Monday, December 29, 2014

The Geopolitics of Energy in the Middle East


December 29, 2014

Dear friends,

I would like to share with you my video "The Geopolitics of Energy in the Middle East".

The basic idea behind this project is to provide some additional information about who I am and what my professional activity is. In fact, in the last months I have received several requests from many of you asking me to provide further details about me and what I do in the energy field in the Middle East.

Now, I hope that the video may satisfy your requests. In specific, in addition to my personal and working facts, I have tried to convey my vision of what the geopolitics of energy should be nowadays.  

Happy New Year to all of you!

Best regards,


Below there are some preview frames of the video 













Thursday, December 18, 2014

The Iraqi-Kurdish Oil Deal


December 18, 2014

BEIRUT, Lebanon — After three months of lengthy discussions, at the beginning of December, the Kurdistan Regional Government (K.R.G.) and Iraq's central government finalized a deal with reference to the distribution of oil revenues in Iraq. An important breakthrough had already happened in November when the two sides agreed on a couple of confidence-building gestures: the K.R.G. provided to Iraq's State Organization for Marketing of Oil (SOMO), 150,000 barrels per day (bbl/d) of Kurdish oil at the city port of Ceyhan (Turkey) during the final two weeks of November, and the central government made a onetime payment of the value of $500 million to the K.R.G.    
The final agreement, which will be implemented from January 2015, specifies that Baghdad will pay Erbil 17 percent of Iraq's national budget as defined by the Iraqi Constitution, while Erbil will provide the central government 250,000 bbl/d of Kurdish oil at Ceyhan for export. The money received from the sales of the Kurdish oil will be deposited in an escrow account in New York — until now the K.R.G. has deposited the money received from its oil sales at Halkbank, the Turkish state bank. In addition, the K.R.G. will also export via the newly built Kurdish pipeline 300,000 bbl/d of oil extracted from the oil fields of the area around Kirkuk (Bai Hassan, Dubis and Havana fields). These oil fields are under federal jurisdiction, but they are currently under Kurdish control. In fact, last June, the Peshmerga forces occupied Kirkuk in order to avoid that it could fall in the hands of the Islamic State, the terrorist organization that now controls central and western Iraq.

In total the K.R.G. will supply 550,000 bbl/d, which should provide Baghdad with approximately a billion dollars per day. Technically, shipping to Turkey via the same pipeline Kurdish crude oil (a blended medium crude oil quality with gravity of 30 to 32 API degrees) and Kirkuk crude oil (an average gravity of 36 API degrees) may be done only through batching in order not to mix the two different qualities of crude oil. Apart from the necessity of carrying out the batching of oil, another problem would be the infrastructural gap of the present Kurdish oil pipeline, which would not be able to accommodate so big a quantity of crude oil (the oil extracted from the K.R.G. and the Kirkuk oil) unless additional pumping stations are added. But, in this regard, in a conference in London, Minister of Natural Resources Ashti Hawrami of the K.R.G. recently affirmed that the pipeline to Turkey would carry 500,000 bbl/d by the end of the first quarter of next year and that during 2015 it could carry 800,000 bbl/d including the 550,000 bbl/d to be market by SOMO.       

Iraqi Kurds Pipe Oil to Turkey — Map by Lindsey Burrows
The American Interest (Dec. 2013)


From Ceyhan, all of the barrels covered by the new agreement will be exported by SOMO, although the Kurds initially demanded to market the K.R.G. oil through the Kurdistan Oil Marketing Organization (KOMO). This agreement will last for one year and could help Iraq draw Budget Law 2015 — in this regard it is important to underline that until now the central government has never approved Budget Law 2014 because of strong contrasts with Iraqi Kurdistan.

As a corollary to the deal, until the end of 2014, the K.R.G. will continue to provide SOMO with 150,000 bbl/d of Kurdish oil at Ceyhan, and Baghdad will grant the K.R.G. another $500 million. The government will also supply ground troops to support the Peshmerga forces in their fight against the Islamic State in the Iraqi northern theater, and it will transfer $100 million on a monthly basis for the salaries of the Peshmerga forces.

