When Islamic State (ISIL) fighters seized Mosul in June, the militant group boasted it provided the cheapest fuel in the region as it tried to win over Iraqis to its cause.
Since then, the worldwide price of oil has fallen more than 30 per cent. Yet in Iraq’s biggest northern city the cost of a tank of petrol has more than doubled.
United States airstrikes against the extremist group’s oil facilities have severely reduced its ability to generate revenue. At the same time, eyewitnesses say the militants are finding the cost of governing their territory and mounting a war on multiple fronts is rising.
“The situation has changed tremendously for the group in terms of the volumes of crude it’s producing, but most significantly, the volumes of refined products it has,” said Valerie Marcel, an oil analyst specialising in Iraq at Chatham House in London. “That’s what underpins their war machine.”
Previous estimates by US intelligence officials and energy analysts put ISIL’s oil revenue at more than $2 million a day. Now it would be closer to $200,000 in Iraq if the group sold everything it pumped, or about $400,000 if it then refined the oil before selling it, said Ms Marcel.
A litre of refined crude was going for about 1,750 to 2,000 Iraqi dinars (Dh5.55 to Dh6.35) last week in Mosul, northern Iraq’s biggest city, according to locals. It’s mostly sold from oil tankers from Syria and the quality is so bad, it’s damaging car engines and fuel pumps, they said.
Before the city fell, the average price was about 400 to 750 dinars a litre and the crude on offer was from Iraq and of better quality.
Residents of Mosul spoke by telephone on condition of anonymity because of concerns about their security in a city where extremists mete out anything from public lashings to beheadings for not obeying their strict code.
The people said the high prices have made cars unaffordable, so they rely on using minibuses to spread the cost. That situation is echoed in Tikrit, where the price of petrol and kerosene has steadily risen, one local said. Winter has already hit the mountainous northern Iraqi regions, with snow falling on parts of the Kurdish north.
In Mosul, where temperatures can plunge as low as minus 15 degrees Celsius, residents unable to afford kerosene for heating are collecting wood for open fires.
A 200-litre barrel of Iraqi kerosene used for heating costs about 300,000 dinars. Two weeks ago, one resident said she paid 280,000 for Iraqi kerosene. Before the fall of Mosul, the price of kerosene was 50,000 dinars a barrel. ISIL declared a self-styled caliphate in northeastern Syria and northwestern Iraq after seizing Mosul, and has sought to entrench its rule through a combination of brutal repression and provision of social services, including offering reduced prices for gasoline.
In one issue of Dabiq, ISIL’s online magazine, the group lists the benefits, including “pumping millions of dollars into services”, security and stability, “ensuring the availability of food products and commodities”.
ISIL is almost entirely self-financing with much of its past income earned through illicit production, refining and the sale of oil.
The US-led airstrikes that began in September, though, shut down the group’s main refining capacity. Forces loyal to the Baghdad government also retook oilfields, and Kurdish Peshmerga fighters tackled gangs who had been helping Islamic State smuggle oil out of the country.
The militants will have to rely more on ransoms, racketeering and the taxation of people and goods at border crossings, said Ms Marcel.
She estimates the group is pumping about 10,000 barrels a day in Iraq. That’s down from a high of about 70,000 barrels a day in August.
ISIL consumes about half the oil it controls, Hamza Al Jawheri, an Iraqi economist and oil analyst, said from Baghdad. It’s used mainly to power military vehicles, tanks and lorries captured in its conquest of Mosul.
* Bloomberg News
