One year after the United States rolled back most of its sweeping economic sanctions on Syria, Damascus remains effectively locked out of the global financial system. The primary barrier is no longer sanctions themselves, but Syria’s continued inclusion on Washington’s State Sponsor of Terrorism (SST) list — a designation that has proven far more difficult to unwind than executive-level sanctions.

Despite political openings and renewed diplomatic engagement, international banks and corporations continue to treat Syria as a high-risk jurisdiction. Compliance departments subject even routine transfers, letters of credit, and commercial contracts to exhaustive legal scrutiny, blunting the practical impact of sanctions relief and leaving Syria’s financial channels largely frozen.

A Legal Bottleneck Rooted in Washington’s Institutional Architecture

The slow pace of delisting is tied to the mechanics of U.S. governance. While the White House and Treasury Department were able to ease sanctions through executive authority, removing a terrorism designation — in place since 1979 — requires a separate statutory process.

The procedure begins with an internal security and policy review, followed by a presidential report to Congress certifying that the designated state has not supported terrorism for the previous six months and has provided assurances against future support. Congress then receives a 45-day review window. As a result, the SST designation has moved on a far slower track than sanctions relief, remaining bound to congressional oversight and the compliance frameworks of global banking.

Syria was first placed on the list in 1979 over alleged support for Palestinian and Lebanese factions. The pressure intensified with the 2003 Syria Accountability Act and deepened further during the civil war. The sweeping policy shift of 2025 reversed much of the economic embargo, but left the terrorism designation untouched — and on its own legal trajectory.

Financial Channels Caught Between U.S. Restrictions and European Re-Engagement

Global banks base their risk assessments not on diplomatic signals but on U.S. regulatory lists. Because most international transactions rely on the U.S. dollar and American correspondent banks, institutions treat any Syria-related transaction as a potential sanctions or terrorism-financing violation.

This forces companies to absorb steep compliance costs before signing contracts or opening credit lines, explaining the gap between political normalization and the sluggish restoration of financial flows.

The issue is not outright refusal to engage with Syria, but the architecture of the global financial system, which imposes strict liability for sanctions breaches. Removing Syria from the SST list would immediately give compliance departments a clearer legal basis for evaluating transactions, reducing the need for exhaustive audits that inflate costs and deter foreign firms.

Europe’s recent diplomatic shift illustrates this tension. In May, the European Union reactivated its cooperation agreement with Damascus for the first time since 2011. While extending targeted sanctions on former regime figures until 2027, the EU simultaneously delisted several Syrian entities — signaling a desire to reopen economic channels within a controlled legal framework.

Yet European banks remain constrained by U.S. terrorism designations. Without delisting, political openings cannot translate into restored banking correspondence, trade financing, or commercial contracts.

The logistics sector offers a clear example. In May, Damascus signed an agreement with French shipping giant CMA CGM to operate dry ports in Adra and Aleppo, alongside a trial freight route linking Latakia Port to Adra by rail. While these moves revive physical trade routes, they also expose the urgent need for a functioning financial infrastructure capable of supporting shipping, insurance, and letters of credit.

Banks, Intermediaries, and the Hidden Cost of Importing

Financial expert Dan Azzi said the economic toll of the SST designation is felt most acutely in the inflated cost of external transactions rather than in the volume of trade itself.

A Syrian importer — or a foreign firm seeking to finance a project — must navigate a chain of expenses: specialized legal counsel, source-of-funds verification, beneficial-ownership screening, shipping insurance premiums, and secure payment guarantees. These layers significantly raise the final price of goods and services, even when the trade is technically legal.

Azzi noted that if Syria is eventually delisted, the first improvements will appear in daily trade, remittances, and import financing — sectors that respond more quickly than large-scale investment. These activities depend on stable correspondent banking networks, maritime insurers, and transparent payment systems.

Syria urgently needs this gradual reintegration. Large segments of the economy now operate entirely in cash or through informal intermediaries, pushing up consumer prices and preventing long-term planning. Reduced compliance friction would immediately help regulate the import of essential commodities — food, fuel, machinery, and public-service equipment.

Still, Azzi cautioned that delisting is not a cure-all. Foreign banks will continue to demand audited financial statements, transparent local partners, and a domestic banking sector capable of meeting international compliance standards. But removing the designation would eliminate a major deterrent for companies that see commercial potential in Syria but require a lower-risk environment.

Washington’s Institutional Calculus

Politically, the SST designation forces Washington to confront a decision that extends beyond banking. Delisting Syria would provide a firmer institutional foundation for existing sanctions relief and send a clearer signal to Arab and European capitals about the permissible scope of engagement.

So far, U.S. policy has moved through a slow institutional progression rather than a dramatic reversal. Any next step depends on legal and political arrangements that allow Washington to reassure markets while preserving targeted oversight mechanisms.

Ultimately, the significance of delisting lies not in triggering an immediate economic boom, but in lowering the financial premium of isolation. Executive actions may have created political space for engagement, but banks require a definitive regulatory foundation — and Syria must build an auditable financial environment — before commercial activity can resume at scale.

This article was translated and edited by The Syrian Observer. The Syrian Observer has not verified the content of this story. Responsibility for the information and views set out in this article lies entirely with the author.