As a consequence of the deal, the companies operating in the K.R.G. will receive more money. In Iraqi Kurdistan, the companies extract oil and then the government sells it. The companies were owned almost $2.87 billion up to last November (both in cash and bartered goods); in general until now they have received only a small fraction of the due amount. Without at least increased payments from Erbil, it is difficult for the foreign companies to boost their operations in the K.R.G. For instance, in November, Gulf Keystone Petroleum, a company registered in Bermuda, still was owned $250 million for its activity.

It is difficult to evaluate this deal, which, as above highlighted, will have duration of only a year and has yet to be approved by the Iraqi Parliament; it is required a simple majority of the 328-seat Iraqi Council of Representatives (العراقي مجلس النواب). But, if we analyze this agreement through a realistic approach, it indeed appears as probably the best solution for the concerned parties under the dire economic, political, legal and social circumstances present in today's Iraq. In other words, it is a temporary agreement that does not solve the friction points between Erbil and Baghdad but that, at least, permits Iraqi Kurdistan and Iraq proper to improve their coffers and thanks to this to wage with better means a war against their common present and clear danger, which is the Islamic State. In fact, approximately one-third of Iraq — in specific, central and western Iraq — is still under the control of this terrorist organization, which in the last months has advanced south toward Baghdad. Only the intervention of foreign powers (the coalition around the U.S., and Iran) has been capable of partially limiting the northern and southern advance of the Islamic State, which nevertheless has geographical depth because it controls a vast area straddling Iraq and Syria. All the real friction points will probably emerge one more time by the end of the fight against the Islamic State, if not before — the chickens have come home to roost.

The real goal that Iraqi Kurdistan wants to achieve is independence from Iraq proper. In 2014, Kurdish politicians have plainly expressed that independence is the real goal to achieve. Especially after the occupation of the Kirkuk oil field and the Islamic State advance toward Baghdad, the sentiment in Erbil was that the long-awaited independence was not so far. Then, the harsh reality showed that:

  • The Peshmerga forces were not capable by themselves to fight and win a complete victory against the Islamic State. Many times in the past months the Peshmerga forces have been outgunned by the Islamic State fighters. Only the backing of the U.S.-led coalition airpower has permitted to regain control of villages previously lost to the Islamic State offensive. And only in October, Turkey's Special Forces started training the Kurdish fighters with reference to the use of heavy weapons.   
  • Both Turkey and Iran, although on a different basis, were against the independence of the K.R.G. from Iraq. In fact, Iraqi Kurdistan is highly dependent on both countries for trade, investment and transport. It is quite unclear whether the Kurds have the strength to stand alone in a very turbulent region without the support of their neighboring countries. As Deputy Prime Minister Qubad Talabani of the K.R.G. pointed out to Al-Monitor, a media site covering the Middle East, "We have grounds to become independent, but we have to also realize we are not neighbors to Luxembourg or Switzerland.”
  • The K.R.G. was on the verge of bankruptcy. In February, Baghdad stopped the payment of 17 percent of the state budget (a monthly payment worth $970 million) after the K.R.G. at the beginning of the year started independent pipeline exports to Ceyhan — although the first tanker for export in Turkey was loaded only in May. Kurdish public officials have not received their salaries for several months. Kurdish sources affirmed that before the interruption of the payments they had always received less than 17 percent of the budget (they said around 12 percent). And in the past months, in order to cover the payments of its civil servants and to fund public projects, the K.R.G. has been obliged to borrow around $4 billion from foreign companies that operate in Iraqi Kurdistan. Plus, the K.R.G. is presently sustaining a financial strain linked to the influx of refugees from Iraq.
  • The slump in oil prices has been an additional problem. Oil prices were as high as $107 a barrel in late June, and today they are around $59 per barrel. Some sources affirm that as result of the unclear legality of the Kurdish exports, Erbil has always been obliged to sell its crude oil at discounted prices. It goes by itself that the current slump is an additional hurdle for Iraqi Kurdistan. Oil price analysts point out that the price of oil will not recover consistently quite soon, and that it is possible that for the whole 2015 prices will continue to be low. 

So, Kurdish independence is out of question for the time being; in the future maybe.     

