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Abu Dhabi, UAEWednesday 23 May 2018

Syrian oil a continuing conundrum

Recent World Bank report lays out the toll the war has taken on all sectors of the economy

Workers at Syria's Arak gasfield this month, after it was retaken by government forces from the hands of ISIL.  AFP
Workers at Syria's Arak gasfield this month, after it was retaken by government forces from the hands of ISIL. AFP

Syria has never been a major petroleum power, but oil is a key resource fought over by all the factions in its civil war.

ISIL, the great profiteer from looted oil, is now under siege in its capital of Raqqa and largely defeated in its Iraqi base of Mosul. Yet hydrocarbons will continue to shape the country’s war economy.

Conspiracy theories that the war was triggered by a Qatari desire to build a gas pipeline across the country, always ridiculous, have been further discredited by the current Saudi-led embargo of Doha. Similarly absurd are ideas that western companies are set to profit in some big way from Syrian oil or perhaps offshore gas. On the contrary, Shell, Total and others lost valuable assets with the outbreak of the war.

The real importance of Syria’s hydrocarbons is to be found within the country, and with its immediate neighbours. From 2014, when it captured the Omar field, ISIL controlled most of the country’s production. National oil output of 385,000 barrels per day in 2010, the last year before the war, plummeted to about 100 000 bpd by 2015, of which ISIL extracted 65,000 bpd, the Assad regime 10,000 bpd and the Kurdish-held north-east 25,000 bpd, as reported by Hussein Almohamad and Andreas Dittmann of the University of Giessen.

Along with fields in Iraq that it controlled for a time, Syrian oil was a key source of ISIL financing. It inserted itself into a complex web of smuggling, provision of fuel to hold the loyalty of its territories, and local deals with tribes who were given cuts of oil wells. It also continued to sell gas to Assad regime-controlled power plants, even while it seized gasfields around Palmyra, now recaptured.

Now the US-led anti-ISIL coalition has been attacking ISIL oil assets more aggressively than ever. Figures from the US consultant Matthew Reed indicate that, since the middle of last year, the US has bombed wells extensively for the first time, which were previously avoided in fear of environmental damage. It has stepped up the tempo of strikes on trucks and backyard oil refineries. ISIL’s production may now be below 10,000 bpd.

Earlier this month, the Syrian army said it had captured small oilfields in Raqqa province and, advancing on the town of Sukhna, was on the way to approach Deir Al Zor, the heart of Syria’s oil industry. But the fighting and the crude extraction methods will leave a damaging environmental legacy, as well as a wrecked local economy for whatever replaces ISIL’s authority.

Perhaps revealingly, pro-Assad western outlets, shrill on the pipeline conspiracy theories, have said little on New York Times reports that Russian companies have been offered shares in any natural resources they can secure from ISIL. Stroytransgaz, which built gas pipelines in pre-war Syria, was given a phosphate deposit, while Evro Polis was reportedly promised a quarter of oil and gas on territory it captures from ISIL. Both are linked to Russian individuals sanctioned by the United States.

The Kurdish region contains large heavy oilfields, notably Rumailan and Suwaidiyah, which crosses the border into Iraq. After producing solely for local use, the Kurdish Democratic Union Party (PYD), now exports oil both through Turkey and the Kurdish region of Iraq, as well as to Assad-controlled areas. The PYD’s armed forces have been the spearhead of the anti-ISIL campaign, but it remains to be seen whether the US will continue to back them, and how the Kurdish cantons will achieve economic independence.

Prospects for an autonomous Kurdish region, Rojava, to emulate its Iraqi cousin and develop and export oil on a large scale, are doubtful. Insecurity and legal uncertainty make it near-impossible for international companies to return. Possible pipeline routes are blocked by Turkey to the north, their Iraqi Kurdish rivals to the east and Assad to the south. But at some point the Kurds could strike a deal with the Assad regime to reopen the pipeline that runs south of Raqqa, to Homs and the Mediterranean.

A recent World Bank report lays out the toll the war has taken on all sectors of the Syrian economy. Petroleum, which made up about 27 per cent of the pre-war economy, has shrunk to negligible levels, while the total GDP has fallen 63 per cent.

The pariah Assad regime cannot expect much in terms of international aid – its main allies, Russia and Iran, have already spent lavishly on supporting his war effort, and have their own bills to pay. EU sanctions on Syrian oil exports remain, while efforts to block illicit trucking of crude by ISIL through Turkey and Iraq have escalated.

Terrorist-linked and sanctioned groups will remain deeply embedded in what remains of petroleum operations and trade. Control of fuel and electricity, like food, is a key tool of regime control.

Yet repairing the oil and gas sector will be critical to restoring electricity, providing local fuel, funding reconstruction and providing government revenues – whether to Damascus or local autonomous administrations. As the guns fall silent in some areas, even while slaughter continues in others, the tangled web of Syrian oil will continue to ensnare.

Robin Mills is chief executive of Qamar Energy, and author of The Myth of the Oil Crisis