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Gaza conflict reignites violence in Syria

4 June 2024

 

Since fighting began in the Gaza war in October, Syria’s civil war has been pushed even further down the regional agenda, threatening to turn a largely frozen conflict into a forgotten one.

The intensity of the fighting, which entered its 14th year in March, has atrophied into a near stalemate in recent years, with the regime of President Bashar Al Assad controlling around 70% of the country, while a medley of rebel groups, Turkish forces and Kurdish and Arab militias hold a patchwork of territories across the north and east.

However, the battle between Israel and Hamas has threatened to reignite the Syrian war in new ways.

Assad has been doing his best to avoid getting involved in any regional escalation, but that has not always been easy, with the Israeli attack on the Iranian embassy in Damascus on 1 April, in particular, raising the risk of Syria becoming a battleground.

Over the past decade, there have been numerous Israeli attacks in Syria against the Iranian Islamic Revolutionary Guards Corp’s Al Quds force as well as Tehran-backed militias, but the rate of attacks has increased since the Gaza war broke out.

Expanding violence

In March, the UN’s Independent International Commission of Inquiry on Syria issued a report which said the country has been suffering the worst wave of violence since 2020. “Since October, Syria has seen the largest escalation in fighting in four years,” said commission chairman Paulo Pinheiro at the time. “Syria … desperately needs a ceasefire.”

That analysis has been backed up by the US-based Armed Conflict Location and Event Data (ACLED) project, which recorded 201 incidents linked to Israeli attacks in Syria involving 236 deaths between October 2023 and March 2024, the highest number since it began tracking the civil war in 2017.

Assad has several reasons to want to avoid being drawn further into conflict with Israel, not least that his own forces are stretched and weakened after years of fighting.

Damascus has also not forgotten that Hamas broke ties with Assad during the Arab Spring, with the Palestinian group’s leader, Khaled Mashal, leaving Damascus in early 2012. Relations were only restored a decade later, when a Hamas delegation travelled to the Syrian capital, but they remain strained.

In contrast to the threat of escalation as a result of Gaza, the Syrian civil war itself has been largely stagnant since 2020, when Damascus abandoned its attempt to recapture the Idlib governorate in the northwest. Since then, the frontlines have stayed largely the same, but the country is far from being at peace and there is the constant threat of fresh fighting breaking out.

In October last year, a drone strike on a military graduation ceremony in the government-controlled city of Homs killed 80 people and wounded 240. In response, government forces launched an offensive against groups in the northwestern Idlib province, where Tahrir Al Sham (a militant group that emerged in 2017 out of several others) and the Turkish-backed National Liberation Front have their strongholds.

In April this year, suspected members of the Islamic State group killed 22 pro-government fighters of the Quds Brigade near the town of Sukhna in central Syria. There were similar attacks the following month.

Diplomatic overtures

Regional powers, including some in the Gulf, have urged Syria to resist being drawn into the Gaza conflict. Relations between Damascus and several Gulf capitals have been improving over the past few years, although the momentum behind that process appears to be slowing down.

Assad was in Bahrain in mid-May to attend the Arab Summit – the second such gathering he has been at since Syria was re-admitted to the organisation in 2023 following a diplomatic push by Jordan, Saudi Arabia and the UAE.

Among the other signs of diplomatic re-engagement, the UAE’s ambassador to Syria, Hassan Ahmed Al Shehi, took up his post in February, and in late May, Saudi Arabia named Faisal Al Mujfel its ambassador to Damascus – its first senior envoy there for 12 years.

The diplomatic outreach by the Gulf countries is motivated in large part by a desire to put pressure on Damascus to restrict the flow of the illegal drug Captagon into their markets, but there has been little sign to date that the Assad regime is willing to end that trade – which, by some measures, is now the largest part of the Syrian economy.

There are problems with other regional powers too, not least Turkey, which maintains control over two areas of northern Syria along their common border, from where it is trying to neutralise the threat of the People’s Defence Units (YPG), the Kurdish group at the core of the Syrian Democratic Forces now in control of some 20-25% of Syrian territory in the northeast of the country. Ankara views the YPG as a terrorist group due to its association with the Kurdistan Workers’ Party (PKK), which is banned in Turkey.

“What Damascus wants of Turkey is a full withdrawal; Turkey leaving and moving all its troops from Syria,” said Dareen Khalifa, senior adviser for dialogue promotion at the International Crisis Group, at the same Chatham House event.

“What Turkey wants of Damascus is preventing a new wave of refugees, crushing the Kurdish-led YPG forces and so on. It wants things from Damascus that Damascus can’t really deliver on. So, I think that deadlock is going to continue.”

That looks to be true of the wider civil war, too, with little sign that the Assad regime or the various rebel groups have the ability to force significant changes on the ground.

