Tackling Isis by Means of an Oil Supply Shock?

27 novembre 2015
In the face of Isis attacks, world attention focuses on the options to tackle the terrorist organisation. Meanwhile, calls for a massive ground intervention in the territories it controls in eastern Syria and western Iraq are rightly dismissed by most political leaders, in the United States as well as in Russia and Western Europe. Against this background, direct actions targeting its economic interests, especially in the oil sector, receive broad consensus. Many point out the limitations of that strategy, arguing that Isis has access to multiple other resources, such as extortion, agricultural incomes or trafficking of all kinds. Nevertheless the idea of cutting off the organisation’s finances by disrupting its oil production, while abstaining from actively dislodging its militants from the wells they control, has attracted much attention and given rise to genuine hopes. These hopes are nevertheless mainly based on a somewhat simplistic assessment of the tragic situation facing Syria. The notion that the country is experiencing a de facto partition has been widely publicised. Subsequently, many commentators have downplayed the reality and the consequences of the ongoing trade and energy flows among the areas controlled by the regime, Isis and various insurgent groups. Despite the shocking misery endured by the people, it turns out that a subsistence economy has emerged on the basis of various trade links, not only within the country’s areas but also among them. Should these fragile flows be interrupted and left unreplaced, the Syrians’ material situation, as disastrous as it already is, could therefore get even worse and send more refugees on the perilous path of European exile, while giving ground to Isis’ own propaganda.

The conquest of the major urban centres of Raqqah and Mosul has sparked alarm and fuelled the notion that Isis was developing into an embryonic form of state. However, its leaders’ attention remains focused on the energy sector, as they have consistently geared their efforts towards the capture of Syria’s oil and gas fields, at the notable expense of other previously conquered territories. Evidently, no one should give excessive credit to the statistics that circulate about the organisation’s revenues. A portion of those figures comes from financial documents published by the organisation itself, in the broader context of its propaganda war, which consists in mimicking the exercise of sovereign power. It is impossible to get a reasonably accurate idea of these revenues. The US Treasury recently revised its official estimate of Isis’ oil revenues from $100 million to $500 million, after realising that the bulk of its oil production was sold before refinement [1]. According to estimates commonly displayed, oil production over the past months allegedly stood somewhere between 34 and 40 thousand barrels a day in the Syrian region of Deir ez-Zor and 8000 barrels on the Iraqi field of Kayyara near Mosul [2]. On top of these production figures, a price of $45 per barrel has been reported at the major oil field of Al-Omar and less than $25 at others.

More consistent qualitative information has emerged with respect to oil and gas flows, and in terms of the “retail” price dynamics in various areas – a much more robust and simple indicator than production volumes. In the course of last spring, the insurgent areas in western Syria experienced a surge in the price of oil – which trebled according to reports from the Aleppo region – and basic commodities, following the establishment of a blockade by Isis. Hence, a large wave of energy shortage has come on top of the acute misery suffered by the civilian population in these areas. The gruesome efficiency of this blockade points to the structural importance of the oil flows from the areas controlled by Isis to the ones controlled by other groups and the regime in the western part of the country. Furthermore, the sheer fact that negotiations have led to the restoration of those shipments reveals the vital nature of these transactions for Daesh as well. As regards the territories held by the regime, the bulk of their supply is assured by the Iranian ally but the volumes remain insufficient. Significant deals have been reported to take place between various intermediaries of the Isis occupied territories and the regime. Even more than the oil sector, the gas sector seems to be the object of significant agreements between the two sides. The bulk of Syria’s gas facilities have been seized by the organisation. However, state employees from the Sunni community continue to work there. The Syrian government is even reported to send new staff to these facilities, a major example of which is the so-called "Conoco" site east of Deir ez-Zor. Under these agreements, gas production is shared between the regime and Isis. Since gas is the main source of electricity generation for the country’s grid, these paradoxical agreements actually appear vital to both sides.

As the refineries that are held by Isis were hit over the past year, the organisation largely gave up refining oil at its main plants. Refining is now achieved by a multitude of small independent refineries on the territory it occupies. This system, both in Syria and in Iraq, is based on old trading and trafficking networks, which, to a certain extent, remain active, albeit under Isis control. This adaptability allows the terrorist group to continue its operations in spite of the strikes. Until mid-November, the United States refrained from bombarding the oil trucks, citing the risk to the drivers’ lives, most of whom seem to be contractors. It seems, above all, that this decision stemmed from the awareness that Isis oil still vitally supplies large portions of the country, in particular the devastated cities of western Syria. The turnaround on this issue has probably resulted from the failure of the strategy that focused on "official" refineries. The United States’ as well as Russia’s strikes on the oil trucks make it possible to curb the group’s oil operations but at the same time they will undoubtedly aggravate the material situation in the rest of the country. We cannot ignore the link between the increased shortage that resulted from Isis blockade last spring and the surging flows of refugees.

However, no effort should be spared in order to cut off Isis funding. Oil exports through the Turkish border (and increasingly through the Jordanian one) are a crucial issue to tackle, as these flows allow the terror group to amass vast amounts of dollars – or convertible currencies such as the Turkish lira – and to subsequently finance its arms purchases. During the first phase of the air campaign, the US authorities rightly decided to spare the oil wells, a vital resource the destruction of which would alienate the local population. The strategy – now common to both the US and Russia – that goes further towards the interruption of oil flows from Daesh, is viable only if it is supplemented in the very short term by measures aimed at the civilian population. Supplying the rest of the country with oil from abroad could make Isis production superfluous and cut the country’s dependency upon it. The best way to damage the organisation’s oil revenues, without aggravating the humanitarian plight and the migration crisis, would be to combine this supply strategy with a more ambitious clampdown of the group’s exports, which are already weakened by the global collapse in commodity prices. If there is one common feature among the foreign powers that support the regime, on the one side, and those which support the various insurgent groups, on the other side, it is obviously their abundance of energy resources. The delivery of sufficiently large flows of foreign oil to the most devastated areas of Syria, and the development of a decent food aid programme, would not only limit the humanitarian disaster and the flow of refugees, it would also help cut off Isis finances, by means of a mere supply shock.

[1] “Why US Efforts to Cut Off Islamic State’s Funds Have Failed”, Bloomberg, 19 November 2015
[2] “Inside ISIS Inc.: the Journey of a Barrel of Oil”, Financial Times, 14 October 2015
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