Sanctions Relief Won't Suffice for Syria’s Teetering Economy
Following the fall of Bashar al-Assad in late 2024, international actors began cautiously exploring avenues for Syria’s recovery and political reintegration. This effort has accelerated since US President Donald Trump announced he aims to lift sanctions on Syria—potentially the most significant policy shift since Assad’s removal. Shortly thereafter, the European Union followed suit with an announcement to lift its own economic sanctions, signaling a coordinated Western effort to re-engage with post-Assad Syria and accelerate its political and economic recovery.
The commitment to lift sanctions could eliminate one of the most formidable barriers to international economic re-engagement and has been framed by the Trump administration as a gesture of goodwill, an opportunity for Syria to “shine.” But far from guaranteeing a seamless recovery, this shift reveals the fragility of international engagement strategies.
Sanctions were never the sole—or even the primary—constraint. The deeper obstacles lie in entrenched legal, financial, and structural issues that the lifting of sanctions alone cannot resolve. Without coordinated regulatory reform, new banking infrastructure, and integration of local recovery mechanisms, the promise of renewed international support risks falling flat.
Even with sanctions lifted, efforts to revive foreign investment are poised to confront significant hurdles in the months ahead. While the removal of US restrictions will eliminate a key deterrent, it does not resolve the legal ambiguity, technical incapacity, and political hesitation still affecting economic engagement.
The UK had fully lifted sanctions, and the EU has now followed suit by officially lifting its economic sanctions across sectors, including transport, banking, and energy. This coordinated shift marked a major turning point in Western re-engagement. Yet legal uncertainty persists. Hayat Tahrir al-Sham (HTS), the group from which Syria's new leadership emerged, continues to appear on the UN Security Council's list of sanctioned terrorist organisations. This designation includes a global asset freeze, arms embargo, and travel ban, creating ambiguity for international entities seeking to engage with Syrian institutions now under HTS-linked leadership. The enduring UN designation poses compliance risks and reputational concerns that may deter banks, investors, and other international partners. The US will likewise need to lift its own terrorism designation of HTS.
Compounding this is the state of Syria’s banking system. Crippled by years of financial isolation, Syrian banks remain unable to support inflows or facilitate international transactions. These bank lack access to SWIFT, suffer from low liquidity, and operate under opaque regulations that deter foreign engagement. Weak know-your-customer (KYC) mechanisms and poor compliance frameworks mean that even non-sanctioned transactions carry significant legal and reputational risk for international institutions.
Without robust banking reform—including the establishment of intermediary financial channels, enhanced transparency, and the restoration of regulatory oversight—Syria’s economy will continue to face critical bottlenecks even in a post-sanctions environment. In short, lifting sanctions alone does not open the floodgates. Without serious banking reform and legal clarity, few investors or donors will have the confidence to re-engage, making escrow arrangements, compliance assistance, and clearer guidance for diaspora investors the essential next steps to mitigate these risks.
Financial constraints persist not only because of regulatory uncertainty but also as a result of an increasingly strained environment for financial aid. The international aid apparatus has shown declining capacity to respond to Syria’s evolving needs. According to the UN OCHA Financial Tracking Service, total humanitarian funding for Syria in 2025 stood at $1.62 billion as of early May—falling far short of the country’s estimated needs. The EU-led Brussels IX Conference pledged €5.8 billion, with emphasis on reconstruction and stabilization, yet the 2025 Humanitarian Response Plan remains under 40 percent funded. Critical sectors such as health, protection, and WASH (water, sanitation, and hygiene) remain severely under-resourced.
While these financial pledges reflect a shift in political willingness to re-engage, they remain modest and insufficient to meet the urgency and scale of Syria’s humanitarian and development challenges. At least 16.5 million Syrians require humanitarian assistance, and core sectors—including food security and education—are experiencing acute funding shortfalls.
More than 14.5 million people face food insecurity, and 2.45 million children are out of school, yet both areas continue to suffer from chronic underfunding. Over 7 million internally displaced persons, many residing in informal settlements, also remain critically underserved. This funding gap underscores the long-term international disengagement that characterised policy under Assad, as well as reflecting a broader global decline in aid appetite that has yet to reverse following regime change.
Meanwhile, the international response continues to operate in parallel to the realities on the ground, rather than in coordination with them. Years of conflict, fragmentation, and neglect have pushed communities to develop autonomous systems of governance and service delivery. Informal economies and decentralised mechanisms now underpin daily life across much of Syria—particularly in areas outside central government control. These models, long dismissed as ad hoc or illegitimate, have become indispensable to local resilience.
In places like Idlib and northern Aleppo, local councils have taken on critical roles, from electricity provision and local policing to basic dispute resolution, often with minimal external support. Ignoring these grassroots structures in formal recovery frameworks risks perpetuating disconnection and undermining the very systems that have enabled survival. The role of remittances underlines this dynamic: with over $1.6 billion in inflows in 2024, the Syrian diaspora remains a crucial financial lifeline. Yet legal ambiguity, limited registration mechanisms, and a lack of secure banking options continue to deter diaspora investment, further stalling the potential for meaningful economic recovery.
These challenges are further complicated by the absence of clear frameworks for property rights, business licensing, or financial repatriation—particularly for Syrians abroad seeking to invest in housing, reconstruction, or entrepreneurship. To translate this potential into tangible outcomes, international actors must prioritise legal clarity for diaspora contributions, establish secure financial instruments such as escrow mechanisms, and formally recognise and support the decentralised governance structures that already deliver important services on the ground.
Beyond technical and operational hurdles, Syria’s economic trajectory is increasingly being shaped by shifting regional geopolitics—with major implications for the nature and direction of its recovery. While the lifting of US sanctions was unilaterally announced by Trump, it was significantly influenced by pressure from Saudi Arabia and Turkey, both of whom view the post-Assad transition as a strategic opening. Riyadh sees an opportunity to curb Iranian influence and reassert Syria’s role within the Arab fold. Ankara, for its part, aims to solidify its economic and security presence, particularly in the north.
These regional powers are already asserting influence through reconstruction agreements, energy proposals, and debt forgiveness deals. This emerging form of economic regionalism risks skewing Syria’s recovery toward externally driven priorities, and heightening dependency on bilateral opportunism rather than fostering a coordinated recovery strategy. In contrast, Western governments remain cautious.
While both the UK and EU have now lifted sanctions, the absence of a coordinated and forward-looking engagement strategy continues to undermine trust and deter private sector interest. The EU’s recent move offers legal clarity in principle, but practical implementation remains contingent on parallel reforms in banking access, regulatory coherence, and local-level stability. Despite its significance as a step forward, lifting sanctions will prove insufficient unless embedded in a broader policy framework that addresses structural constraints and governance fragmentation.
US officials have emphasised this point. Lifting sanctions does not yet amount to full diplomatic normalisation, further concretising the impression of an ad hoc Western approach. In this vacuum, the absence of a coherent economic strategy from the West risks opening the door to fragmented investments, opportunistic influence peddling, and the entrenchment of external leverage over Syria’s fragile institutions.
The lifting of US and EU sanctions marks a historic shift in international policy toward Syria. Yet without a coherent implementation strategy, this legal relief may amount to little more than a symbolic milestone.
Western policymakers must treat this moment as an entry point, not an end point. Re-engagement must now be grounded in operational policy: enabling banking reform, clarifying investment guidelines, unlocking diaspora finance, and prioritising partnerships with decentralised governance systems that have sustained Syria’s resilience to date. Only by aligning diplomatic intent with structural support can this sanctions reset translate into a sustainable, inclusive recovery.
Photo: Ahmed Akacha