Less clear is how the situation in Gaza, and the associated Israeli attacks and provocation against Iranian groups on Syrian soil, could yet affect the ongoing conflict in Syria in less predictable ways.

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Dominic Dudley

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    The Misfah IPP will be led by Nebras Power and located in Wilayat Bousher in Muscat Governorate, with a planned capacity of 1,600MW.

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    In March 2025, the same Sepco 3 and Doosan Enerbility consortium signed an engineering, procurement and construction contract with Saudi Electricity Company for the expansion of the Riyadh Power Plant 12 (PP12).

    Located about 150 kilometres northwest of Riyadh, the 1,863MW power plant is expected to be completed in 2028.

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  • Financial challenge tests Iraq’s resolve

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    On 21 April, as a fragile ceasefire held between the US and Iran, the Trump administration halted a $500m shipment in cash headed for Iraq, as it sought to clamp down on Iranian-backed Shia militias in the country. 

    That cash, derived from Iraqi oil exports and routed via the US Federal Reserve to the Central Bank of Iraq (CBI), is a vital cog in Iraq’s financial arteries, enabling it to cover foreign exchange demand.

    This was not the first time that Iraq’s financial system has felt the US’s warm breath on its neck.

    Back in February 2025, the US Treasury Department blacklisted five Iraqi banks from participating in dollar transactions, citing concerns about their role in illicit financial flows that benefited Iran’s Islamic Revolutionary Guards Corps.

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    Dollar pressure

    The recent halt in US dollar cash shipments has nevertheless added pressure to Iraq’s parallel currency market gap, says Lucila Bonilla, lead emerging market economist at Oxford Economics.  

    “The gap between the parallel exchange rate has widened noticeably against the official peg, to around 20%,” she says.

    “Dollar demand has risen as citizens and traders seek to hedge uncertainty – dollar deposits are up, and there are reports of a notable shift in the composition of cash holdings toward dollars.”

    Ratings agencies see the US move on Iraqi dollar use as a challenge, but one that might not prove too onerous.

    “Iraq can overcome a short-term war as it has $100bn of reserves and its debt profile is bearable,” says Gilbert Hobeika, a director at Fitch Ratings.

    “But a longer-term conflict will hurt Iraq as the economy is reliant on oil revenues and government involvement, while facing at the same time risk from the US stopping delivery of US dollars.”

    How persistent the pressure proves will depend largely on the duration of the Hormuz shock and how the relationship with the US evolves.

    “Forming a new government that is palatable to the US could ease the pressure, though Iraq’s protracted government formation process adds uncertainty to that timeline,” says Bonilla.

    The US-Iran war is putting even more pressure on banks.

    “There are uncertainties with regard to depositors,” says Hobeika. “The public sector banks have weak management and governance structures. Financial reporting is weak, and that puts pressure on asset quality and capitalisation.”

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    State-heavy system

    Iraq’s banking system is dominated by a handful of state-owned banks with a market share of 75%-80%, and then 60-plus private banks competing for the remaining 20%-25% of the pie. 

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    “In 2019, we had a wave of Islamic banks getting bans on dealing with US dollars – reducing what had been a primary source of business.”

    A few private banks have benefitted since then, namely those with majority ownership by foreign banks such as National Bank of Iraq, a subsidiary of Capital Bank of Jordan, and Bank of Baghdad, a subsidiary of Jordan Kuwait Bank.

    “Supported by their affiliates, these banks are relatively well run compared to domestic peers and have ample capital buffers,” says Hanna.

    “They have captured a large market share of US dollar transfers thanks to their strong US correspondent banking relationships that allow them easier access to US dollars. They have seen a surge in their profitability and an increase in their deposit base.”

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    “The stakes are high as the IMF estimates that a comprehensive reform of the financial sector, alongside broader governance and regulatory changes, could double Iraq’s non-oil growth potential over the medium term, adding around 4 percentage points to GDP,” says Bonilla.

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    Clouded outlook

    So far, Iraq’s financial system seems to have averted a worst-case scenario of large-scale deposit withdrawals related to the Iran conflict.

    Any deposit withdrawals seem to be more related to the introduction of a digital custom system ASYCUDA (Automated System for Customs Data) aimed at helping the government collect revenues, which saw a lot of traders trying to bypass the custom charges.

    “This drove some exporters or traders to source US dollars outside the banking system, in the parallel market, to avoid stricter requirements and up-front payment of customs duties. That has now eased,” says Hanna.

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  • Iraq LNG project delayed until next year

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    Iraq’s first liquefied natural gas (LNG) import terminal, which has an estimated project value of $450m, is now expected to become operational in 2027 due to delays caused by the regional war and disruption to shipping through the Strait of Hormuz.

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    READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Global energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.

    Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
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    Wil Crisp