New US sanctions against Syria do not bar new investment for US companies

May 13, 2004
New US sanctions against Syria will hold mostly a political impact on US companies wanting to invest in the country, according to industry and government officials.

By OGJ editors
WASHINTON, DC, May 13 -- New US sanctions against Syria will hold mostly a political impact on US companies wanting to invest in the country, according to industry and government officials.

President George W. Bush signed an executive order May 11 that bans US exports other than food and medicine to the country, but his action does not preclude US-based energy companies from making or maintaining investments, including oil trading.

In December 2003, President Bush signed the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003—which like other existing sanctions laws on the books—gives the White House wide discretion on what actions, if any, the administration may take against the Middle Eastern nation.

The act requires the Secretary of State to submit an annual report to Congress, beginning in June 2004, on Syria's progress toward meeting the conditions set forth in the legislation, any connections between Syrian-based terrorists and terrorist attacks on the US or its allies, and US efforts against Hizballah and other terrorist organizations allegedly supported by Syria.

Speaking on condition of anonymity, US officials suggested that even though US companies technically still will be allowed to conduct business, they could find it extremely problematic.

The White House's latest move also freezes some Syrian assets that the US suspects could be a conduit for terrorist activity. But more importantly for US companies, the new sanctions restrict US financial institutions from corresponding with Syria's state owned bank.

According to the Energy Information Administration, trade between the US and Syria is a modest $400 million/year, but there are US companies involved in a developing Syria's oil and gas sectors. Syria now markets all of its crude oil, including that produced by foreign companies, through state marketing company Sytrol.

US companies with upstream interests in Syria include Occidental Petroleum Corp., which has a 25% stake in a Petro-Canada led proposal to develop natural gas, and independents Stratic Energy Corp., Calgary; Devon Energy Corp., Oklahoma City; and privately-held Gulfsands Petroleum, Houston.

EIA said that oil exploration activity in Syria has been slow in recent years due to unattractive contract terms by the state-owned oil company Syrian Petroleum Co. (SPC), and poor exploration results.

"For these reasons, only a few companies out of more than a dozen operating in the country in 1991 remain in Syria at present," EIA said. The agency said that a recent bid round attempted to reverse this trend, but its successful remains unclear.

EIA noted that TotalFinaElf publicly expressed its intention to scale down its Syrian operations in May 2002, and ConocoPhillips announced in February 2004 that it was ending its operations in Syria.

Nevertheless, the European Union, perhaps seeing a potential business opportunity because of the sanctions, announced it will send a high-level trade delegation to Damascus this month to encourage oil and gas exports to Europe. Syria is offering 14 onshore blocks to companies this year.