Syria’s embattled regime laid plans to use Russian banks as part of an emergency effort to sidestep American and European sanctions on oil and financial transactions, according to Syrian government documents and correspondence reviewed by The Wall Street Journal.
The documents offer an inside look at how a shrinking group of regime loyalists is working to prop up Bashar al-Assad’s government. Over the past several weeks, senior Syrian officials have held a series of meetings to discuss how to conduct business after being cut off from most Western banking institutions and trade, the documents indicate.
The documents, which span a period from March until early July, also underscore the difficulties facing Western governments in sustaining comprehensive sanctions against Syria, as long as Damascus keeps its strong diplomatic alliance with Moscow. Earlier this month, Russia received a delegation of top Syrian economic officials, including its oil and finance ministers, to discuss the possibility of government loans and long-term oil deals, Syrian Deputy Prime Minister Qadri Jamil said in a news conference.
The sanctions, which began last year and were strengthened this spring, are aimed at Syria’s oil and financial sectors. The unilateral actions are coordinated by Western and Middle Eastern countries allied against Syria, but aren’t legally binding on Russian and other companies that don’t have operations in the U.S. or Europe. Russia and China have used their veto power at the United Nations Security Council to block the possibility of international sanctions.
A cache of documents reviewed by the Journal includes what appears to be authentic correspondence between Syrian government officials and certain foreign companies. In interviews with the Journal, some people who were parties to correspondence confirmed details. None of the people reached by the Journal questioned the authenticity of documents referenced in this article, although some denied conducting any business with Syrian entities.
Syria isn’t a globally significant oil producer. The 360,000 barrels of crude it pumps daily represent less than 1% of the world’s daily oil production. But Syria’s oil sales are one of the last sources of foreign currency for President Assad.
The roughly 150,000 barrels per day Syria has available for export, after its domestic needs are met, are worth approximately $ 380 million per month at current prices. That is a key reason why the U.S. and the European Union targeted Syria’s state oil companies, its central bank and financial sector. The sanctions have cut Syria off from its traditional buyers in Europe, including in Italy, Germany and Spain.
Last summer, the Syrian government announced it had approximately $ 17 billion in foreign-currency reserves, a figure that some Western diplomats believe has fallen by between one-third and one-half.
The U.S. imposed sanctions on Syria’s central bank and oil sector in August 2011. The EU placed limited sanctions on the Syrian oil sector last September, then strengthened them this March. Both the EU and U.K. imposed sanctions on the Syrian central bank in February.
The Russian government has long been opposed to international sanctions, both in general and in the case of Syria, saying they hinder political solutions. Diplomats at the United Nations say Moscow’s strong views have kept other countries from initiating debate on sanctioning Syria’s oil or banking sectors. Although Russian companies don’t have any legal obligation to follow U.S. and EU sanctions against Syria, such commerce has the potential to complicate diplomacy on other issues.
Syria’s plan to work around Western sanctions took shape this summer in a series of meetings between four officials—the central-bank governor, the ministers of oil and finance and the head of the state oil-marketing company in charge of selling Syrian oil, one government document shows.
After a July 1 meeting, the four officials drafted a letter to then-Prime Minister Riad Hijab saying that international sanctions had limited their ability to collect revenue by cutting off “conventional solutions [and] customary banking” practices, according to a copy of the letter reviewed by the Journal. A copy of the letter was included in correspondence between the Syrian central bank and Syria’s oil-marketing company, known as Sytrol, whose head was one of the letter’s four signatories. It isn’t known if the prime minister received the letter. Mr. Hijab defected on Aug. 6.
So far this year, despite the sanctions, Sytrol has secured 11 contracts to sell oil, that letter said. In addition, the letter said, Sytrol had secured deals to import half the diesel fuel Syria is projected to need each year—fuel it doesn’t produce at home but needs for military and industrial uses.
In that letter, the officials recommended a change in Syrian laws that would allow them to set up offshore companies and conduct business through them in order to minimize the impact of sanctions.
“Offshore companies are being formed in Russia and Malaysia and bank accounts are being activated in Russia in euro and Russian-ruble [denominated accounts] and could be ready Thursday July 5, 2012…. [T]hen we would be able to pay for the value of the imports and receive the money for crude exports easily, while all concerned parties will take all the necessary actions to ensure the confidentiality of the proceedings in order not to open the way to the European Union and the United States to track the work of these companies and include them on the list of sanctions,” according to the letter.
It isn’t clear from the documents reviewed by the Journal whether the steps outlined in that letter were completed. The letter addressed to the prime minister didn’t include any names of offshore companies or Russian banks.
