During an official visit to Iraq on May 20-22 of this year, Syrian Prime Minister Mohammad Naji Al-'Otri negotiated a series of "strategic agreements" with his Iraqi counterpart Nouri Al-Maliki on political, security, and economic issues. One of the agreements called for the repair and reopening of the oil pipeline from Kirkuk, in northern Iraq, to the Syrian port of Banias.
At a press conference at the end of his visit, Al-'Otri said, "Syria is committed to the security and stability of Iraq, because the security of Iraq is the key to the security of the region." He added pointedly, "Any activity that undermines the security and stability of Iraq is a line that cannot be crossed." To Iraqi President Jalal Talabani, he conveyed "a brotherly message of affection and good wishes from his brother [Syrian President] Bashar al-Assad," who wished to remind Talabani of their prior agreement "not to use [Syria and Iraq] as arenas for hostile activity against one other."  In a communiqué issued May 22, 2009, the two sides also condemned terrorism of all types and forms, since it represents a threat to the region and the world, and underscored their commitment "to confront it, uproot it, and put an end to it."
A few days later, however, Syria reopened its border to Al-Qaeda and other jihadist recruits on their way to Iraq. This apparently prompted U.S. President Barack Obama to extend the U.S. sanctions on Syria for another year, and the Iraqi Oil Ministry to announce that the rehabilitation of the pipeline is not feasible at this juncture due to security difficulties.
Following are details about this affair.
The Kirkuk-Banias Pipeline
The reopening of the Kirkuk-Banias pipeline, which has a capacity of just over 200,000 barrels/day, was one of the main items on the agenda during Al-'Otri's visit to Baghdad. Iraqi Foreign Minister Hoshyar Zibari said, "One of the key things we are contemplating is the reopening of the pipeline to the Mediterranean, which would diversify our oil export outlets."  Under the regime of Saddam Hussein, the 800km (500 mile) pipeline secretly carried Iraqi oil to Syria in violation of the U.N. Security Council resolution restricting the export of Iraqi oil. Syria has never admitted the violation, and has explained the illicit transfer of oil as a test to check the viability of the pipeline.
The pipeline, and in particular the K3 pumping station, was heavily damaged by U.S. bombing at the start of the April 2003 invasion of Iraq, rendering it inoperative. In December 2007, Iraq invited the Russian company Stroytransgaz to submit an offer for repairing the line, but since Stroytransgaz has failed to complete the work in accordance with the agreement, the Iraqi Oil Ministry, according to its spokesman, is now looking for other companies to finish the project. 
The Renewal of the U.S. Sanctions on Syria and the Suspension of the Pipeline Project
With the ink of the May 22 Syrian-Iraqi communiqué barely dry, and not withstanding the solemn statement by the Syrian prime minister that the violation of Iraq's security is "a line not to be crossed," Syria decided to reopen its border to terrorists and jihadists wishing to enter Iraq. This left the U.S. and Iraq with no choice but to take appropriate countermeasures: the United States renewed its sanctions on Syria, and Iraq delayed the pipeline project.
The U.S. sanctions on Syria were originally imposed in 2004 by former president George Bush, who renewed them in 2006 and 2008. Upon renewing the sanctions for another year, President Barack Obama declared: "The actions of the government of Syria in supporting terrorism, pursuing weapons of mass destruction and missile programs, and undermining U.S. and international efforts with respect to the stabilization and reconstruction of Iraq are a continuing unusual and extraordinary threat to the national security, foreign policy and economy of the United States." The Syrian government daily Al-Thawra did not report on the sanctions, but a Syrian official dismissed the move as "routine."
On the day the U.S. renewed its sanctions, Iraqi Deputy Oil Minister Ahmad Al-Shama'a announced that the current security situation precluded any work on the pipeline. 