On the Baghdad side, solving once and for all the legal dispute related to Kurdish oil contracts with foreign oil companies and Kurdish oil exports independent of any authorization by Baghdad is not achievable under the current circumstances. In Iraq, the time of a clear definition of the hydrocarbons sector legal environment has to be postponed. It is pointless trying to define legal issues when: one-third of the country is occupied by the Islamic State, Iraqi Kurdistan wants to be independent, foreign countries are conducting military operations in Iraq, and a new government (Prime Minister Haider al-Abadi) is trying, amid many difficulties but with good results, to expand its consensus basis especially with the disenfranchised Sunni population. Discussing sector-specific laws or the interpretation of some articles of the Iraqi Constitution (namely Article 112) when the overall structure of the federal republic of Iraq is questioned is equivalent to put the cart in front of the horse. For the sake of knowledge, in the oil sector, the quarrel between the K.R.G. and Iraq proper started ten years ago, when Erbil awarded the first oil contract without any prior authorization by Baghdad. 

Also for Baghdad, the most important and pressing problem is now to increase its revenues. With a projected budget deficit of about $40 billion, Iraq needs to boost its production notwithstanding the current slump in oil prices and the discontent within OPEC for an increase of Iraq's oil production (now at 3.3 million bbl/d, primarily from the southern oil fields with an overall export of 2.4 million bbl/d to 2.6 million bbl/d), which could additionally sink the price of oil. Iraq has not been included in the OPEC system of quotas for almost a quarter of a century, but, according to the International Energy Agency (I.E.A.), Iraq will produce 6.1 million bbl/d by 2020 and 8.3 million bbl/d by 2035; Iraq will account for 45 percent of the total growth in global oil output by 2035. The only at the moment available and quick ways for Iraq to boost its production are:

  1. to return in charge of the revenues from the Kurdish oil fields.
  2. to return in charge of the production from the oil fields around Kirkuk.      

In fact, in the last ten years the Kurds have consistently developed the K.R.G. oil industry, and now ten oil fields have been declared commercial (significant production comes from four fields). The Kirkuk field was brought in production in 1934, and, notwithstanding the troubled history of the last 14 years, with proper management it should still be able to produce 400,000 bbl/d to 500,000 bbl/d. Then, upon completion of the current renovation projects by British Petroleum (BP) and the linking of the Kirkuk pipelines to the Kurdistan-Turkey Pipeline, the capacity of the Kirkuk oil field could reach 700,000 bbl/d and a million bbl/d in a year. For more information see: BACCI, A., BP Continues Investing in Iraq. With T.S.C.s the Devil Is Always in the Detail(s), October 2013

Kirkuk District, Oil Gusher Spouting (circa 1932)
G. Eric and Edith Matson - G. Eric and Edith Matson, Matson Photographic Collection, Library of Congress

Of course, Iraq would like to increase its oil production coming from the southern fields as well. This year the development there has proceeded quite well, but some important infrastructural gaps have already emerged and will not solved soon (not before 2017-18). "The problem in the south is that joint infrastructure, whether terminal storage and pumping capacity, water availability or gas handling, remains well behind schedule. Water injection is one of the most urgent issues" says Bassam Fattouh, the director of the Oxford Institute for Energy Studies.    


In the last days, both the K.R.G. and Iraq have tried to avoid answering directly and conjointly to questions related to the two most visible friction points:

  • What to do with the K.R.G. oil production in excess of the quantity agreed upon by Erbil and Baghdad, and how to deal with Kurdish oil that has already been exported since May.
  • The control of the Kirkuk oil field.

It would be interesting to understand what will happen to the quantity of Kurdish oil in excess of 250,000 bbl/d exported by the K.R.G. and to the previous Kurdish oil exports legally challenged by Baghdad. Last month, Iraqi Kurdistan affirmed to have exported through Turkey since May approximately 34.5 million barrels, which Baghdad considers illegally exported. According to Reuters, it seems that after the K.R.G. initial difficulties finding buyers for its exported oil, Trafigura, one of the world's most important trading firms, successfully handled some of the Kurdish cargoes to several destinations.

