Syria’s President Bashar al-Assad is now feted in foreign capitals where once he received the diplomatic cold-shoulder. He is rekindling diplomatic relations with Lebanon following a period when Beirut’s Sunni-Christian-Druze opposition dictated a firmly anti-Syrian agenda that blunted Damascus’s influence.

His regime has also so far survived the UN investigation into the assassination of former Lebanese Prime Minister Rafiq Hariri, which has yet to reveal a clear link to the Syrian leadership.

Key fact

Forecast GDP growth: 6 per cent

The visit to Syria in August by Lebanon’s President Michel Suleiman, considered a friend of Damascus, marked the improving of relations between the neighbouring countries. The resump-tion of diplomatic ties and the first ever exchange of ambassadors between the two has recast their troubled relationship.

Syrian influence in Lebanon is not as explicit as it was prior to 2005, when its troops occupied parts of it neighbour. But as a compromise deal was agreed by Lebanon’s different factions in Doha in May, Beirut is unlikely to cause trouble for Damascus in the near future. Lebanon’s national unity government is not about to take any sudden measures to crack down on Syria’s main local ally, Hezbollah.

Economic growth

On the domestic front, economic reform retains some traction, attracting large flows of foreign investment, much of it from Gulf states. The government predicts economic growth of 6 per cent this year, a substantial increase on the International Monetary Fund’s (IMF’s) projection of 4 per cent, even if the steep decline in oil production will gradually erode the country’s fiscal cushion.

International banks are rolling out branch networks to tap local demand for financial services, and major real estate projects are being launched on the back of Gulf petrodollars. The recent signing of the country’s largest ever project financing deal, to fund a $380m cement plant being built by France’s Lafarge, is a sign of the economy’s investment potential.

As the international climate has grown more accommodating, the Syrian leadership has become emboldened to lobby for its interests in the wider global arena. Al-Assad has offered to mediate in the West’s stand-off with Iran over its nuclear enrichment programme. He has also formed a close relationship with Turkey, which is facilitating indirect talks with Israel over the return of the Golan Heights.

Despite intense pressure from the US and Israel to distance itself from Iran, Damascus’s close relationship with Tehran remains intact. Israel’s failure to destroy Hezbollah in the summer 2006 war has ensured continued Syrian traction in the Lebanese political arena, which has served to bolster the country’s negotiating position as it seeks to regain sovereign territory lost to Israel more than 40 years ago.

Not all is going Al-Assad’s way. The Israeli military strike on what it claimed was a nuclear installation on 6 September 2007 highlighted Syrian vulnerability to Israeli assault. The assassination in broad daylight of Hezbollah’s leading commander, Imad Mughniyeh, in a Damascus car bombing in February punctured the myth of invincibility that the Baathist leadership has carefully cultivated. More troubling, this was not an isolated incident.

Feuding factions

In early August, brigadier-general Mohammed Suleiman, a senior liaison officer in the army, was assassinated in his villa in the resort
town of Tartous. Suleiman was responsible for the financing and reform of the Syrian army, and was reportedly close to the president.
The unexplained killing triggered a renewed flurry of speculation about splits within the regime and rival factions of the security forces at war with one another. Some have even suggested that Suleiman’s reported closeness to the president is a portent of the latter’s imminent demise.

Syria watchers tend to downplay such speculation, much of which originates from opposition groups in exile. Outside senior Baathist circles, few have a clear picture of the factional interplay at the heart of the Syrian regime, and those who presume they do have little firm evidence to back it up. But the wider international context may provide clues as to the country’s key pressure points, and why a multitude of candidates might have an interest in seeking to exploit them.

There have been suggestions that Israel could have been involved in the assassinations, given Suleiman’s reported role in facilitating arms shipments to Hezbollah. Tel Aviv has denied responsibility and, aside from the attack on the alleged nuclear installation near Deir el-Zour, in recent years it has restricted itself to buzz bombing the presidential palace and assassinating a handful of Damascus-based militants.

But Israel has an interest in maintaining pressure on the Syrian leadership, and it seems that it is prepared to adopt both diplomatic and strong-arm tactics to do so. The resumption of Turkish-mediated dialogue over the Golan Heights shows that diplomacy retains some currency within Tel Aviv. “On one side, Israel is seeing what it can do to isolate Iran, and to find out to what extent Syria will move against Hezbollah,” says Joshua Landis, a Syria expert at the University of Oklahoma.

But military pressure is also being considered. “Israel wants to make Damascus understand that if it does not change, it will be hurt,” says Landis.

Israel’s inability to deliver a knockout blow to Hezbollah, and the realignment of Lebanese policies following the Doha talks in May, have forced others to shift their positions. The EU signalled a change in its stance in July, with France’s President Nicolas Sarkozy granting Al-Assad an official state visit to the Elysee Palace – formal acknowledgement of the constructive role played by Syrian officials at Doha. Sarkozy claimed a material reward for bringing Al-Assad out of isolation, eliciting the promise that Syria and Lebanon would open embassies in each other’s countries.

