LONDON – Until war erupted in neighboring Iraq, illicit supplies of cheap Iraqi oil helped buoy Syria's frail economy and enabled its government to put off making painful reforms.
Now, with U.S. troops shutting down the pipeline used for these shipments, Syria must adjust to a loss of $1 billion in annual income at the same time the United States is threatening to intensify the pressure by imposing economic sanctions on Damascus.
An end to shipments of cut-rate Iraqi crude will deprive the Syrian government of export income that possibly helped Syria's ruling Baath Party buy political support and maintain its hold on power. Without that cushion, Syrian President Bashar Assad will be less able to withstand U.S. economic and political pressure, some analysts say.
"It's a huge financial hit," said Jon Alterman, director of the Middle East Program at the Washington-based Center for Strategic and International Studies. "The government of Syria doesn't have a lot of ways to get money."
Defense Secretary Donald H. Rumsfeld said Tuesday in Washington that American forces have shut down the cross-border pipeline, though he could not assure that the flow of oil between the two countries had dried up completely.
For more than two years, Syria imported 150,000 to 180,000 barrels of oil a day from Iraq, in defiance of U.N. efforts to regulate Iraqi exports and ensure that Baghdad spent its oil revenue only on food and other humanitarian needs.
By satisfying its domestic energy needs with cheap Iraqi crude, Syria was able to export much of its own oil at market prices and pocket the difference.
In exchange for crude at bargain-basement prices, the Syrians provided Saddam with a source of cash outside U.N. control. These shipments -- through a pipeline from Iraq's southern oil fields to a refinery in Banyas, Syria -- were an open secret, although Syrian and Iraqi officials routinely denied their existence.
However, the war in Iraq shattered this arrangement. Rumsfeld's announcement appeared to confirm what Syrians and foreign energy analysts had already been saying -- that American and British troops cut off Syria's supply of subsidized oil during the first days of fighting.
Senior U.S. officials have recently accused Syria of shipping equipment to the Iraqi military and sheltering fleeing Iraqi leaders. Rumsfeld's comments seemed aimed at ratcheting up the pressure on Syria to change its behavior at the risk of economic and diplomatic penalties.
Syria was not Baghdad's only customer for illegal crude. Until the war, neighboring Jordan, a U.S. ally, imported as much as 110,000 barrels a day by truck. Pro-American Turkey trucked in up to 30,000 barrels a day through the Kurdish enclave in northern Iraq, where tariffs on the oil provided significant income for the Kurds.
The United Nations chose to ignore Iraq's illegal commerce with each of these three countries for political considerations, analysts say.
The people of modern-day Syria and Iraq have traded since antiquity. When Iraq prospered in the 1970s, jobless Syrians flocked there to work. When Iraqis' incomes plunged in the 1990s, Syrian traders filled taxis with inexpensive clothes and drove across the border to sell.
Syria, which allied itself with Iran in the Iran-Iraq war, shut down the oil pipeline in 1982. They reopened it in late 2000, as relations with Baghdad thawed.
Syria "can find oil elsewhere -- that's not the issue. But they won't get the same preferential treatment," said Valerie Marcel, an energy specialist at the Royal Institute of International Affairs in London.
Besides losing Iraqi crude, Syria's state-dominated economy is likely to suffer in other ways from the war. Exports of consumer goods to Iraq will decline, at least initially, while foreign investors will become more skittish.
Hussein Amach, head of Syria's Agency for Combating Unemployment, predicted the war will cut the country's growth rate in half to 2 percent. As much as a quarter of the labor force could end up without jobs, he added.
Assad's government may simply have to decide whether to befriend the United States or oppose it.
"They have less maneuvering room," Alterman said, "and the choices they have to make are starker."