The Significance of the Pipeline for the Syrian Economy
Oil production in Syria peaked in 2000, reaching 540,000 b/d, but declined to about 405,000 b/d in 2006 and to less than 300,000 b/d in 2009. According to a recent report by the International Monetary Fund, the net oil balance (after subtracting the share of foreign partners) turned negative due to declining output and rising domestic consumption. 
In anticipation of the drop in oil revenues, Damascus raised the price of subsidized gasoline by 20% in October 2007 and introduced a rationing system in 2008.
Syria has also licensed another oil exploration bid round on its territory. But, according to the Middle East Economic Survey (MEES), one of the most authoritative sources on the oil business in the Middle East, this move "may prove less fruitful than rapprochement with Iraq," particularly given that no major oil company will work with Syria with the U.S. sanctions in place. Moreover, MEES points out that the drop in oil prices and the global economic crisis have cut off interest in exploration bid rounds, in Syria and even in members of OPEC. 
The Reasons for Syria's Change of Heart
The rehabilitation of the Kirkuk-Banias oil pipeline would have brought Syria two tangible benefits: a transit fee; and a regular supply of oil that Syria could purchase at a preferential rate - a rate certainly lower than what it currently pays for of oil shipped in from Iran and Venezuela. The Question therefore is: What suddenly caused Syria to sacrifice these long-term economic gains in favor of renewed terrorist activities in Iraq?
One can only speculate that the Syrian change of heart may be linked to the unscheduled visit to Damascus made May 5, 2009 by Iranian President Mahmoud Ahmadinejad. In the press conference after the meeting of the Iranian and Syrian presidents, Bashar Al-Assad said that Syria and Iran were "comfortable about the recent developments in Iraq," and that the two countries were joined in their position of supporting the Iraqi government in achieving reconciliation to ensure "the withdrawal of the last occupation soldier from Iraq." Ahmadinejad, for his part, spoke of "the victory that has fallen [in our lap]," and said that the situation in world and the region was rapidly unfolding in a way that benefits Iran and Syria and leans toward their points of view. 
Ahmadinejad's bellicose position about the presence of the U.S. in Iraq, which may have dominated his discussion with Bashar al-Assad, was even more apparent in his meetings in Damascus with Hamas leader Khaled Mash'al and Islamic Jihad leader Ramadhan Abdallah Shalah. Ahmadinejad exhorted them to follow the example set by Iran in its handling of the nuclear issue. Had Iran not insisted on its nuclear program, he said, but rather retreated for its position, "it would have lost the element of power and would have been defeated" by America and the Zionists.  There is no reason to suspect that Ahmadinejad conveyed a different message to Al-Assad.
It is obvious that Syria has squandered a great opportunity to benefit from a highly profitable transaction with Iraq, choosing instead to undermine the security and stability of its neighbor, which, only a few days earlier, it had vowed to protect. The U.S. sanctions will surely frustrate any attempt by Syria to attract major oil companies for exploration in its territory, and will likely cause the suspension of the Association Agreement with the European Union, which was initialed almost five years ago but has not yet been implemented. Furthermore, any hope of joining the International Trade Organization will remain unrealized.
The behavior of Syria provides firm evidence that it remains subservient to Iran's foreign policy machinations, even though they harm the long-term economic wellbeing of its people.
*Dr. Nimrod Raphaeli is Senior Analyst (emeritus) at MEMRI.
 Al-Mada (Iraq), April 22, 2009.
 Al-Sabah (Iraq), April 22, 2009.
 Al-Sharq Al-Awsat (London), May 25, 2009.
 Middle East Economic Survey, 52-17, April 27, 2009.
 UPI, May 8, 2009.
 Al-Sabah (Iraq), May 8, 2009.
 IMF, Staff Report for the 2008 Article IV Consultation, December 19, 2008, p. 5.
 Middle East Economic Survey, op. cit.
 Al-Thawra (Syria), May 6, 2009.
 Al-Sharq Al-Awsat (London), May 7, 2009.