The point related to how handling the oil quantity in excess of 250,000 bbl/d will be relevant soon in the coming year because the K.R.G. is increasing its exporting capacity to 500,000 bbl/d by the end of the first quarter of 2015 and then to 800,000 bbl/d during 2015. Presently, Iraqi Kurdistan is already exporting around 300,000 bbl/d, while current production is 400,000 bbl/d, of which 100,000 bbl/d are used for the manufacture of the refined products consumed within the K.R.G. In practice, already in 2015, there will be a quantity of Kurdish oil in a sort of legal vacuum. In this regard, immediately after the agreement, Deputy Prime Minister Qubad Talabani of the K.R.G. said that the new deal had acknowledged the legality of the K.R.G. exports. But then, after just three days, the Oil Ministry of Iraq issued a counterstatement where it affirmed that any oil dealings outside of the numbers and frameworks included in the deal would be considered illegal. The statement continued denying the existence of any "verbal or written agreements" that could have permitted the K.R.G. to export oil outside of the framework of the agreement. Later, Mr. Hawrami said that the K.R.G. would continue to market a portion of its crude oil while negotiating the terms with Baghdad.       

Minister of Natural Resources Ashti Hawrami of the K.R.G.
Photo by Rojava News

The second important point missing in the discussions between the K.R.G. and Iraq proper is the future of the Kirkuk oil field. An initial consideration: For Baghdad it will always be difficult to administer the three governorates of Iraqi Kurdistan as if they were one of the other 16 Arab governorates of Iraq. The K.R.G. is already a semi-autonomous region with special powers: in practice it is a Kurdish area within an Arab country. But, with reference to Kirkuk Governorate, which is one of the three governorates disputed between the K.R.G. and Iraq proper, things are not so straightforward. For more information see: BACCI, A., Iraqi Kurdistan's Occupation of Kirkuk Oil Field Will Deeply Affect the Iraqi Oil Sector, June 2014.


The value of the Kirkuk oil field is tremendously important for both the contestants. In fact, according to the latest data, the Kirkuk oil field is home to at least 12 billion barrels of crude oil. Iraq's North Oil Company now claims that the reserve is much higher; it estimates the oil reserve between 20 to 25 billion barrels. In particular, losing control of the Kirkuk area would probably have relevant consequences with reference to the territorial dimensions of Iraq because it is evident that if, in the future, the Kurds maintain control of Kirkuk, then Baghdad will never be able to have a word in relations also to the oil exported from the three original Kurdish governorates. In other words, Kurdish control on a permanent basis of Kirkuk means for Baghdad that two out of three of the most important oil-producing areas in the whole Iraq would be controlled by the Kurds. Indeed, Baghdad would remain in charge of the huge and profitable southern oil fields, but it would have a curtailed influence in the oil business. Another Iraqi area where there should be sizable oil and gas reserves is Anbar Governorate, which has never been developed to date. The problem is that this governorate is under the Islamic State occupation.   

Moreover, until this summer, Kirkuk oil field used to provide 280,000 bbl/d to the Baiji refinery for the domestic consumption of 11 Iraqi provinces. Since then, the refinery has been contested by the Islamic State and Iraqi forces. Currently, it is under Iraqi control but deep in Islamic State-controlled territory. Iraq is able to refine only 600,000 bbl/d of crude oil (a small quantity for a country as big as Iraq), of which half barrels are refined by the Baiji refinery, which is strategically located in order to be well supplied with crude oil coming from Kirkuk. As a consequence of the current complex situation around the Baiji refinery, Baghdad has been already forced to import additional gasoline, diesel and L.P.G. (butane and propane). 

Baiji Oil Refinery
PUK Central Council 

After the deal, the exclusivity relation that Turkey has cultivated with the K.R.G. for the last three years has been partially reduced. But, it is also true that for the Kurds this tight relation with Ankara was a springboard toward first economic independence and then political independence from Baghdad. And Ankara has always opposed an independent Iraqi Kurdistan because this would have created problems in the Kurdish-inhabited parts of Turkey — 18 percent of Turkey's population is Kurd; from 1984 to 2013 the Kurdistan's Workers Party (P.K.K.) fought an armed struggle against the Turkish state for cultural and political rights and self-determination for the Kurds in Turkey. Turkey's reluctance to fully support Iraqi Kurds and Syrian Kurds (in Kobani) in their struggle against the Islamic State has to be read through the lens of Turkish opposition to any Kurdish statehood. 

