DAMASCUS, Syria – Many exchange shops closed in Damascus on Tuesday, fearing more chaos a day after the Syrian currency plunged to a new record low, reflecting growing fears in the capital following a U.S. decision to arm rebel groups fighting to topple President Bashar Assad's regime.
The currency woes add to the embattled president's troubles, and government officials rushed to allay public fears by announcing Damacus' top ally Iran was extending a credit line to make up for market needs.
Traders in the capital said a rush to buy U.S. dollars on Monday sent the Syrian pound's value tumbling to 210 to the dollar, compared to 170 just that morning. Many exchange shops closed Tuesday while others opened their doors without doing business, saying it was difficult to value the pound.
The official price of the dollar Tuesday was 99 pounds, according to state news agency SANA, though the widespread black market price is considered to reflect its real value. When Syria's conflict began in early 2011, the dollar was worth 47 pounds.
The currency dive followed last week's decision by the Obama administration to arm rebel groups in Syria, deepening U.S. involvement in the more than 2-year civil war which has killed 93,000 people, according to the U.N. The U.S., Britain and France accused Assad's regime of using chemical weapons, which President Barack Obama called a "red line."
"Expectations of a stronger U.S. involvement in Syria following the decision to arm rebels groups was almost certainly the key factor behind the recent drop in the Syrian pound," said Torbjorn Soltvedt, senior analyst at the British risk analysis firm Maplecroft.
"The decision reinforced the view that ultimately the Syrian regime will be unable to survive in its current form, despite recent strategic gains," he said, predicting a prolonged stalemate.
Regime forces have been waging a stepped-up offensive in the central Homs province and the northern city of Aleppo, Syria's largest city and once the country's commercial center. The assaults were launched after troops backed by Hezbollah fighters captured the rebel-held strategic western town of Qusair near the Lebanon border on June 5.
Officials rushed to assuage currency fears. Central Bank governor Adib Mayaleh said the pounds drop was unjustified and that government "put in place the required mechanism" — a $1 billion credit line from Iran to help support the pound, the state news agency SANA reported.
Iran is one of Assad's strongest allies and is believed to have supplied his government with billions of dollars since the country's crisis began in March 2011.
Syrian Prime Minister Wael al-Halqi said the government still has large reserves of foreign exchange and would put in place a package of economic measures to enhance the economy. He referred to the support of "friendly countries," including Iran's willingness to finance Syrian imports and the needs of industrial and agricultural production.
Syrians in the past few months have rushed to get rid of their pounds by buying gold or dollars and euros to preserve the value of their savings. Lack of tourists and a ban on Syria's oil exports by the U.S. and the European Union months after the crisis began deprived the government of billions of dollars annually.
The rising dollar has fueled a hike in prices.
"I keep changing the price of the products I sell to match the price of the dollar, otherwise I would be losing all the time," said a Damascus resident who sells spare car parts. He spoke on condition of anonymity for fear of reprisals.
Aleppo-based activist Mohammed Saeed said the rebel-held northern regions depend on goods imported from Turkey — including rice, sugar, butter and cooking oil, which are becoming more expensive in pounds.
"People get paid in Syrian pounds and are finding it more difficult to buy their needs," Saeed said by telephone.
Syria-based economist Hisham Khayat said the danger is that "the market is being dollarized. Buying and selling in Syria is based on the exchange rate."
When the conflict began, the government had some $17 billion in foreign currency reserves. But that figure has dropped from blows to two main pillars of the economy: oil exports, which used to bring in up to $8 million per day, and tourism which in 2010 earned $8 billion. Now U.S. and European Union bans on oil imports are estimated to cost Syria about $400 million a month.
The government has not said what currency reserves it has left, but the London-based Economist Intelligence Unit estimates it at a little more than $4.5 billion.
All those factors mean the currency is likely to continue falling, Soltvedt said.
"For the foreseeable future it is difficult to imagine even a limited degree of economic normalcy returning to Syria."
Mroue reported from Beirut.