Syria is considering blocking Lebanese exports. This could impact on regional letter of credit (L/C) flows from at least two perspectives.

The flow of L/Cs would be reduced if Lebanese exports to Syria were blocked. If Lebanon were to take retaliatory action, it could restrict the services Lebanese banks offer to Syrian businesses - and a substantial number of Syrian businesses use Lebanon's more efficient banks for L/C business.

Deteriorating relations

Despite the withdrawal of Syrian troops from Lebanon in the wake of the allegedly Damascus-backed assassination of former Lebanese president Rafiq Hariri and a crisis on the two countries' border, economic relations between the two countries remain strong.

The Syrians know that a block on Lebanese exports would hit its neighbour hard, but if Damascus does impose economic sanctions on Lebanon, they could have negative repercussions on the Syrian economy too.

Enduring interdependence

Syria has imposed economic sanctions on Lebanon several times in the last fifty years as a tool chosen by Damascus to bring its neighbour in line with its way of thinking.

Despite ebbs and flows in Lebanese-Syrian relations over the years, bilateral trade however has continued unabated, and the two countries are in several respects economically interdependent.

Banking links

The use of Lebanon's banks by Syrian businesses is a critical interdependency. Despite efforts to reform Syria's banking system, Lebanese banks provide the vast majority of L/Cs and other import finance facilities to Syrian importers.

Even though Syrian banking has improved somewhat and Damascus has allowed some foreign banks to open branches in Syria, the sector still lacks banking capabilities and struggles under rigid financial legislation.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.