In a remote area along the Turkish-Syrian border, a line of oil
trucks materializes seemingly from nowhere. Quietly, the vehicles line
up to purchase oil. The drivers will pay about $18 a barrel, well below
the average market price of $93.45.
Still, for the seller -- the
Islamic State -- the price represents a 100 percent profit since it has
no investment in the oil production.
This is a crucial part of how the group being called “
the most dangerous Islamic extremist terrorist group in the world” fills its coffers and funds its brutal advance across Syria and Iraq.
U.S.
intelligence officials believe that the Islamic State (IS) -- which
they refer to by its former name of ISIL -- has become one of the
wealthiest terror groups in history, netting somewhere between $2
million and $3 million every day.
Related: Oil: A Blessing And A Curse For The Middle East
I first wrote about the group’s profit making
here
several weeks ago. Also, as I previously reported, the group continues
to sell oil from Syrian wells back to the regime of President Bashar
Assad, with whom it is engaged in a fight to the finish.
In fact,
most of the illegal trade carried out by IS is oil from fields in
eastern Syria, and more recently from fields captured since June in
Iraq. The terror group is creating its own economy through a series of
pragmatic trades, as Turkey’s
Zaman newspaper recently detailed.
The U.S. -- along with a coalition of mostly Gulf Cooperation Council states and Jordan -- has started to
target some of the Syrian fields in an attempt to sever the group’s sources of revenue.
An
interesting question to ponder is why did the U.S. and its allies allow
IS to achieve so much economic power? The explanation is that the
Islamists’ take-over of oil wells in Syria, and later Iraq, was gradual.
Also, some wells were captured not by IS, but by other Islamists groups
that later merged with IS.
Upon “acquiring” the wells, IS faced
the immediate challenge of keeping them functioning, which requires
skills that neither ISIS nor its affiliates had. ISIS solved the problem
by finding local technicians who managed to keep the oil wells pumping
at around 60 percent of full capacity.
Before the outbreak of
civil war in 2011, Syria was producing between 385,000 and 400,000
barrels per day. An operating capacity of 60 percent still means the
group reaps around 200,000 bpd and turns a massive profit, despite
selling the oil well below the official market rate.
The report in
Zayman quotes an unnamed Western oil executive who used to work in
Syria as saying that “the Islamic State makes not less than $2 million
daily.” That may sound like a lot of money -- and it is -- but IS has
huge overheads. It needs to pay, feed, and house its thousands of
fighters. It needs to purchase weapons and munitions, and give money to
the families of fighters killed in battle. And if they are cognizant of
political realities, the group is probably regularly stashing a few
million dollars in secret bank accounts for later.
In the
meantime, IS has managed to deprive Damascus of some serious revenue
stream. The Syrian government reports that its production fell from
164,000 bpd in 2012 to an average of 28,000 bpd in 2013. Oil sales made
up nearly a quarter of state revenues before the war. The government
says it has lost $3.8 billion in stolen oil because of the conflict.
Related: U.S. Targets Islamic State’s Lucrative Oil Smuggling Operations
Syria’s
pre-war production, estimated in 2001 at around 380,000 bpd, suffered
heavily when Kurdish forces took control of some of the fields located
in Hasaka province and IS took fields in Shadad, al Omar, Tenak and Ward
operated by companies such as Royal Dutch Shell, Total, and Petro
Canada.
A number of wells were shut down as foreign firms withdrew
and rebels looted equipment. Few people with technical expertise remain
in areas where the Islamic State has taken over.
Meanwhile in
Iraq, the same script is playing out. IS-controlled oil fields produce
around 80,000 bpd. Production has gone down severely as a result of
military action by the U.S., its allies and Kurdish forces, but in the
interim, IS continues to rake in millions every day.
By Claude Salhani of Oilprice.com
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