Understanding the Oil Money Fueling ISIS

By MarEx 2014-11-15 01:09:00

By Katarina Montgomery

Oil revenues have become a key source of revenue for the Islamic State, also known as ISIS. According to a report by the Brookings Institute, ISIS now controls about 60 percent of Syria’s oil fields and several oil-producing assets in Iraq.

"The value of the ISIS oil trade has been widely estimated at between $1 and $3 million per day, though experts have warned that the figure could be a high estimate," according to analysts.

Last Monday ISIS fighters said they had taken control of a key gas field in the central province of Homs – the second gas field it seized in a week.

As part of the U.S. plan to "systematically degrade, dismantle and defeat" ISIS, U.S. coalition strikes have targeted ISIS’s cash-generating energy infrastructure. However, it remains to be seen if the strikes will deliver a decisive blow and how they will impact the local population that is already facing huge spikes in the prices of oil.

David Butter, a Middle East energy analyst and associate fellow at Chatham House, spoke to news service Syria Deeply about ISIS oil and what it means for Syria at large:

Syria Deeply: What is the current state of Syrian oil production? Where are the main facilities and what state are they in?

Butter: The basic situation hasn’t really changed for two or three years: Syrian petroleum companies and foreign companies are hardly producing any oil. The regime relies mainly on crude oil imports financed by Iran and processed mainly in the Baniyas refinery. They are also importing some petroleum products, mainly diesel and some fuel oil. They are producing reasonable amounts of natural gas, which feed power stations to some extent, although gas production has been going down and there are problems now with ISIS encroaching in the main gas producing regions between Homs and Palmyra.

Syria Deeply: How is ISIS using oil to generate income? To whom are they selling and roughly how much are they making?

Butter: There has been loads of speculation about it and no one really knows. The picture you get is a loss of very small-scale operations, starting with the oil fields in their areas of their control. Most of these oil fields are the fields of al-Furat Petrolum Company, in which Shell was the operating foreign partner, which were in steep decline, and lots of rather small fields, one or two reasonably large ones but not that big, and they are quite difficult to produce from. The quality of the crude is light and low sulfur, so it’s good quality, so quite easy to process through simple refineries. What seems to happen is it’s refined either near site, and most of it finds its way to Turkey. The actual production seems to be left in the hands of engineers who are paid by ISIS. They sell the oil to traders and there is a whole chain of these products passing through different hands in the Turkish market. A certain amount of that revenue finds its way back to some sort of centralized ISIS treasury. If you assume the total production is 20,000-30,000 barrels a day, you can come up with a number from between $500,000 to $2 million (this is probably quite high) for what might be the ISIS take. It’s very fragmented.

Syria Deeply: How have the U.S.-led strikes on ISIS impacted that trade?

Butter: The first couple of days they said they knocked out some of the refineries. Based on their own estimates, they suggested that they had knocked out 5,000-6,000 barrels a day of processing capacity. That will be an inconvenience for ISIS; it will eat into the amount of [oil] produced, but some of these refineries can be put up relatively quickly – a couple weeks – if they have the supply lines into steel fabrication shops in Turkey. It’s had an impact, but there still seems to be fuel moving around, so it by no means has been completely knocked out. It may have provided incentive for ISIS to move and extend its area, which may be why it is pushing hard into the Homs central region, which is mainly natural gas producing but there are some liquids produced there as well.

Syria Deeply: How has the Syrian government tried to compensate for the lack of oil revenue and resources?

Butter: It heavily relies on the Iranian line of credit for its crude oil supplies. It also relies on any kind of financial aid it can get from Russia, but there are some indications that is getting more difficult right now.

It’s difficult for the Syrian government to survive. It can print money, it can raise a certain amount of revenue from internal sources, but without oil revenue its financial position is pretty tough. That said, the costs of running the country are much less because there are so many refugees and IDPs who aren’t dependent on government pay or benefits. From the government point of view, they have the advantage that a lot of Syrians are being fed basic foods from U.N.-dispersed aid.

Syria Deeply: What is the impact on Syria's population? How has their energy access changed as a result of the war?

Butter: It’s become more expensive [to survive]. The prices that are officially charged have been pushed up close to market levels – that was a reform that was already planned. Gasoline is now effectively indexed to the exchange rate of international prices and recently the prices for diesel and fuel oil for industries were also indexed to international prices and exchange rates. Added to which of course is that fuel is often not available at these prices, so people have to rely on the black market. Scarcity and higher prices make life more expensive and difficult for Syrians.

Syria Deeply: What else should we know about Syria's oil and energy picture – how it's shaping the overall situation?

Butter: As long as the oil comes from tankers paid for by Iranian credits, there is enough to keep things going. The main part of the oil pictures is tankers coming to and being refined in Baniyas, and products are then distributed, as well as road tankers coming from Beirut. The other important issue is natural gas and electricity. Any kind of expansion in Homs province by ISIS will have very serious implications for natural gas and electricity.

Katarina Montgomery is the digital producer at Syria Deeply.

Source: World Policy Blog

Photo courtesy of Ogbodo Solution.