The reality is that the K.R.G. and Turkey need each other. The K.R.G. has energy resources and Turkey needs them in order to diversify its energy suppliers — Turkey imports 90 percent of its oil. But in addition, this relation is substantiated by pure geography as well, because Turkey is the most evident and economically efficient route for exporting oil from the K.R.G. And similarly, until last March when the Iraqi section of the Kirkuk-Ceyhan Pipeline was damaged, Kirkuk oil was exported north to Turkey — and geographically Kirkuk is more south than the K.R.G. Moreover, for Ankara, the K.R.G. may be the only friendly entity present in the Middle Eastern neighborhood. In fact, Turkey's so magnified "zero-problems-with-neighbors" policy is long gone.

Thursday, November 6, 2014

Syria's Oil Sector in the Fall of 2014

November 6, 2014

ABSTRACT — The Syrian energy industry is currently in complete turmoil as a consequence of the Syrian Civil War, which started in March 2011. After more than three years and a half of civil war, Syria is divided between warring parties. This paper develops an analysis of Syria's energy industry with reference to the "oil" sector — the natural gas sector is not considered. Despite scarce and reliable data because of the ongoing war, the first chapter "The Current Condition of the Oil Sector in Syria" tries to understand the present state of the oil business in the country. The second chapter "The Syrian Oil Sector: An Overview" presents a general description of the oil sector as this was before the war. Finally, the third chapter "Will Syria Be an Oil Transportation Hub in the Future?" considers whether Syria could one day become a Middle Eastern transit hub for oil. This last point is quite relevant because in the last decades many opportunities related to this goal have been missed.       

CHAPTER I — The Current Condition of the Oil Sector in Syria
In fall 2014 discussions about Syria's oil sector are all focused on the Islamic State (a.k.a. ISIS or ISIL) occupation of large swaths of eastern Syria and precisely of some oil-producing governorates. At the time of this writing, clashes between the Islamic State fighters and Kurdish groups are taking place in the Syrian town of Kobani, which is located along the border with Turkey. Kobani, in Aleppo Governorate, is a strategic point for both contenders: For the Islamic State it is an oil transit route for smuggling oil to Turkey, while for the Kurds it is the place where to lay a potential pipeline transporting crude oil from Iraqi Kurdistan.  

Syrian Civil War — Current Military Situation
Source: Wikipedia (Nov. 2014)

Already in late 2013, the Syrian government had lost control of the country's most relevant oil fields. In fact, last August, the Islamic State was in control of six fields in eastern Syria. Some sources affirm that in the Deir ez-Zour area, the Islamic State manages wells capable of producing 130,000 barrels per day (bbl/d) of mostly crude oil. In addition to the Kobani battle, currently, there is also an intense fighting in northeastern Syria, in the Hasakah Governorate, between the Islamic State and the People's Protection Unitis (Y.P.G.), which is the militant arm of the Kurdish Democratic Union Party (P.Y.D). Syrian Kurds after the beginning of the civil war exerted their control over this governorate and the P.Y.D. declared self-governance in late 2013. Exercising its power over also this northeastern corner of Syria — where there is the Rumailan crude oil field — would mean for the Islamic State to control nearly all of the country's oil fields as well as the access road to northern Iraq. Presently, government troops by themselves would be absolutely incapable of retrieving the lost ground in northeastern Syria. 

