Volume 6
Northwest Syria Series
Contiguous Crisis
Turkish lira depreciation and markets in northwest Syria
September 2023
Introduction
The Turkish economy has steadily contracted throughout 2023. Already grappling with soaring inflation rates and a lack of robust foreign exchange reserves, the February earthquakes worsened prospects for improvement by causing an estimated (US)$34 billion in damages. The impacts of the economic downturn in Turkey and the earthquake’s aftermath continue to intensify broader socio-economic dysfunction in northwest Syria, a region experiencing record-breaking high prices and reduced purchasing power, with increased reliance on the Turkish lira and Turkish markets in recent years.
The impact of Turkey’s economic crisis on markets in northwest Syria is well documented in broad terms, with close attention paid to the impacts on prices and the implications for household purchasing power. However, less is understood about how the impacts are felt differently across different segments of the Syrian economy and from one region to another. These nuances can help clarify the dynamism and convolution of ever-increasing household needs and better inform support mechanisms. In this sixth report in the Northwest Syria series, Crisis Analysis – Syria (CA-SYR) assesses the impact of recent depreciation of the Turkish lira on prices and purchasing behaviors in opposition-controlled areas of northwest Syria through a combination of statistical analysis and insight from local residents, traders, and business owners.
Key findings
Measuring the statistical impact of Turkish lira depreciation on prices in northwest Syria, also known as the pass-through effect, can help quantify the impact of depreciation on local prices. Items with the highest statistically significant pass-through effects include a 200ah (amp hour) battery (1.31), olive oil (1.28), a solar water heating system (1.26), diesel (1.19), bulgur (1.16), and gasoline (1.16). Future waves of depreciation can be expected to have disproportionate impacts on the price of these items in local markets in northwest Syria.
Beyond more extreme pass-through effects, a variety of regularly-used household products are significantly impacted by lira depreciation, which even extends to items produced domestically.
Local authorities seldom intervene in the market in northwest Syria, enabling commercial actors to operate relatively openly and allowing prices to be determined by speculation and price-setting – particularly in periods of high levels of fluctuation in exchange rates.
The cross-border monetary dynamics leads traders and wholesalers to adapt during periods of volatility, including by opting to trade in US dollars as opposed to Turkish lira, limiting the sale of goods until exchange rates have stabilized, and other speculative behaviors during times of high volatility. These behaviors indicate that an uptick in demand for the dollar can be expected in periods of high volatility of the Turkish lira or Syrian pound as it becomes easier to use in local markets.
These approaches further drive prices up and exacerbate market volatility. The costs of such dynamics are primarily passed onto consumers who are spending more time to find affordable products on the market, or becoming reliant on debt, credit or aid.