Samir and Hassan in the Buzuriyah souk used to earn their living selling luxury sweets to visitors to the nearby 18th-century Azem Palace. Their shop in the covered market stays open, multicoloured tubs of sweets on display, but Samir says gloomily that “business is very bad and our customers are few”. The factories that make his sweets in the villages around Damascus are closed or cut off by fighting and he must pay for expensive imported ingredients in devalued Syrian pounds.

Customers in the souk are no happier than the shopkeepers. Ramadan starts this week and Umm Said, a housewife in her forties, has come with her two daughters to the market from her home in the al-Midan district of Damascus in the hope of finding cheap foodstuffs for special Ramadan dishes. “I am disappointed,” she says. “Prices here are just as high as in the small shops where I live and they will get even higher later in Ramadan.” The economic breakdown in Syria is exacerbated by the country being broken up geographically as government and rebels hold their own territory, making it unsafe to produce and transport goods. This is frustrating for Khalid, a neatly dressed elderly shop-owner in the souk who sells Syrian folk remedies made out of herbs, flowers and almost anything else.

Above his head at the shop entrance hang dried starfish, ibex horns, tortoise shells, dried frogs and other health-giving items. He complains that his main stock in trade is 25 different types of dried flowers and rare herbs which he can now only obtain with difficulty and at great expense.

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He says that “women from the villages west of Aleppo and in Idlib used to go into the mountains and spend all day collecting a kilo of flowers. Now they are too scared to do that so there is no supply for me.”

One medicinal herb came from near Darayya, a southern suburb of Damascus that has been much fought over in the past two years. The few families that cultivated the herb have fled and nobody else has their expertise. Foreign imports of dried flowers and herbs from Egypt and Sudan, stored in sacks in front of Khalid’s shop, are very expensive because the importers want payment in dollars.

The Syrian pound used to be 47 to the dollar and is now about 200. But, despite the laments of the shopkeepers, the centuries-old Buzuriyah souk is full of bustling crowds because Syrians have seen their incomes plunge and prices in souks are cheaper than in shops elsewhere.

Parts of the economy have disintegrated or are badly hit. A study led by a former Syrian Planning Minister, Abdullah al-Dardari, on post-war reconstruction, estimates the total damage so far at $60-$80bn or a third of the pre-war economy.

Oil exports worth $8bn have stopped because the oilfields in the north-east are in the hands of the al-Qa’ida-related al-Nusra Front and because of US and EU sanctions on importing Syrian oil. Tourism, once worth $8bn a year, has vanished and Syria’s great monuments stand empty or are closed. Agriculture is crippled by war, which has hindered cultivation and raised the price of transport. One Damascene complains that tomatoes used to cost very little at this time of year “but now you pay the same for a kilo of tomatoes as you paid for 20 kilos three years ago. Fewer are produced and it is costly to get them here.”

Physical damage is difficult to assess but many factories in rebel-held areas of Aleppo, the site of so much of Syrian industry, have been destroyed or looted. Much of the plant on the outskirts of Damascus is located in contested districts. A businessman who manufactures lighting equipment in a factory he owns in China says “my warehouses in Syria with $5m- worth of stock have all been destroyed. How stupid we Syrians are to let this happen!”

How do Syrians survive the burdens of civil war? The answer is that many of them do not. In a school in Homs, I met an 85-year-old man called Awad al-Izou who is a refugee from Baba Amr district whose house – “it had seven rooms” he recalls – in that former rebel-held bastion has been destroyed. “I had five sons, one of them martyred, two in prison [one in Damascus, the other in Homs], one disappeared and one living in a distant village.” He lives in a government-run refugee shelter in a school because “at least here I have a bed, food and electricity”.

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Chance encounters with strangers invariably produce sad stories. In the Tekkiyya al-Suleimaniyah – an entrancing 16th-century Ottoman complex of mosques, gardens, khans and ancient schools – I met a woman called Fatmih al-Hassan. She had lived in Aleppo but her husband disappeared and she suspected he was dead. The government had given her compensation, which had been stolen, and a small pension which she had to share with his sister. She said: “I came to Damascus with eight other women and we have rented a small house for 7,000 Syrian pounds [about $35] but we are running out of money.”

Civil war has disastrously damaged the economy in government-held areas, but it has not entirely sunk it and may not do so. Electricity, mobile phones and the internet still operate in Damascus, Homs, Tartous and other cities most of the time. There are queues at petrol stations but there is petrol and diesel for those who wait.

Bread, rice, cooking oil and cooking gas are available at heavily subsidised prices. Queues outside bakeries are a common sight because people buy in quantity so they do not have to queue again for a few days. Overall, Damascus compares quite well with Baghdad, though this is a tribute to Iraq’s uniquely corrupt, incompetent and dysfunctional administration.

The government is keen to maintain normal life and services, such as hospitals, in the areas it controls. People in rebel areas sometimes get their pensions but districts where the opposition is strong such as Eastern Ghouta, the rich agricultural lands east of Damascus, are squeezed, with people unable to get to work outside them because of checkpoints even if they still have a job. A failure of the opposition has been its inability to provide even rudimentary administration and facilities where it is in control, though the government is eager to compound these failings of the opposition by cutting off supplies.

The Syrian economy is weak and getting weaker. The rebels might cut the electricity supplies in Damascus as their counterparts used to do in Iraq. But the Syrian government is buttressed by close alliances with Russia and Iran and friendly relations with China. Kadri Jamil, the Deputy Prime Minister in charge of the economy, was quoted as saying these three countries deliver $500m in oil on credit each month. “It’s not bad to have behind you the Russians, the Chinese and Iranians. Those three countries are helping us politically, militarily – and also economically,” he said.

Syria may survive but many Syrians will not. Unicef says that 6.2 million Syrians, out of a population of 23 million, are in need of direct assistance. Half of them are children. The plight of refugees fleeing to Lebanon, Turkey and Jordan gets international attention but the 4.25 million displaced inside Syria are less visible. In Homs alone, 400,000 people have fled the Old City and in Damascus whole families are often crammed into a single room.

Many Syrians have suffered catastrophe and more have seen their lives disrupted and their standard of living collapse. Ibrahim is a manager in a hotel and has kept his job “but they cut my salary in half because the hotel is almost empty and is losing money”.

He had a house in the hills west of Damascus, but the road from there became too dangerous so he sold his car two years ago and used the money to rent another house in a safer area. He says “a few months ago I could no longer afford to pay the rent and I moved into my parents’ house”.

Most dispiriting for Syrians is not just that life is hard and getting harder, but they do not see why it should get any better.

Syria is facing a conflict akin to the Lebanese civil war that lasted 15 years. A diplomat in Damascus said “both government and opposition think they can win. That is why the war is going to go on a long time.”

And a long war leads to irreversible losses such as a sustained lack of confidence in the economic future, emigration of the best educated and a damaged infrastructure. Even if the civil war ends tomorrow – which it will not – Syria will be a crippled society and economy for years to come.