance, Mathew. "Syria: 5 Things Russia Wants in War." CNN. Cable News Network, 8 Feb. 2016. Web. 27 Oct. 2016.
(12) Butter, David. "Russia's Syria Intervention Is Not All About Gas." Carnegie Endowment for International Peace. N.p., 17 Nov. 2015. Web. 27 Oct. 2016
(13) "Syria Crisis: Where Key Countries Stand." BBC News. BBC, 30 Oct. 2015. Web. 27 Oct. 2016.
Image: © Vicspacewalker | Dreamstime.com - Syrian Protesters In Moscow Photo
With the sanctions on Iran recently lifted by the European Union and the United States in January of this year; many nations have been in a race to reestablish business partnerships with Iran (1). Many European countries as well as China, Japan and South Korea have already taken action in reconstructing their relationships with Iran, who own one of the largest shares of natural resources in the world. Despite swift actions by other nation-states, South Korea currently maintains a strong standing connection with Iran as they were one of the few nations that did not completely break ties with Iran during the sanctions, earning them a respect and trust from the Iranians.
This relationship is beneficial for both parties as South Korea will gain better access to the abundance of natural resources that Iran has to offer while Iran will rely on Korea to aid them in the rebuilding of their infrastructure and health care facilities. Prior to the sanctions, South Korea was one of the largest importers of Iranian oil (1). This rekindled relationship will allow Korea to grow beyond its original trading status with Iran, which was stood at 17.4 billion USD in 2011. South Korea has a goal of growing this number to over 30 billion USD in the next five years (2). Although most of their trade will be concentrated in the oil industry, Korea has already signed over a dozen memorandums agreeing to aid in the restoration of Iranian infrastructure.
One of the biggest commitments South Korea made to Iran was to complete the remaining construction of the expressway which connects Teheran to the Caspian Sea. This has been on Iran’s agenda since 1997 when the construction commenced before the revolution and was expected to be completed by 2006. Since then the project has changed hands a number of times, it was originally rewarded to the Mostazafan Foundation, however China joined the project in August of 2002 (3) (1). Chinese corporations where not able to successfully implement the project entirely and left the expressway at a standstill (4).
This new expressway—sometimes called the Tehran-North highway or the Tehran Shomal highway—will come with a variety of vital benefits. The current road, Chalus freeway, is susceptible to avalanches in the winter and rockslides year round making it one of the most dangerous roads to travel in the world. The new road will be a straight four lane highway and will include an assortment of long and short tunnels that will cut through the mountains. This will make travel safer and faster while also creating a vital connection from Iran to Central Asia. However some Iranians responded with backlash when this project was announced as they saw it as benefitting mainly the wealthy, allowing them to easily access destination vacation resorts on the Caspian Sea. Despite this opposition the Iranian government continues to push the project forward (5).
The signing of the Memorandums of understanding for the completion of construction on the Tehran-Shomal expressway is an opportunity for South Korea to export their technology and engineering acumen. Iran played a major role as one of the nations who awarded a large amount construction projects to Korea, a country that has been struggling with declining earnings and low orders recently.
For this project in particular, a South Korean engineering company, Daewoo, has signed a 1.5 billion USD contract that will put them in “charge of engineering, procurement and construction” of the project (6). This was only made possible after the Korean export-import bank took several steps to allow business to flow between the countries more easily. The export-import bank of Korea known as Exim Bank had to secure Korea’s ability to make secure loans to Iran. In March Exim Bank signed a 15 billion USD agreement with Iran’s central bank to ensure that Iran could receive loans when they were conducting business with South Korean corporations (7). Exim Bank also raised Iran’s credit score from a C2 to C3 which will allow them to secure greater amounts of financing (8).
If Daewoo is unable to successfully meet the requirements of the memorandums of understanding for the project, Iran’s Construction and Development of Transportation Infrastructure Company may award the project to the IRGC conglomerate Khatam al-Anbia. This loss would negatively impact South Koreas economic goal of expanding exports (4).
(1) "South Korea and Iran to Sign Major Trade Deals." Aljazeera. Al Jazeera Media Network, 2 May 2016. Web. 03 Sept. 2016.
(2) "Park: S. Korea, Iran Can Create Win-win Biz Situation." Yonhap News Agency. Yonhap News Agency, 3 May 2016. Web. 3 Sept. 2016.
(3) J., H. "'First Section of Tehran-Shomal Freeway to Be Completed March'" Tehran Times. Tehran Times, 20 June 2016. Web. 03 Sept. 2016.
(4) "IRGC Construction Base Could Replace Koreans in Freeway Project." The Iran Project. Tsnim News Agency, 08 May 2016. Web. 03 Sept. 2016.
(5) "Chinese Said to Fund Stalled Highway to Caspian." International Iran Times. Iran Times, n.d. Web. 03 Sept. 2016.
(6) Song-hoon, Lee. "Daewoo E&C Signs US$11.5 Billion Worth of MOUs." Business Korea. Business Korea Co., 5 May 2016. Web. 1 Sept. 2016.
(7) Jae-won, Kim. "Eximbank Signs $15 Bil. Financial Package with Iran." Koreatimes. N.p., 03 May 2016. Web. 04 Sept. 2016.
(8) "Korea Bank Upgrades Iran Rank." Financial Tribune. Financial Tribune Daily and Contributors, 17 Jan. 2016. Web. 03 Sept. 2016.
Image: © Tawatchai Prakobkit | Dreamstime.com - South Korean won currency and finance business.