Separate documents reviewed by the Journal indicate that as recently as June Syrian government entities on the U.S. and EU sanctions lists were considering commercial transactions that would involve Russian banks.
Those documents suggest that Syria was looking to do business with Gazprombank, the lending affiliate of Russia’s natural-gas monopoly.
A sample contract form sent by Sytrol in February to prospective oil buyers, after both the U.S. and EU had imposed some sanctions, listed Gazprombank as the financial institution through which payments for crude could be made, according to documents reviewed by the Journal, suggesting that Syria intended to clear foreign-currency payments for oil via that bank. It isn’t known whether Gazprombank ever cleared any such payments, or what companies were involved in the 11 contracts that the Syrian government letter says have been signed this year.
In March, officials from Syria’s central bank traveled to Moscow and met with executives from Gazprombank, in part to try to strengthen business relationships, including exchanging information to facilitate electronic money transfers, according to a separate document.
Gazprombank didn’t respond to the Journal’s question about the authenticity of the documents that mention the bank. It said it had a “correspondent banking relationship” with the Syrian central bank before the U.S. and EU sanctions were in place, but it “is no longer engaged in business (including international settlements) with the central bank of Syria and other Syrian financial institutions.”
Correspondence in June between Sytrol and a small, Dubai-based oil trader identified Moscow-based Novikombank as Sytrol’s “nominated bank” through which the trader would send money to the Syrian government. A June 21 letter from the trading firm, called Intertrade, to the head of Sytrol strikes an apologetic tone for the delays in closing an oil contract due to what the writer refers to as “your banking issues.” It isn’t clear from this letter whether any such contracts were closed.
In a telephone interview, the head of Intertrade, whose name appears on the letter, denied having any commercial relationship with Sytrol or Syria. After he was shown the correspondence reviewed by the Journal, he responded in writing that “we were just preparing the road for future commercial relations once it is legal and feasible to do so.”
Novikombank, whose chairman is a former officer of the Soviet-era secret service and a colleague of President Vladimir Putin, said in a statement it doesn’t do business with Syrian entities. A spokesman said that the bank doesn’t comment on “rumors,” and he declined to answer other questions about the bank’s clients, citing Russian bank-secrecy laws.
Other Sytrol and Syrian government documents describe efforts to find buyers for the nation’s surplus oil.
In pitches to several prospective customers, Sytrol officials agreed to discount Syrian crude, pricing it between $ 10 and $ 15 a barrel less than the Brent and the Dubai averages from which Middle Eastern oil is sometimes set.
One logistical problem posed by the sanctions was how to ship oil to buyers. Documents reviewed by the Journal show that Russian buyers of Syrian crude made plans to load Syrian oil onto leased tankers from Singapore and Russian-owned tankers based in the Black Sea. Correspondence between potential Russian buyers and Sytrol indicate that the buyers planned to use Russian insurance companies to cover the shipments.
Other documents showed that Syrian oil officials had found suppliers for diesel fuel. Sytrol agreed to buy 200,000 metric tons of diesel per month for 12 months from Angola’s state oil company, Sonangol, at a price of $ 855 per ton, according to a contract reviewed by the Journal.
A South African firm, Avon Oil Trading Ltd., negotiated the deal on behalf of Sytrol after Syria’s ambassador to South Africa approached the firm, according to Avon Chief Executive May Kiefer, who said she had tried unsuccessfully to do business with Syria previously.
“At the beginning of the year, they came back to us and said, ‘Look, there’s an opportunity if you guys are interested,’ and of course we were interested,” Ms. Kiefer said.
South African officials said their government has generally remained neutral on the issue of sanctions against Syria. In July, South Africa, which currently holds a rotating seat on the U.N. Security Council, joined Pakistan in abstaining from a vote that could have laid the groundwork for international military intervention. Russia and China vetoed the measure.
The Angolan state oil company, Sonangol, didn’t respond to written requests for comment. Ms. Kiefer said that when she was negotiating the deal, Angolan executives said they were aware of Western sanctions against Syria but that they and their government felt no obligation to follow them.
Ms. Kiefer confirmed the contract terms laid out in the document reviewed by the Journal. The contract says her firm would be paid a commission of $ 1 million per month for the diesel deliveries from Sonangol.
—James Marson in Moscow, Patrick McGroarty in Johannesburg, Summer Said in Dubai and Joe Lauria at the United Nations contributed to this article.
Write to Margaret Coker at email@example.com and Jennifer Valentino-DeVries at Jennifer.Valentino-DeVries@wsj.com
A version of this article appeared August 14, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Syria’s Russian Connection.