Stemming the flow of ISIL oil

The sale of oil products in ISIL-held territories has been one of the militants’ largest moneymakers. With an increase in coalition air strikes and the fall in oil prices, however, it is an operation that is becoming increasingly difficult.
A makeshift oil refinery in Marchmarin town, Idlib, Syria. The operation’s owner gets the crude from ISIL-controlled areas in Deir Ezzour province and Iraq. Khalil Ashawi / Reuters
A makeshift oil refinery in Marchmarin town, Idlib, Syria. The operation’s owner gets the crude from ISIL-controlled areas in Deir Ezzour province and Iraq. Khalil Ashawi / Reuters

BEIRUT // The first year of coalition air strikes did little to disrupt operations at ISIL’s most prized and profitable oil fields in eastern Syria. Thousands of trucks, undeterred by the bombing campaign, would mass at fields to load black gold destined for local makeshift refineries and then on to consumers across ISIL-held territory, in rebel areas, and across the border in Turkey and Iraq.

US officials estimate the extremist group was earning up to $40 million (Dh147m) a month from oil last year, making it one of the group’s top revenue sources.

But in the last few months, the US says, that has changed. A redoubling of efforts by the anti-ISIL coalition to hit the extremist’s oil infrastructure have reduced the estimated production by nearly a third, driven away the miles-long convoys of oil trucks and dealt a severe blow to the groups’s finances.

The coalition’s Operation Tidal Wave II campaign against ISIL’s oil industry, launched on October 21 last year, had carried out more than 90 strikes by early February – nearly as many in three and a half months as it carried out in more than a year of bombing previously.

As of mid-January, the strikes were estimated to have cut ISIL’s daily oil production from 45,000 barrels before the campaign began to 34,000, according to Col Steve Warren, the spokesman for Operation Inherent Resolve, the US military campaign against ISIL.

“We look at these oil strikes really the way a boxer strikes his opponent in the midsection – it may not create a knockout, but over time it will serve to weaken and eventually cripple them,” said Col Warren told The National.

ISIL took control of key oil fields in eastern Syria and Iraq during its rapid territorial expansion in the summer of 2014. The bulk of ISIL’s production today comes from eastern Syria, while ISIL-controlled territory in Iraq produces a smaller amount of lower quality oil for the group. ISIL’s expansion in Iraq saw the group initially take control of several major oil fields, but most of these have been lost in government and Shiite militia offensives.

Despite more than 100 air strikes between September 2014 and October last year, the coalition’s attempts to disrupt ISIL’s oil business had a limited impact.

Things started turning around for the coalition last May after a US raid killed Abu Sayyaf, an ISIL commander who played a key role in overseeing the group’s oil industry. Intelligence gathered from that raid started painting a picture of the shortcomings of the coalition strikes and the inner workings of ISIL’s oil business.

The coalition learned that some favoured targets, such as pipelines, were easily fixed by the group, Col Warren said.

The coalition refocused its attacks to strike specific oil equipment that ISIL does not have the technical capability nor the parts to replace. The oil fields could be taken offline quickly and easily by destroying the wells, but the coalition says that in the interest of Syria’s future, it is looking to disable oil production rather than destroy it.

“What we don’t want to do is completely obliterate the oil production capabilities of Syria – that we can do,” said Col Warren. “What we want to do is take it offline and that requires precision.”

The coalition also began striking the distribution network, warning and then bombing the long lines of trucks gathered at oil fields for the first time and dissuading truckers from transporting the oil.

Russian strikes

Russia also claims to be hitting ISIL’s oil infrastructure, though how much effect this has had is not known.

Russian air strikes destroyed more than 2,000 oil trucks between September 30 and December 25 last year, its defence ministry said. But it remains unclear what proportion of these and other strikes claimed against oil targets in Syria occurred inside ISIL territory as opposed to rebel areas, which Russia is also bombing in support of the Syrian government. While Syria’s major oil fields are now split between ISIL and Kurdish control, elements of oil infrastructure – such as storage tanks and oil truck convoys – are present in rebel territory.

“US and Russian targets rarely overlap because the two air forces avoid each other over Syria,” said Matthew Reed, vice president of Foreign Reports, a Washington-based consulting firm focused on Middle East oil politics. “There’s a big gap between Russia’s claims and the evidence they’ve provided for them.”

Col Warren described the impact of Russian strikes on ISIL’s oil infrastructure as “minimal”, saying they had launched only a few such strikes and used unguided bombs that lack the effectiveness and precision of munitions used by the coalition.