With a population of merely 2 million people Latvia is an unusually large banking hub for non-resident clients, specifically ex-soviet union countries who make up 80% of Latvia’s banking customers. Latvia’s lack of banking regulation, absence of political will, and a familiarity with Russian culture have made it a convenient center for international money laundering, with over half of the 25 banks working predominantly with non-resident clients (4)(1). The capital of Latvia, Riga, has been the center of this country’s banking community where 1% of all worldwide US dollar transactions pass through (4). A number of high profile cases have been traced back to this Baltic nation’s fraudulent banking system, including the Sergei Magnitsky case and the Russian Laundromat case which resulted in the laundering of US $20 billion (6).
In January of 2014 the banks maintained an extensive network of currency clearing partners despite JP Morgan’s halted connections with the local Latvian banks. JP Morgan made this decision after the United States Government advised the bank to strengthen its safety measures against money laundering. Recently, Latvia has lost numerous links as most local Latvian lenders now maintain a relationship with few lenders who provide a dollar clearing facility, Deutsche Bank being one of the largest. This July, however, Deutsche Bank warned the Baltic nation that they would cut off access to their dollar clearing facility from some of the local Latvian banks (2). This is problematic for these lenders as most money launderers conduct transactions in hard currency, specifically the US dollar. The ability to trade in US dollars has been imperative for the ex-Soviet money launderers as the Russian Rupel has been decreasing in value enormously since the invasion of Ukraine. These banks may not completely lose their ability to perform business in US dollars but instead will be forced to “go through more layers of middlemen to make payments” claims Gene Zolotarev, who is employed at Maximus Capital SA, increasing costs and making it more difficult to cool the hot money. Not all banks will be affected by this loss, but it will certainly lead to alterations in the way many local banks complete US dollar transactions (3).
More pressures were added to Latvian banks this June when leaked documents revealed that many Riga-based banks are directly involved in money laundering scandals and often act as a middleman. The documents include emails exchanged between government officials and bank employees. These communications involved discussion of offshore companies, some of which are shell companies. These shell companies play an important role in the second step of laundering called “layering,” which involves making the hot money difficult to trace by moving it to and from different corporations. Also discovered in these leaked documents was a type of manual that included precautions and guidelines on how to use the banks services to covertly launder money. Many of these banks have denied the charges but nonetheless attention has been drawn to the illegal actions consistently overlooked by Latvian bank and government officials (6).
Despite these concerns, Latvia earned their long awaited accession into the OECD (Organization for Economic Cooperation and Development) on May of 2016 when they were invited to become members. Their addition came two years after their entrance into the Eurozone as the 18th member, which brought much controversy as countries feared the increase of dirty money flowing throughout the nation-state (5). OECD membership has been a goal of Latvia’s since their independence and was narrowly missed because of links to massive laundering cases. Latvia’s sudden crackdown beginning in January of 2016 on some of the banks identified as servicing money laundering was the final step in earning an invite from the OECD. Latvia placed a 2 million Euro fine on Privatbank in January and, later in March, issued a 1 million Euro fine on Baltic International Bank, at the same time revoking the European Central Bank’s license. These actions were steps in the right direction for Latvia but have far from cleansed the country of its serious banking dilemma (1).
Despite warnings from influential countries, particularly the United States, Latvia has failed to completely clean up its banking system. This country has only enjoyed independence for 25 years, and, in a rush to become self-reliant from Russia, the economy was rapidly built and became dependent on off-shore client banking. To truly combat this problem Latvia will have to build a sustainable economy that does not rely on the illegal actions of their banks. With the pressure closing in from different countries and the recent revelations of their broken system, it will be critical for the Latvian government to find a different way to grow their economy.
(1) Collier, Mike. "Latvia Makes It into OECD Thanks to Crackdown on Non-resident Banks." Bne IntelliNews. N.p., 27 May 2016. Web. 10 Aug. 2016.
(2) Eglitis, Aaron. "Deutsche Bank Said to End Latvian Lenders' Dollar Accounts." Bloomberg. Bloomberg, 28 July 2016. Web. 10 Aug. 2016.
(3) Eglitis, Aaron. "JPMorgan Halts Latvia Dollar Deals After Probes, Group Says." Bloomberg. Bloomberg, 2 Jan. 2014. Web. 10 Aug. 2016.
(4) Jemberga, Sanita, and Evita Purina. "US Pressures Latvia to Clean up Its Non-resident Banks." Baltic Times. The Baltic Times, 10 Feb. 2016. Web. 10 Aug. 2016.
(5) Peach, Gary. "Latvia's Eurozone Entry Set to Attract Dirty Money from Russia, Eastern Europe." Financial Post. The Associated Press, 30 Dec. 2013. Web. 10 Aug. 2016.
(6) Stack, Graham, and Arta Giga. "Latvian Banks Promote Money Laundering Companies." OCCRP. Open Society Institute, 16 June 2016. Web. 10 Aug. 2016.
Image: © Tatjana Keisa | Dreamstime.com - <a href="https://www.dreamstime.com/stock-photo-panorama-view-old-riga-st-peter-s-church-latvia-image45494300#res14972580">Panorama view of Old Riga</a>
Emilia Garliepp is a Business Administration major at the University of Southern California. She comes from a small farming town in Northern California where she learned early on that the world is both small and big at the same time. Emilia currently works at the Marshall School of Business as a Student Technician. Previous professional positions include Quality Control Analyst at California’s largest fresh cherry and apple packer and a Research Assistant for a bankruptcy law firm. Outside of GIT she is involved in Marshall Business Network, Students Organize for Syria and holds the position of External Philanthropy Chair for Alpha Phi. Emilia is interested in travel, international commerce and helping others. After graduating she plans to obtain her MBA and work in the international arena.