My article was published by the London-based think tank The Cemtrum Media on July 17th: http://thecentrummedia.com/content/black-gold-feeding-black-flag
Estimates of ISIS’ oil revenues range between $1m and $1.5m per day, with a cumulative daily production of 30 000 to 40 000 barrels and a price oscillating between $20 and $40 per barrel, below market price. Oil extracted in the war-torn regions in the North and East of Syria maintain a higher price: at the Al-Omar deposit prices reach $45/barrel, whereas oil coming from Al-Tabqa, nearer to Raqqa, is sold at $20/barrel (Harding, Hawramy & Mohammed, 2014).
Unlike the overall organization of the Islamic State – decentralized through cells, the oil business is vertically integrated and centralized in the hands of the shura, the governing council of ISIS. The oil fields are supervised by the Caliphate’s police, called Amniyat. Skilled labour, technicians, engineers and managers are attracted and recruited by the Caliphate either by being offered lucrative payments and wages (which they themselves can often decide) or being threatened in case they refuse to collaborate.
Oil trade irremediably supports the financing of the Islamic State, which functions just as a national oil industry. The oil business not only satisfies the Caliphate’s self-sufficiency, but also provides a source of income for the desperate local population, and a source of revenue through local commerce and exports to neighbouring countries.
Iraq, Syria and Turkey are among the top buyers of ISIS’ oil (Faulconbridge & Saul, 2015). In December 2015 Moscow released images of a Russian satellite claiming to show columns of Turkish trucks filling up in ISIS-controlled areas and then crossing the border into Turkey with no restriction at the Reyhanli checkpoint (Brooks-Pollock, 2015). On its part, Turkey has pointed towards the fact that, by supporting the Assad regime, a core client of ISIS’ oil trade, Russia itself is de facto accomplice.
Although it is true cross-border oil trade constitutes a powerful leverage vis-à-vis neighbouring regional powers, however the ISIS war machine would continue to be fed even without relying on oil exports, the main rationale being that profit is made locally and directly at the extraction site (Bernard, Kwong & Solomon, 2016).
Revenues from the oil business are firstly used by the Islamic State itself as financial backing for recruiting new members, sustaining far-reaching propaganda campaigns, securing arms and local support. Among the biggest oil fields one finds Jisbba in the province of Hassakeh, Ajil and Allas in the province of Kirkuk. A great share of the production is burnt and consumed locally by abusive refineries, black markets, and families. The crude often ends up in rudimentary refineries, and is processed in the form of petrol or mazout, whose lower price than petrol guarantees a large demand in the conflict-affected region. The Caliphate regulates and manages the local oil trade, especially at the Syrian-Iraqi border, in the rebel-controlled Northern part of Syria, as well as in Eastern Syria held by the Syrian Kurdish militia (Faulconbridge & Saul, 2015). Its oil is used not only in the Caliphate’s territory, but also in regions opposed to ISIS’ control, such as the rebel-held Northern part of Syria. Thus, it is not rare that a trader ends up buying ISIS’ oil while his relatives fight in the first row against the Caliphate.
The commercial activities of the Islamic State along the oil business chain are limited to extraction and to initial transactions on the production site – payments are made directly in cash at the moment of the procurement at the deposit. Once profit is made ‘at the pump’, ISIS disengages itself from the final destination. One of the reasons why the Caliphate manages to keep the costs low and profits high relies in the fact that it does not engage in oil transportation, a segment of the energy business which would be costly and risky in the conflict-affected regions. Where the oil is traded and which markets it reaches is the business of intermediaries, the real smugglers who have little or nothing to do with ideology or religious fanaticism, but are rather driven by money or by necessity. It is important to highlight then that buyers of ISIS’ oil are not only states and big energy companies, but also and mainly unconventional clients relying on the Caliphate’s black gold for survival, populations under ISIS-controlled areas, rebels fighting against the Islamic State, and families in desperate need for any source of income. The complex and extensive web of shadow partners in the oil business attracts clients irrespectively their nationality, religion, or regional alliances.
Trucks of intermediaries reach the oil deposit, show a paper documenting their vehicle’s plaque number and the capacity of the tank, and start to queue. The trucks are registered in a database and given a number. Some drivers leave their trucks in the queue for weeks before filling it in with oil. When their turn comes, intermediaries fill the tanks and drive back to distribute crude to nearby refineries, to trade it to local markets, or to sell it to traders who smuggle it across neighbouring states.