Governorates of Syria — Source: Wikipedia

Oil wells permit the terrorist organization an easy access to economic resources, which are of paramount importance to continue to wage war in Syria and Iraq. Probably, thanks to oil last June, in Iraq and Syria, the Islamic State was able to raise as much as $2 million a day. After in September, the United States and some allies have started conducting airstrikes against the terrorist group in Syria, the Islamic State should now control between Iraq and Syria approximately 20,000 bbl/d of oil from the 70,000 bbl/d that it managed in August. It is not clear how much the Islamic State is obtaining from its oil trade. But if it were able to sell 20,000 bbl/d at $20 a barrel on the black market, it would earn half million dollars a day. The price for a refined barrel is in the range of $50 to $60. Most of the Islamic State production is in Iraq and not in Syria. 
The Islamic State does not have the skills required to manage the fields under its occupation — in the oil business it's "upstream" where the Islamic State has its most complex challenges. It probably produces only half the fields' regular output and, given its lack of expertise and know-how it risks seriously damaging in a permanent manner the mature Syrian oil fields, which need qualified personnel because they are in the final part of the production curve. But, if on the one hand, for the Islamic State tapping the resources is not an easy task, on the other hand, the organization has been quite successful in tapping the smuggling network in order to sell its oil. Oil exchanges are done in cash through middlemen with no real bank traceability. Airstrikes are also targeting many Chinese- and Turkish-makeshift refineries (each is able to process around 200 bbl/d of crude oil), which are the tools permitting the jihadis to wage their war. Reports say that the group is selling crude oil and petroleum products (gasoline, diesel fuel and propane) to black market dealers in Syria, Iraq, Turkey and Jordan. Some of the dealers are then reselling petroleum products and crude oil also to the Syrian government.  
Oil resources are showing that the terrorist organizations in Syria are not able to run like "real states" wide expanses of territory where several million people live. The economic model of these terrorist organizations, based on looting crude oil and economic resources, is not sustainable in the long run. If terrorist organizations act like countries they have to provide basic government services, which cost money and require a careful management. Absent a viable economic model, these organizations may become only a sort of failed state (like Somalia).
One final economic consideration about the Islamic State: In no viable and realistic way can the trade of crude oil as wells as refined products on a large scale be based on truck exports. In fact, Syria before the war used three main pipelines in order to move oil from eastern Syria to western Syria where there are the largest cities, the refineries and the export terminals. Moving crude oil and refined products via trucks means that the business is not sound and has a scarce sustainability in the long run. 
Because of the conflict, Syria is in short supply of heating oil and fuel oil for its citizens. At the start of 2013 Iran opened a $3 billion credit with the Central Bank of Syria to cover oil supplies (crude oil and refined products) — this was a part of an overall $7 billion credit. According to Reuters, between February and October 2013, 17 million barrels of crude were shipped to the Baniyas Refinery through tankers from Iran and Iraq via the Sumed Pipeline (Egypt). In 2012, both Iraq and Iran had already agreed to ship fuel oil and liquefied petroleum gas (L.P.G.) to Syria.
In specific, since the beginning of the coalition’s airstrikes on Sept. 23, oil prices have skyrocketed in Syria. The airstrikes against the energy installations are having an impact on the Islamic State but at the same time they have an impact on the Syrian population, which in the last weeks has seen important increases in the price of many primary goods (energy and food). And at the beginning of October, the Syrian government decided to increase the price of oil products (33 percent increase for gas oil and 17 percent increase for gasoline) and to permit the private sector to import various oil derivatives, which the private sector may then resell only to industrial concerns — in practice after many decades state monopoly was over. These two decisions make economic sense because currently neither the Islamic State nor Iran are really able to provide the quantities of energy (both oil and gas) necessary to run a country like Syria — it seems that the government is buying vessels also from other countries. And at the same time, the government is not anymore able to subsidize oil products as it has been doing until recently. 

CHAPTER II — The Syrian Oil Sector: An Overview
1) Organization of the Sector — The oil and gas sector is under the control of the Ministry of Oil and Gas. National Law No. 7 of 1953 established that petroleum resources found in the subsoil and off the Syrian continental shelf belong to the Syrian state. Later, in 1964, Syria passed Decree 133/22, which limited licenses for exploration and investment to the Syrian government. Petroleum operations within the Syrian territory are authorized according to a form of production sharing agreement (P.S.A.), which is granted by the government to the contractor and the Syrian Petroleum Company (S.P.C.), the state-owned oil company established in 1974. The majority of the country's P.S.A.s are equally split between the S.P.C. and its partners. In general, Syrian P.S.A.s last up to 25 years and permit the government to retain a certain percentage of the oil produced as royalties.  


