By Jonathan Saul and David Brough
LONDON (Reuters) - Escalating violence in Syria has slowed sugar refining to a virtual standstill, with smuggling set to rise as Western sanctions hobble trade finance and disrupt imports of the staple sweetener, trade sources said.
The European Union, the United States and other Western countries have imposed sanctions on President Bashar al-Assad's government in response to the bloody crackdown on a revolt that has cost more than 9,000 lives.
While those sanctions are not meant to target food imports, the complexity of trade, including extensive due diligence, is hampering deals.
Trade sources told Reuters that Syria's four sugar refineries were either shut or producing modest amounts, with unrest contributing to the disruptions.
Latest forecasts from the International Sugar Organization had anticipated output from the refineries at 150,000 metric tons (165,347 tons) for the 2011/12 October/September season.
Supplies are having to reach Syria mainly by truck from neighboring countries, sources said, with highly profitable overland smuggling by private traders seen increasing due to difficulty in securing letters of credit for sea cargoes.
"There is serious demand for sugar which the government cannot supply because of the conflict, and the private sector cannot come up with what is needed because of financing issues," one trade source said.
"The refineries appear to be not operating properly. So, it's going to be tough for Syria on the sugar side."
The ISO had anticipated Syrians would this year consume some 915,000 metric tons of sugar, which is also an important source of energy during times of conflict when access to other foodstuffs may be limited. Syria is also facing problems buying grain from international markets.
"We face difficulty in importing food because Lebanese banks and traders in the United Arab Emirates refuse to deal with Syrians," a Syria-based source familiar with the matter said.
Legal specialists say for companies operating in the EU, dealing with Syrian state entities involved in food or receiving payments over a certain amount require authorization from national authorities.
"Prices have roughly doubled on various imported staples from coffee to dairy products," said J. Peter Pham, a director with U.S. think-tank the Atlantic Council.
"While the regime has managed through subsidies to keep prices stable up to now for goods with a domestic supply like fuel and sugar, its ability to do so for any sustainable period of time is highly doubtful. And even with the subsidies, shortages are reported - even in areas considered loyal to the regime to which supplies have been directed."
Syria is also facing shortages of fuel and heating fuel, adding to the hardships faced by people there.
Because of the conflict, one million out of Syria's 23 million population now need humanitarian help, according to a U.N. mission which visited in March. The United Nations has rebuffed a demand by Damascus that it manage the delivery of all humanitarian aid and the U.N. insists on having some control.
BOON FOR SMUGGLERS
Syria's National Sugar Co refinery has been shut for months due to a dispute over ownership, its minority shareholders who include trade house Cargill said earlier this year. The plant is located near the city of Homs, which has seen intense violence in the more than one-year revolt against Assad.
Despite a U.N.-Arab League peace plan stipulating a truce and dialogue between Assad and opponents, violence has continued.
Another private refinery is located in Homs and is believed to be operating at minimal capacity. "You can imagine the situation there is very bad and it is difficult to get anyone to work or drivers to transport goods," the Syrian source said.
Two other state-owned refineries were believed to be not operating at the moment and were located in Deir al-Zor in the east of the country and Hama, which had also seen violence. A bomb explosion ripped through a main oil pipeline in the eastern province of Deir al-Zor on Tuesday, opposition activists said.
Sugar industry sources said there had not been large deliveries of bulk sugar by ships since August 2011, citing shipping data. Small quantities had been brought in on container ships. "It's hand-to-mouth," one source said.
Another trade source said Syria was looking to buy sugar in small parcels.
"It can even be delivered in container ships and they don't have the power deciding the terms. So, they will take whatever they can however small the cargo size is," the source said.
Other sources said Syria was trying to secure its needs through bringing refined sugar packed in bags and transported on trucks from neighboring countries including Lebanon.
"They will have to bring it across the border - so this will boost the smuggling trade. In the short-term, Syria may have no other choice," a trade source said.
(Additional reporting by Maha El Dahan in Abu Dhabi, writing by Jonathan Saul; editing by Veronica Brown and Keiron Henderson)