Syrian Sovereign Debt and the Future of Authoritarianism Financing in MENA
Iranian officials recently declared that the Assad regime’s debts to Iran will be transferred to the new Syrian administration and must be repaid. This position aligns with international law.
In response, the new Foreign Minister, Asaad al-Sheibani, announced that a memorandum is being prepared to submit to international courts. This document will demand that Iran pay $300 billion in compensation for the damages inflicted on Syrians and Syrian infrastructure due to Iran's military support for the Assad regime.
The objective is to challenge Iran's claims. This issue is of critical importance. Why? Because the Iranian debt to Syria serves as a precedent for all creditors who finance dictators and authoritarian leaders in the region. In Syria, these creditors were Iran and Russia. In Egypt, they are the US, the EU, and the Gulf states. Despite the differing contexts, the pattern remains the same: burdening societies with debt to suppress revolutionary change.
If Syria succeeds in its legal battle against Iran, it could set a precedent, potentially freeing nations like Egypt and Jordan from repaying their creditors after regime changes. One of the key reasons the Arab Spring failed was the role of debt and credit relationships. For instance, the Gulf states propped up Egypt's Sisi regime with debt, sustaining a dying government while trapping its people in a cycle of debt accumulation and currency devaluation.
Does this mean Egyptians owe money to international creditors who made poor investments in a deeply corrupt regime? According to the prevailing interpretation of international law, they do. However, suing creditors for damages on the grounds of human rights violations might offer a counter-narrative to such legal obligations.
Notably, Egypt recently signed an investor rights guarantee agreement with Saudi Arabia, committing to honour debt and ownership obligations to Saudi investors even in the event of a revolution.
Should debt incurred by supporting a dictator be honoured if the regime is replaced? This question lies at the heart of determining the region’s future. While financial repression has historically propped up authoritarianism, financial liberalisation is now being deployed in similar ways to sustain dictators.
If Syria’s lawsuit against Iran fails, the Syrian government could resort to expropriating Iranian assets as a form of compensation. It seems likely that the age of expropriation is making a comeback, as foreign investors who have aligned themselves with dictators across the region may face consequences for their policy decisions.