2) Reserves, Production and Exports — Historically Syria has never been a major player on world oil markets. But at the same time, until the recent discoveries of natural gas in the eastern Mediterranean, Syria has been the only real energy producer in that part of the Middle East that encompasses Lebanon, Palestine, Jordan, Syria and Israel as well.
According to the Oil & Gas Journal, Syria's proved reserves should be 2.5 billion of barrels as of 2010 — among neighboring countries only Iraq (and the Kurdistan Regional Government, the K.R.G.) owns a larger amount of oil reserves.
Before the commencement of the hostilities between the government and the opposition forces, production amounted on average to 400,000 bbl/d. At the world level Syria was ranked 33rd for crude oil production, i.e., in 2011, 0.4 percent of the world's total production. Already this percentage slid to 0.25 percent the following year. This reduction was primarily due to two factors: the civil war and the sanctions imposed by the United States (U.S.) and the European Union (E.U). In February 2014, the Energy Information Administration (E.I.A.) estimated that the overall Syrian crude and condensates production was 25,000 bbl/d, i.e., one-tenth of the pre-war production. This number included also the production from the areas under the control of the factions opposing the government. 


On a world scale, Syria's production was not very relevant, but still in 2009 the government derived approximately 20 percent to 30 percent of its revenues from oil. Before the civil war, Syria collected from oil around $4 billion per year. Maximum production (610,000 bbl/d) was recorded almost twenty years ago in 1995. Since then, because of lack of technological development, depleted reserves and petroleum product subsidies (according to the Middle East Economic Survey, Syria spent $3 billion in subsidies in 2010), Syria started to import petroleum products. And, already before the civil war, between 2001 and 2011, crude oil production shrank by 41.2 percent. When between 2006 and 2011, Syria tried to hold four licensing rounds (two onshore and two offshore) the results were quite disappointing. Only in December 2013, the Syrian government signed a contract for oil and gas exploration that might be of some importance. The counterpart was the Russian company SoyuzNefteGaz and the contract was related to survey and exploration for oil and gas in the continental shelf belonging to Syria from the southern shores of Tartus to the city of Baniyas. The whole area is approximately 845 square miles.   
By now, many international oil companies (I.O.C.s, among them France's Total, which produced on average 39,000 bbl/d in 2010 and Anglo-Dutch Shell, which produced within the joint venture Al Furat Petroleum Company (A.F.P.C.) 100,000 bbl/d as of May 2011) and national oil companies (N.O.C.s) have ceased their operations in the country. At present, Western companies are legally prohibited from working in the country.
Before the start of the hostilities, Syria used to export over 150,000 bbl/d of crude oil, whose 99 percent went to Europe (Turkey included). The main European buyers were Germany, Italy and France, which, after the introduction of the sanctions against the regime of President Assad, stopped buying Syrian crude. In the end, in 2012, the country became a net importer of oil. Its exports are now zero, at least through official channels. 



3) Location of the Oil Fields — Syrian oil exploration began in 1933 during the French Mandate thanks to the Iraqi Petroleum Company (I.P.C.), but it was not until the 1950s that oil was discovered in the eastern part of Syria around Souedieh in the Hasakah Province. The oil sector took off only in 1968 when the production of the Karatchok oil field was connected through a 663-kilometer pipeline to the port city of Tartus on the Mediterranean Sea. A second area of production was then discovered in the 1980s in the Euphrates Valley, from the city of Deir ez-Zour to the border with Iraq. Syria did not begin exporting oil until the mid-1980s. All of the country's exports are marketed by Sytrol, which is the state oil marketing firm (it normally sells oil under 12-month contracts).
The most important oil fields* are:
  • Omar Field (Deir ez-Zour Governorate) — 75,000 bbl/d.  
  • Thayyem Field (Deir ez-Zour Governorate).
  • Karatchuk Field (Hasakah Governorate).
  • Jbessa Field (Hasakah Governorate).
  • Rumailan Field (Hasakah Governorate) —400,000 bbl/d.
  • Souedieh Field (Hasakah Governorate) — 100,000 bbl/d.
* Some production data are missing so there are no clear data about the pre-war production of all of these crude oil fields.
4) Types of Syrian Oil — Syrian oil fields produce two different grades of crude oil:
  • Souedieh Grade (a.k.a. Syrian Heavy) with 22 API grade to 24 API grade and 3.9 percent of sulfur content.
  • Syrian Light with 38 API grade and 0.68 percent of sulfur content.        