This method of making profit directly ‘at the pump’ and localising commercial activities to the oil well was well known to Russian and American, whose airstrikes initially targeted ISIS’ extraction facilities, machineries, pumps, and the long queues of oil trucks. Since the Russian and US-led strikes in the Eastern province of Deir Ezzor in October and November 2015, ISIS’ daily production has considerably fallen. Most wells are now operating manually, a factor which has considerably slowed down the oil production, with the al-Omar and al-Tanak oil fields facing a decrease in production of 30% in December 2015. Moreover, the Islamic State does not possess the advanced technology to fulfil maintenance requirements or sustain a certain level of production in its oil fields, which are generally aging (Bernard, Kwong & Solomon, 2016).
Undermining ISIS’ most profitable and efficient source of income by targeting wells, extraction facilities and machineries, has achieved tangible results and would entail a major drawback for the Caliphate. On the other side, the current strategy might seem disproportionate to the effects achieved. The airstrikes come with a human cost and the broad repercussions of the bombings are double-edged. Bombing ISIS’ oil fields has so far reduced production to a small extent while provoking a high volume of casualties, especially among Iraqi and Syrian civilians living in the ISIS-occupied zones. The aerial bombings contribute to diffusing among the local population the impression that the airstrikes are designed to cut the only available source of income for local and civilian traders and to damage the Syrian economy, which often overlaps with the oil trade and is difficult to distinguish from ISIS’ oil business.
Moreover, in response to the airstrikes, the Caliphate has put in place a new system for distributing crude. When trucks are given their number to line up, they are told a precise day and time to come back and fill up. In such a way, the piling-up of trucks is avoided. This new system has meant nonetheless that ISIS’ profit margin has declined. By collecting oil in large pools, it is not rare for these pits to fire up during strikes or battles. So to partially recover the lost profit, the Islamic State has been offering intermediaries licences to receive privileged treatment by skipping the queue and getting 1 000 oil barrels at once, as long as the entire payment is done up front (Bernard, Kwong & Solomon, 2016).
As a result of many pumps now operating manually and to slower production rate, the oil lucrative business will certainly succumb to drops in production, thus eventually expiring and drying out. Additionally, the declining global price of oil has already impacted on ISIS’ oil business, by reducing the attractiveness and the profitability of it. Nonetheless, it seems likely to say that a permanent damage to the Caliphate’s oil business will manifest at a slow pace, in that production decline in the oil industry can protract for decades and might not achieve the desired disrupting effects on ISIS’ economy.
It would be naïve to think that targeting the truck queues would expose and disintegrate the complex web of the oil business. As a corollary of the nature of the energy market, the oil network is extensive and difficult to track. Most of the business occurs in the black market and cross-border smuggling is often done via jerry cans carried on foot (for instance from Kharbet al-Jawz in rebel-held Syria to Guvecci in Turkey), by donkeys or horses (as it happens in al-Sarmada and al-Rai) (Bernard, Kwong & Solomon, 2016). Identifying isolated traders does not necessarily reveal the sympathizers. Among ISIS’ oil consumers and clients, one finds between 3 and 8 million people who live under ISIS-controlled territory in Syria and Iraq, rebels fighting against ISIS, as well as local workers struggling to find any source of living and who need income from ISIS’ oil business for satisfying basic needs.
It should also be reminded that oil is not the only source of income for the Islamic State. Drug and human trafficking, taxation, hostage-taking, crimes, antiquity trade, private donations also constitute revenues aimed to finance the Islamic State (Harding, Hawramy & Mohammed, 2014).
With Russian-Turkish relations currently performing poorly and with the complex power-relations network in the affected region, there are little short-term prospects for substantially impact on the Caliphate’s oil business.
References
Bernard, S., Kwong, R., & Solomon, E. (2016). Inside Isis Inc: The Journey of a Barrel of Oil. Financial Times [online] Available at http://ig.ft.com/sites/2015/isis-oil/
Brooks-Pollock, T. (2015). Russia Unveils Proof Turkey’s Erdogan is Smuggling ISIS Oil Across Border From Syria. The Independent [online] Available at http://www.independent.co.uk/news/world/europe/russia-releases-proof-tur…
Faulconbridge G., & Saul, J. (2015). Islamic State Oil is Going to Assad, Some to Turkey. Reuters [online] Available at http://www.reuters.com/article/us-mideast-crisis-syria-usa-oil-idUSKBN0T…
Harding, L., Hawramy, F., & Mohammed S. (2014). Inside Islamic State’s Oil Empire: How Captures Oil Fields Fuel Isis Insurgency. The Guardian [online] Available at https://www.theguardian.com/world/2014/nov/19/-sp-islamic-state-oil-empi…
Marta Cioci 