Iran grants Syria $3.6 billion credit to buy oil products

Iran grants Syria $3.6 billion credit to buy oil products

Syria and Iran signed a deal this week to activate a $3.6 billion credit facility to buy oil products to shore up President Bashar al-Assad's war battered economy, officials and bankers said on Wednesday.

The deal, which was agreed in May and will allow Iran to acquire equity stakes in investments in Syria, is part of Shi'ite Iran's broader support for Assad in his battle against a two-year insurgency by mainly Sunni rebels.

Tehran has already provided military assistance to Assad, training his forces and advising on military strategy. Iranian-backed Hezbollah fighters have also bolstered counter-offensives against rebels around Homs and Damascus.

"This will help Syria to import petroleum products that the country needs," said a Syrian trade official, referring to the credit facility. Underlining the acute nature of Syria's financial problems, he said authorities had tried to set a ceiling of $4 billion on the deal.

Syria is short of diesel for its army and fuel to keep the economy running, partly because of U.S. and European Union financial sanctions imposed after the crackdown on protests at the start of the crisis. Its main supplier of petroleum products by sea has been Iran.

Another $1 billion credit line to Damascus has already been extended to buy Iranian power generating products and other goods in a barter arrangement that has helped Syria export textiles, phosphates and some agricultural produce such as olive oil and citrus products, trade officials say.

"This will allow Syria to import Iranian products up to this ceiling, with almost half to buy electricity equipment for the sector," the trade official, speaking by phone from Damascus, told Reuters.

Alongside the favorable deferred payment terms of those financing facilities, Damascus has been in talks for months to secure a loan of up to $2 billion with low interest and a long grace period, the official said.

STRONG SIGNAL OF SUPPORT

Syria's economy has been hurt by depletion of foreign reserves that were estimated at around $16-18 billion before the crisis. The country had been earning some $2.5 billion a year from oil exports before the crisis.

With the economy on a war footing and military costs spiraling, Syria has been forced to rely increasingly on new credit lines from its main allies. Russia, Iraq and China have provided support - sometimes in the form of barter deals - but not on the scale of this week's deal with Tehran.