The black market for oil is becoming a dangerous problem in Iraq and Syria. Accessing oil facilities is a key ISIS objective. With this independent source of funding ISIS will be difficult to dislodge.

By- Valerie Marcel*

While there have been reports of contributions to the coffers of Islamic State in Iraq and Greater Syria (ISIS) from Gulf donors, oil theft and sales from oil fields seized in Syria and Iraq allow ISIS to self-finance its activities to a large extent. Though the amounts taken off the legitimate market are a drop in the ocean of global or regional volumes, they are large enough to have a significant impact on the trajectory of the group. Unless regional or international forces are able to take back Syrian and Iraqi oil fields from ISIS control and, more importantly, dismantle its regional oil smuggling operations, ISIS will be here to stay, and grow stronger.

SYRIA: ISIS DOMINANT

According to estimates made by the Syrian Observatory for Human Rights, total Syrian production in the hands of rebels, tribes and local families amount to approximately 60,000 b/d. And ISIS controls more than 60% of Syria’s oil, according to the interim Syrian opposition government. ISIS production methods are said to be primitive, meaning they are not extracting the crude anywhere near maximum flow rates. Syria’s largest field, Omar, for instance, is a mature field, which requires water injection to enhance recovery. ISIS has managed to produce around 20,000 b/d from this field, from a maximum capacity of 75,000 b/d, according to recent Economist Intelligence Unit estimates.

MAKESHIFT REFINERIES

Through a rough and dangerous process, ISIS refines some of the production in makeshift refineries. It reportedly sells the products to local consumers (for small-scale electricity generation), the Syrian regime (in exchange for immunity against air strikes) and black marketeers. It also exports crude oil from the Omar field to Turkey in tanker trucks that it owns. Some queues of tanker trucks have been reported to extend 2km. The sale price is estimated between $10-22/B when sold through the rebel oil trading hub of Manbij, but likely fetches higher if trucked to Turkey directly. There have been reports from Turkish authorities of plastic pipelines being laid by the group, crossing over the border to Turkey.

IRAQ: BAIJI BATTLE, FIELDS TAKEN

ISIS’ control of oil facilities in Iraq is not comparable to that in Syria. Iraqi forces are battling to hold on to the strategic Baiji refinery. But the group recently captured two oil fields south of Kirkuk, Ajeel and Hamrin-2.

At these two fields engineers from ISIS’ network are said to run operations, but it is doubtful the group has the technical capacity to run larger or more complex operations. Nevertheless, revenues from these two small fields do add up. Shallal Abdoul, the administrative officer of the town of Tuz Khurmatu explains (as reported on azzaman.com) “They load an average of 100 tanker trucks per day and sell it for a price ranging from $10,000 to $14,000.” This would put the price of the barrel sold in the neighborhood of $62.

The smuggling of crude from the two fields alone would provide ISIS with $1-1.4 mn per day. An investigation into smuggling by the Iraq Oil Report confirmed that ISIS was producing approximately 20,000 b/d from Ajeel, which they were able to sell at $55/B. While ISIS had started out by selling tankers to middlemen at about $26/B, they have since cut out the middlemen and raised their prices. Oil is sourced elsewhere too: the country’s poorly protected oil infrastructure enables wide-scale plundering.

WHO BUYS ISIS OIL?

The issue of who buys the stolen oil is very contentious: the opposition blames government, and vice versa. It appears ISIS sells through a mafia of middlemen who truck it to refineries in Iraqi Kurdistan, Turkey and Iran. A greater amount of the crude from Iraq goes through brokers than in Syria. ISIS also uses makeshift refineries, which allows them to sell the products more easily and locally.

NATION-BUILDING EFFORTS}}}}

The revenues ISIS generates pay for the weapons and salaries of its troops. But they also serve to bolster the group’s nation-building efforts, enabling it to provide public services, food subsidies and charity in areas it controls. There are also reports of ISIS selling products at a low price to local residents to win supporters. However, administering Mosul, a city of almost 2 million people, seems to be stretching available funds and capabilities. Residents have reported electricity cuts, water shortages and low fuel supplies.

If the group is engaged in a zero-sum game with Baghdad, it appears to be winning. Indeed, ISIS is depriving the central governments in Iraq and Syria of a chunk of their petroleum revenues and this undercuts the governments’ ability to provide public services, pay salaries and carry out public projects.

The ability of ISIS to self-finance its expansionist push also means the group does not need to beg foreign sponsors for funds or support. Access to black market oil makes ISIS a greater threat to regional power brokers, who are unable to control it through the purse strings. The inability of Turkey, KRG and Iran (not to mention the Asad and Maliki governments) to stop the oil smuggling will allow the illicit network to grow, undercutting the hold that the region’s national oil companies have had for decades on the distribution and export processes – notwithstanding the KRG’s independent exports. In Iraq, the ISIS seizure of oil fields can also help it to rally support from sub-national authorities, which hope to gain control over the management of local oil fields and installations. This would further fracture the integrity of the Iraqi state. As the black market grows and the central states’ hold on the oil sector weakens, it will be increasingly difficult to overturn these trends.