According to Syrian officials the refugees are now costing the country over US$1bn a year as Iraqis deplete their savings and become more reliant on Syrian resources.
"Of course Iraqis have been coming into the country for the last two or three years, but it's in 2007 that we've started to really feel the crunch," said Abdullah Dardari, deputy prime minister for economic affairs.
The refugees, equal in number to eight per cent of the Syrian population, live mostly in the capital city Damascus where, according to local newspapers, the demand for bread has increased by 35 per cent, electricity by 27 per cent, water by 20 per cent and kerosene by 17 per cent since the influx began in 2003.
While this extra demand and the pouring of Iraqi savings into the Syrian economy has contributed towards economic growth, forecast by the Syrian government at seven percent in 2007, the negative consequences have been painful.
As well as squeezing availability of key resources -- regular power cuts being one consequence - additional demand has increased the financial burden of government subsidies. Basic goods such as bread and sugar, as well as electricity, diesel and transport, are all heavily subsidised and extra consumption has significantly added to the government cost of providing these goods and services.
Mr Dardari says that subsidies will cost the government S£350bn (US$7bn) in 2008, 19 per cent of gross domestic product, a situation he says is "no longer bearable."
Though subsidies have largely shielded Syrians from the price rises normally associated with increases in demand, refugee consumption has contributed -- in conjunction with poor agricultural season and increased tourism -- to an inflation rate of up to ten per cent.
Rents have increasing by as much as 300 per cent over the last two years as competition for living space in the capital Damascus has intensified. This has had an indirect effect on the marriage prospects of many young Syrians unable to afford homes.
It is the country's social infrastructure, however, that is seeing the most direct impact of the refugee influx.
Damascus is more crowded than ever and free education and health services have been pushed to the limits. Class sizes have topped 70 students and teachers are being forced to work double shifts to accommodate an estimated 70,000 Iraqi children enrolled in Syrian schools.
Former World Bank economist Nabil Sukkar worries that Syria's social welfare system will not be able to continue meeting this challenge. "Iraqis have access to all these free facilities and so it's created a very heavy burden," he said.
Syria's decision in October to restrict the arrival of new refugees into the country with tight new visa regulations was a direct result, the government said, of the cost of accommodating the refugee population and the lack of financial support received from the international community.
To date, international donors have contributed very little in direct assistance to the Syrian government. The country has strained relations with most of the international community over a number of regional issues.
The American government has not contributed any direct support to Syrian authorities.
UNHCR, the United Nations refugee agency, the most active international partner, has signed agreements with the Syrian government totalling US $38m, as well as launching a US $129m regional education appeal.
In Beirut the UNHCR's regional representative, Stephane Jaquemet, confirmed the relatively small bilateral contribution from the donor countries.
"The UNHCR appealed for bilateral contributions... and our impression is that indeed the Syrian government does not get enough money compared to the number of refugees in the country."
There are now fears that as Iraqis run through their savings and their financial plight worsens, social tensions may rise as they become more dependent on Syrian goodwill.
According to a recently released survey by the UNHCR 33 per cent of refugees now expect their funds to last less than three months.
"Iraqis have caused us nothing but problems," said a Damascus taxi driver, reflecting a common sentiment in a country where unemployment is said to run as high as 20 per cent. "We can't afford life as it is, so how can we support them as well."
Additional reporting Ferry Biedermann in Beirut