French interest

The first crack in the facade of France’s isolationist position was flagged up in late 2007, when Sarkozy twice sent his chief of staff to Damascus in an effort to seek Syria’s co-operation in breaking Lebanon’s political logjam. The president could see that with France’s allies in Lebanon cutting deals with the pro-Syrian opposition, it could no longer afford the luxury of an isolationist position. “France could not afford to lose both Syria and Lebanon,” says Landis.

French re-engagement brings Syria more material reward with the promise of renewed investment. The recent deal with Lafarge is indicative of the possibilities that diplomatic re-engagement can offer.

Closer to home, Al-Assad has formed a close personal relationship with Turkey’s Prime Minister Recep Tayyip Erdogan, meeting frequently with his pro-Western neighbour. Such ties have undermined US President George Bush’s efforts to maintain Syria’s isolation.

But analysts suggest that Washington could have much to gain from talking to Damascus. “Recent developments strengthen the argument for a shift in US policy to one of engagement, since isolation has brought few results,” says Mona Yacoubian, a US-based political analyst and co-author of a recent Council on Foreign Relations paper advocating a shift in US policy towards Syria.

The patchwork of US economic sanctions against Syria (see box) have had only limited impact on the economy, says the report. Neither have they helped in their primary aim of weaning Syria away from Iran’s embrace.

Instead, the US may seek to exploit a diplomatic platform to prise Syria away from Iran. It has made some tentative steps towards diplomacy, for example inviting Riad Daoudi, the Syrian Foreign Ministry’s representative in talks with Israel, to visit the State Department in Washington. But there are pitfalls to diplomacy too.

“The notion that they would pursue an opening with Syria simply to drive a wedge between Syria and Iran is not going to work,” says Yacoubian. “Syria has a strategic relationship with Iran. It is a deeply rooted alliance, not just a marriage of convenience.”

Syria has seen some shifts in its relations with Iran, but few suspect Al-Assad is ready to let the country’s long-standing alliance with Tehran be sacrificed, no matter how attractive the possibility that Israel might consider returning the Golan if it were to do so. “Syria knows that if it did pull away from Iran, it really would be all alone,” says Landis.

The US may hope that diplomatic re-engagement with Syria might encourage Damascus to play a constructive role in changing Iran’s behaviour. Such an ambitious policy is one for the long term, but the fact that these ideas are even being aired within the walls of the US State Department indicates how much has changed for Syria’s leadership this year.

Damascus has emerged from a period of diplomatic isolation. But the Al-Assad regime, whose domestic political strength is uncertain at best, now faces the dual challenge of tricky international peace negotiations and reforming a command economy that remains dependent on a declining oil resource. Few other countries in the Middle East would wish themselves such a challenge.

Table: US sanctions

Commerce Department sanctions

The Syria Accountability & Lebanese Sovereignty Restoration Act (Salsa), implemented in May 2004, expanded existing legislation prohibiting the export of most US products to Syria. The export of dual-use items – those that have a conventional use but might also be converted for military purposes – is subject to a mandatory ban. Food and certain medicines that do not require an export licence are eligible for export under waiver. The US Department of Commerce may also consider issuing licences for the following categories of items on a case-by-case basis: controlled pharmaceuticals and medical supplies and devices; telecommunications equipment and associated computers, software and technology; and parts and components intended to ensure the safety of civil aviation and the safe operation of commercial passenger aircraft.

Patriot Act

Section 311 of the Patriot Act, introduced in 2001, is used to combat money laundering. In May 2004, it was used against the Commercial Bank of Syria (CBS) and a corollary bank in Lebanon, both of which are closely linked to the Al-Assad regime. In March 2006, the US Treasury Department designated CBS a primary money-laundering concern, requiring US financial institutions to end their relationships with the bank. Although European financial institutions are not affected by the ruling, they too have shied away from transactions with the bank.

Ofac prohibitions

In April 2005, the Office of Foreign Assets Control (Ofac), part of the Treasury Department, published rules requiring US companies and their overseas branches to block and report any property owned by certain entities and individuals designated by the US government to be contributing to the support of terrorism, military security, or the development of weapons of mass destruction or missile technology. US nationals are also cautioned against transactions with anyone on the list. The rules apply to four Syrian officials, listed by Ofac as specially designated nationals. They are: Rustum Ghazale, former head of Syrian military intelligence for Lebanon; Hisham Ikhityar, head of the national security office; Assef Shawkat, President Al-Assad’s brother-in-law and the regime’s director of military intelligence; and Jami Jami, a Syrian military intelligence official.