The Russian defence ministry did not respond to requests for comment about its strikes on oil targets in Syria.

Market drop

Observers say that most of the oil produced by ISIL is probably consumed locally, but it also finds its way into areas of Syria outside of the group’s control and for a time was frequently smuggled into Turkey and Iraq.

In 2014, when global oil prices hovered around $100 a barrel, smuggling cheaply produced oil from ISIL fields into Turkey or Iraq could be extremely profitable. But as the price of oil has collapsed to about $30, there is much less incentive to purchase smuggled oil.

And with ISIL’s oil production hit by the new coalition campaign and distribution also constrained by air strikes and tighter borders, there is now less oil that can be sent out of the country and it is harder to do so.

“I think the amount flowing across the border into Turkey, across northern Iraq, potentially into northern Iran, is probably only a small share of total production, even smaller today,” said Richard Mallinson, a geopolitical analyst at the UK-based consultancy firm Energy Aspects. “And even at their peak [of production], we’re talking in the low tens of thousands of barrels a day.”

Transporting oil products to rebel areas of northern Syria – many of which are now entirely cut off from their OWN main supply lines – will remain profitable given the circumstances. But that market faces further constraints if ISIL’s oil production continues to drop, forcing the group to use a higher share of the oil it produces, and distribution networks are further disrupted.

While ISIL’s oil may still end up in Turkey or in rebel-held territory, the group does not appear to see most of those profits as the oil is purchased by independent brokers who then transport it out of ISIL territory themselves.

Limited yields

When ISIL captured Syrian and Iraqi oil fields in 2014, fears quickly rose that the extremist group could carve out a petrostate for itself. But ISIL’s oil production – both at its height and today – has always been quite low in the scheme of things.

At its current estimated production level, ISIL is producing less than a tenth of the 380,000 barrels a day or so that Syria produced before the war. And even that is small compared to the 4 million barrels per day produced in Iraq.

ISIL’s oil fields – even before the more targeted coalition air strikes – produce only a fraction of their potential. Damaged, unmaintained and neglected during nearly five years of war, the fields are operating inefficiently. Seemingly lacking the expertise to get the oil fields to perform as they would under an oil company, it is unlikely that ISIL can boost output, let alone prevent the degradation of its production.

“There is maybe a myth that – particularly in the Middle East – once you’ve drilled an oil well you simply sit there and allow the oil to flow out of the ground and sell it,” said Mr Mallinson. “The reality is, it is a more complex undertaking. And it’s one that if you don’t have the expertise, the equipment and the conditions to invest and continually carry out maintenance, you’re going to see precisely what we’re seeing, which is the volumes being produced fall away.”

Even so, oil remains a valuable resource for ISIL and it has not had to invest much in. Along with taxation and extortion, oil is believed to be one of the biggest moneymakers for the group.

“Remember this is money for nothing for ISIL. They run the fields with skeleton crews and little regard for professional standards. All that matters is they get the oil out of the ground and into the local market,” said Mr Reed. “30,000 to 40,000 barrels a day is maybe half of what they produced in mid-2014 but it’s still a reliable, significant revenue stream. All of that oil can be sold locally; the demand is there. Just how much ISIL fighters require on a day-to-day basis isn’t known but the group has taken a more defensive posture lately, meaning it can sell more and conserve less.”

“All ISIL needs is ground pressure and a way to flare gas that is produced with the oil,” he added. “I’m not convinced you can kill off the ISIL oil trade completely but you can make that trade much more difficult, costly and dangerous for everyone involved. A reasonable goal is to suffocate ISIL oil over time rather than knock it out with a decisive blow.”

There is a limit to how far ISIL’s oil can go. The group controls a large territory spanning Iraq and Syria and relies on troops moving from one front line to the next to combat offensives hundreds of kilometres apart. On top of the fuel needed for this, millions of civilians live under the control of the group and require oil products for cooking, heating, generating electricity and transportation. If oil production is significantly restricted, civilians would likely be the first to feel the pinch – potentially problematic for the group as rises in prices and scarcity of oil products can stir discontent among the general public.

If continually degraded by air strikes, there will be a point where ISIL’s oil production is no longer able to meet the group’s demand and they will lose energy self-sufficiency. If such a point comes, procuring oil to continue its fight will turn from a profit-making endeavour into an expensive and difficult burden.

Published: February 14, 2016 04:00 AM


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