Syria marked the first anniversary of its uprising -- and almost immediate crackdown -- last week. As the army expands its use of tanks and artillery against towns loyal to the rebellion, as many as 8,000 have been killed, and nearly a quarter-million have fled their homes. The United Nations remains incapable of agreeing to place water-tight sanctions on the country, however, thanks to opposition from Russia (still supplying arms to the regime) and China (still taking its oil).
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The good news is that a new approach to sanctions is being proposed -- and one that does not require consensus at the Security Council. The approach -- declaring Syria's successor governments unbound to honor the Assad regime's contracts -- will provide additional pressure on a government that desperately needs outside financing to shore up its economy.
The West has already imposed a range of sanctions alongside those of the Arab League. European and U.S. sanctions include a ban on oil imports from or new investments in Syria, as well as a freeze on assets. And there is some evidence that they are having an impact. Before the uprising, Europe was the largest importer of Syria's major export, oil, and alternate markets are proving difficult for Syria to acquire. A number of Western energy firms are still operating in Syria, including Britain's Gulfsands Petroleum, Royal Dutch Shell, and France's Total, but they have suspended exploration and new investment. Foreign direct investment to Syria declined from around $1.4 billion to $500 million between 2010 and 2011. International Monetary Fund estimates suggested the Syrian economy would shrink by 2 percent in 2011.
Nonetheless, and despite widespread condemnation from many of Syria's Middle Eastern neighbors, Europe and America, the international community remains hamstrung on tougher measures, with Russia and China blocking any concerted action at the United Nations. And without international agreement, the long-run impact of traditional sanctions will be blunted. Asian refiners, among others, might be willing to pick up the slack when it comes to buying Syria's oil -- especially at a discount. Over the longer term, if Assad continues to hold out, even investment flows might pick up again. Perhaps the China National Petroleum Corporation -- already a minority shareholder in Shell's Syrian operations -- might invest in the country's oil sector on its own, for example.
But what if any contracts signed with the Assad regime from now on were considered illegitimate in the international financial system? Owen Barder and Kim Elliott, my colleagues at the Center for Global Development, are proposing that the Arab League, United States, and Europe unite to declare that any new contracts signed by the Assad regime need not be honored by a successor government. Call it preemptive contract sanctioning -- or declaring odious obligations, if you'd rather.
The aim of the declaration is to reduce the risks to a future legitimate Syrian government of defaulting on contracts signed while the Assad regime was shelling its own people. Traditionally, governments that have come to power in the wake of illegitimate regimes have nonetheless taken on those regime's obligations, driven by the concern to earn a reputation as a safe home for investment. The African National Congress kept up payments on $23 billion in debt accumulated by the apartheid regime in South Africa for fear of what a default would do to its ability to borrow going forward. In 1979, the Sandinistas in Nicaragua chose not to repudiate debt piled up as President Anastasio Somoza looted the country at gunpoint in the 1970s. They took advice -- offered by Fidel Castro, no less -- that the risk of alienating Western capitalists was too high.
But what if the countries whose laws are used to enforce most international contracts (Britain and the United States), along with the Arab League and others, declared that they would consider any contracts signed by the Assad regime unenforceable on successor governments? New investors would have little reason to consider Syria a bad prospect purely on the grounds that it renounced those same contracts. And firms that are thinking of signing deals with the Assad regime now (expecting them to be honored later on) would have considerable difficulty enforcing a contract declared illegitimate in major financial centers.
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