Political risks to watch in Syria

Syria faces mounting international pressure against its crackdown on a nine-month protest movement that has become increasingly violent, as pockets of armed insurgency overshadow what began as peaceful demonstrations.

After the Arab League threatened to take its efforts to stop the crackdown to the UN Security Council and a surprise move closer to Western condemnations by Syria's biggest arms supplier Russia, Syria agreed a deal to allow in observers to monitor its compliance with an Arab peace initiative.

But with more than 100 deaths on the day of the deal -- one of the bloodiest days of the conflict yet -- the risk of rising violence and sectarian strife seems unlikely to dissipate.

President Bashar al-Assad looks increasingly isolated and Syria's agreement shows a growing sensitivity to international pressure. Yet the 46-year-old leader has not bowed to growing international calls for him to step aside and it looks unlikely that his army will relent in its efforts to crush unrest that it blames on foreign-backed "terrorists".

Assad warns that foreign intervention, increasingly demanded by the opposition, will set off a regional crisis. Turmoil in Syria could spill over to neighbouring Lebanon, Israel, Turkey and Iraq with cross-border ethnic and sectarian ties.

Parts of Syria itself have already been shaken by a spike in sectarian violence as armed rebels, largely from Syria's Sunni majority, fight security forces led mostly by the Alawite minority sect to which Assad's family belongs.

According to the U.N., the crackdown has killed some 5,000 civilians and soldiers who refused to shoot. Damascus says it has lost more than 1,100 of its security forces in the fighting to "armed terrorist groups".

The crisis is the gravest facing Syria since Assad's father crushed an armed Islamist uprising in 1982. In addition to the bloodshed, Western powers, Arab states and Turkey have imposed several rounds of sanctions.

With the economy in a downturn and foreign currency flows drying up, financial pressures will test the loyalty of the business elite that has so far stuck by Assad or kept silent.

Here are some risks to watch:

SECTARIAN STRIFE

Tensions are high between Syria's Sunni majority population, the driving force of the protests, and Assad's Alawite minority, an offshoot of Shi'ite Islam.

Kidnappings and killings based on religious identity are increasingly common in protest flashpoints such as Homs, sparking international and regional concerns that the strife could lead to more sustained sectarian bloodshed.

Assad warned the British Sunday Times newspaper that foreign intervention in Syria would set off a regional "earthquake".

Lebanon, Iraq and Turkey would all worry that sectarian or ethnic bloodshed in Syria could spill across their border, whipping up regional tensions between Arabs and Kurds, Christians and Muslims or Sunnis and Shi'ites.

Assad's alliance with Shi'ite Iran and Hezbollah, Lebanon's political party and militant group, may give him a powerful hand to play in any regional showdown that could stir regional tensions with powerful Sunni-led Gulf Arab states.

Lebanon, still haunted by the spectre of its own sectarian civil war, has seen small sporadic scuffles that suggest Syria's unrest may be provoking local hostilities. Although it still seems unlikely, many fear rising tensions could drag in Hezbollah, which fought a war with Israel in 2006.

The opposition groups which hope to lead Syria deny any sectarian identity, but critics say they have not done enough to bring in non-Sunni leadership and may alienate Syrian Christians, Alawites and other minorities.

If they feel their fate is tied to Assad rule, they may be encouraged to bear arms rather than test the opposition.

What to watch:

- Any spike in sectarian-based killings in Syria

- Rise in sectarian clashes in neighbours such as Lebanon

- Heightened sectarian rhetoric from regional leaders

ARMED STRUGGLE

Demonstrations began in the southern town of Deraa in mid-March as a rare protest in one of the Arab world's most tightly controlled states.

As they spread across Syria, demands for greater freedoms changed to calls for Assad's overthrow, echoing slogans of the Egyptian and Tunisian revolts. Now protests demand Assad to be tried or even executed and many call for foreign intervention.

Meanwhile, army deserters that organised the Free Syrian Army say they have more than 10,000 supporters and are increasingly moving from protecting protests to launching attacks.

Rebel leaders say their operations are still defensive, and say the attacks allow peaceful protests to continue. But the rising number of assaults on troops has driven a rising death toll for Assad's security forces.

The government has made some concessions. Damascus plans to remove a constitutional clause designating Assad's Baath Party as Syria's leading party and will allow parties to challenge the ruling party in a parliamentary elections expected in February.

Assad also ended 48 years of emergency rule, granted citizenship to stateless Kurd and announced prisoner amnesties.

But protests and defections have continued. There has been a steady trickle of military defections of mainly low-ranking soldiers, but the armed forces and security forces have so far remained loyal -- unlike in Egypt and Tunisia where the military helped usher presidents from power.

Military power remains central to Assad's efforts to maintain control of the country of 20 million. Many commanders belong to Assad's family and his Alawite community.

Analysts say one potential way out of the crisis is an internal coup to force Assad out; otherwise, they say the leader may fight to the death fearing revenge attacks on the Alawites and a bloody end like toppled Libyan leader Muammar Gaddafi.

What to watch

- High level defections, bigger attacks on security forces

- Signs of division in top leadership

INTERNATIONAL PRESSURE

Russia's surprise shift last week toward a modified, more critical Security Council resolution has not been enough to satisfy Western powers but it may open more possibilities for international measures against Syria.

Regional powers, including Saudi Arabia, Egypt and Turkey, have stepped up their criticism of the violence, leaving only Hezbollah and Iran as solid allies.

International powers have mostly stuck to statements rejecting armed intervention. However, calls backed by France and Turkey for a guarded "humanitarian corridor" could lead to de facto military intervention on Syrian soil.

Neither Turkey nor the Arab countries have much leverage over Syria, and fears about what might follow the collapse of Assad's rule weigh even on his Western critics.

Southern neighbour Israel would not mourn the exit of a leader so closely allied with its enemies, but Assad and his father had kept the border quiet since the 1973 war despite Israel's continued occupation of the Golan Heights.

Veto-holding council members China and Russia may still resist a harsh resolution and analysts say Moscow will hold out against sanctions as long as possible.

What to watch:

- After Libya, any new look at foreign intervention

- Further easing of Russian, Chinese opposition to sanctions

ECONOMIC FALLOUT

The turmoil has hit an economy already struggling with unemployment, poverty, water and power shortages, along with falling oil output and population growth of 2.5 percent a year.

In October the International Institute of Finance predicted the economy would shrink 6 percent this year and some economist forecast a deeper contraction of 10 percent in 2012 if the conflict and the sanctions continue.

European sanctions have put oil exports worth $400 million a month at a standstill, while trade, manufacturing and foreign investment have all fallen sharply.

Meanwhile Syria's currency has depreciated, plunging to 55 pounds from 47 pounds against the U.S. dollar before protests. The pound is even lower on the black market at around 59 pounds.

A flight to safety has pushed wealthy Syrian businessmen, most of whose wealth was already abroad, to send remaining dollar savings in cash across borders to neighbouring Lebanon and Jordan, banking sources in the two countries said.

Syria's foreign currency reserves were estimated at over $17 billion before the unrest began. Up-to-date official figures are not available, but bankers believe the reserves have now declined by at least several billion dollars.

The wealthy merchant classes in Damascus and Aleppo have so far remained loyal, but there are growing complaints over the costs they are bearing from lost business.

What to watch:

- Elites more openly questioning loyalty over financial woes

- Moves towards wider trade embargoes against Syria

- New rounds of sanctions