Western Union

Inside Syria's siege economy

May 8, 2013: 5:00 AM ET

As the fighting in Syria drags on, resource flows have adapted to accommodate life inside -- and to support the opposition forces vying for control.

By Keith Proctor

Aleppo, Syria

Aleppo, Syria

FORTUNE -- Last week, the war in Syria, which has killed more than 70,000 people, claimed another prominent victim. During a clash between regime and opposition troops, the minaret of Aleppo's ancient Umayyad mosque -- for centuries the most striking feature of the city's skyline -- tumbled, reportedly brought down by a tank shell.

You could have heard the minaret falling miles away in Aleppo's city center, where, against a backdrop of gunfire and the whump of mortars, residents maintain an improbable veneer of normalcy. While the price of Almaza, a popular Lebanese beer, has skyrocketed, bars are full. Young people flirt in the street. When the power's on, you can still get HBO.

"If you stay in your house because you're scared, you'll go crazy," said one Syrian man who requested anonymity. He said when war embroiled Beirut in the 1980s, Syrians used to laugh after they heard stories of the Lebanese going to nightclubs while the city around them was ground to rubble. "But now, here in Aleppo, women are getting manicures and doing their hair. We go to cafés. We smoke shisha. The restaurants are very crowded ... It feels guilty, though. A few kilometers away, people are dying."

The will to carry on a normal life fits the economic logic of the siege. As the fighting in Aleppo drags on, resource flows have adapted to accommodate life inside -- and to support the opposition forces vying for control.

Aleppo's plight

Located in the far north, near the Turkish border, Aleppo is Syria's largest city (population: 4 million) and the country's economic capital. In the decade before the civil war, which broke out in early 2011, the city enjoyed an economic boom. Liberal market reforms boosted the business elite, many of whom have ties to the regime of Syrian President Bashar al-Assad. Unemployment dropped. And property prices climbed, partly due to housing supply pressures from an influx of Iraqi refugees.

Perhaps because times were good, Aleppo was not immediately embroiled in the conflict. The city's Christians and Turkmen did not want to be dragged into a fight between the regime's Alawites and the opposition's Sunnis. So the city did not initially witness the street protests that shook Homs and Daraa.

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All of that changed in July, 2012, when the Free Syrian Army (FSA), an opposition group led by military defectors, launched a large-scale attack on the regime stronghold of Aleppo. Many analysts consider Aleppo a linchpin for the Syrian regime, which sent thousands of reinforcements to hold the city center and beat back the rebels.

Starting last summer, Aleppo's outskirts became sniper-haunted battlefields, stippled with mines. Hundreds of thousands fled. Refugees crowded the city center and now depend on charities, like those operated by the Jesuits. Observers warned of a humanitarian crisis.

Today, the fighting continues. Regime aircraft strafe rebel-controlled neighborhoods. Ethnic minorities, like the Kurds, have organized their own militias. Tanks sweep the streets. The medieval citadel of Aleppo, and the strategic hilltop on which it sits, once again houses troops.

Yet after months of fighting, the rebels have the momentum. Opposition units now encircle the regime-controlled city center, cutting off further reinforcements from Damascus.

What price civil war?

Even as they tighten the vise, the rebels are not starving the city. There are obvious political reasons: An insurgency's aim is to win hearts and minds. Yet there is also a profit motive. War creates new markets, it depends on them (and in some cases is prolonged by them). Insurgents need to be financed. Conveniently, a siege generates ample commercial opportunities. The city center still needs food, and it badly wants electricity and gasoline. Rent-seeking opposition groups, which now control supply lines, have imposed surcharges on goods going in since the start of the siege, exacerbating natural wartime inflation.

So the price of a tomato climbed 200%. Fuel prices quadrupled. During a flour shortage in December and January, a loaf of bread -- which once cost 25 SYP -- shot up to 500. Electricity shortages animated a profitable trade in power generators.

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Aleppo consumers have felt the squeeze. Amid economic sanctions and currency depreciation, Western imported goods are unavailable or unaffordable. While the Syrian Pound (SYP) is still used in the streets, its downward spiral has sharply increased demand for foreign currencies. Prior to the war, the U.S. dollar bought around 50 SYP. Today, it buys closer to 140.

Financial support, in the form of remittances, still flows to Aleppo. Many businesses have closed, but banks remain open. While money transfers to Syria declined in 2012, according to a Western Union (WU) spokeswoman, remittances remain an important lifeline to the city, and feed the war raging around it.

In a siege economy, formal institutions often break down and are replaced by unsustainable improvisations. Since last winter's shortages, opposition forces have allowed flour to reach the city's bakeries, and, after capturing Aleppo's power plant, negotiated the sharing of electrical current with regime-controlled neighborhoods. In effect, regime and opposition forces have established procedures that allow life in the city to continue, even as they work tirelessly to kill one another.

Fundraising for revolution

The Syrian opposition's campaign has also turned into a race for funding. Enterprising rebel units have developed promotional videos and named themselves after wealthy Gulf sheikhs, according to Syrian bloggers BSyria and Edward Dark. On a larger scale, opposition leaders are pressing outside states to step up their financial support. Regional powers like Turkey have answered that call.

While the U.S. has been pushed in recent weeks to provide greater assistance to rebel groups, the Obama Administration is loathe to pledge anything more than "non-lethal" aid to the rebels, likely out of fear that arms would end up in the hands of anti-Western Islamists.

Such fears are not baseless. While the Syrian regime is brutal, the rebels are just as brutal, and increasingly radical. Last month, a prominent opposition group, the al-Nusra Front, openly declared its allegiance to al-Qaeda of Iraq. The rival FSA, keen to win Western support, swiftly disavowed al-Nusra. However, the FSA is hardly secular: Its ranks and senior command posts are filled by Islamists. As the New York Times emphasized last month, Syria has no meaningful secular opposition groups to speak of. Meanwhile, throughout the country, rebel-controlled towns are establishing Islamic courts and requiring women to wear hijab.

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"I know the Blond Duck is a dictator," said one young Syrian who requested anonymity, using a common nickname for President Assad. "But the opposition, they're not about freedom, either. Do you really think that Jihadists will bring freedom?"

Like many young Syrians caught between the regime and rebels, he said, he simply wanted stability.

Whatever the outcome, he may be sadly disappointed. For most analysts, it's not a question of whether the regime will fall, but when. Following that, the persistent fear is that the revolution, to use Jacques Mallet du Pan's phrase, will devour its children. "If the Blond Duck falls," the young Syrian said, "there will be complete anarchy."

And if that happens, a war that has for months swirled around the still-peaceful center of Aleppo will finally rush in.

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