Prior to the 1980s Syria had produced only heavy grade oil. Then light oil was discovered in the area of Deir ez-Zour in eastern Syria. These discoveries attracted international interest and some consortiums were formed — among them the Al Furat Petroleum Company (A.F.P.C.), which is a joint venture between the S.P.C., Royal Dutch Shell, the Chinese National Petroleum Company (C.N.P.C.) and India's Oil and Natural Gas Corporation (O.N.G.C.). Syrian Light, which is light and sweet, has similar characteristics to Libyan oil.
In 2011, heavy oil accounted for approximately 60 percent of the Syrian crude oil production. Syrian Light was mainly used by local refineries in order to manufacture products for the internal market. Indeed, Souedieh grade is not easy to process and according to a report by the Syrian National Council not many refineries in the world are able to refine it. In practice, the refining process is technically challenging and expensive. The majority of these skilled refineries are in the U.S. and in the E.U., although, as of 2011, China was upgrading some of its refineries in order to process heavy crudes as the one produced in Syria. Many times, a limited number of markets available to import and refine a specific type of crude oil mean that, in order to find alternative purchasers, that crude oil has to be offered at a discounted price. The E.U. boycott of Syrian oil is having an impact in reducing Syrian revenues because Europe with its refineries was one of the most important purchasers — in 2011 Europe imported 3.6 billion dollars' worth of oil from Syria.   
Syrian oil fields are mature and, as such, already before the civil war they underwent enhanced oil recovery (E.O.R.) techniques that use primarily natural gas. The industry did not have many expected new discoveries in the years to come. As of 2010, according to the government, Syria should have also 50 billion tons of shale oil reserves, but its development has now been postponed.
5) Pipelines — Syria does not have any "working" international oil pipeline passing through its territory. The third chapter will provide some information regarding the two international pipelines that in the past decades had transported oil across Syria. Neither is working today.
Instead, Syria has four main internal pipelines:
  • A 25,000-bbl/d pipeline from S.P.C.'s northeastern fields to the Tartus Terminal. The pipeline has also a connection to the refinery in Homs.
  • A refined-products 500,000-tons/year pipeline system linking the refinery in Homs to Damascus, Aleppo and Latakia. 
  • A 100,000-bbl/d spur line from the Thayyem Field and other fields to the T-2 pumping station, which is on the old Iraq Petroleum Company (I.P.C.) Pipeline, a.k.a. as the Kirkuk-Baniyas Pipeline — see Chapter III for more information about this old pipeline. The T-2 pumping station is now controlled by the Islamic State. 
  • A spur line from the Ashara and El-Ward fields to the T-2 pumping station.

6) Refineries — The country's two state-owned refineries, the one in Homs and the one in Baniyas, are operating at reduced capacity for lack of oil to refine. Combined, the two refineries are able to process 240,000 bbl/d (133,000 bbl/d in Baniyas and 107,000 bbl/d in Homs), but also when they were working at full capacity they met only 75 percent of Syria's pre-war demand of refined products. Because of damages to the infrastructure, it seems that currently the two plants are working at 50 percent of their nameplate capacity — in particular, the one in Homs is experiencing more difficulties because of its inland location. The result is a lack of some refined products for the Syrian population, which, as a consequence, is experiencing an increase in the prices of the few available petroleum products. Naturally, all of the plans related to the construction of additional refineries have been delayed or cancelled — among them there was the construction by C.N.P.C. of an oil refinery near Deir ez-Zour capable of handling 70,000 bbl/d to 100,000 bbl/d.    
7) Export Terminals — The two most important export terminals are:
  • Baniyas, which can accommodate Aframax tankers up to 120,000 deadweight tons and has a storage capacity of 437,000 tons in 19 tanks.
  • Tartus, which can accommodate up to very large crude carrier (V.L.C.C.) of 210,000 deadweight tons. A pipeline connects this terminal to Baniyas.

There is also a small terminal in Latakia.      

CHAPTER III — Will Syria Be an Oil Transportation Hub in the Future?
Introduction — One initial preliminary consideration: Syria no longer is a Middle Eastern transportation corridor. The country had lost this role in the 1920s and, only in the past five years before the civil war, it had started to emerge again as a railroad and road transportation hub with Turkey, Jordan and Iraq. The civil war has now completely canceled these small improvements. The map and the slide below show the importance of Syria as a crossroads for international trade.

Syria at the Crossroads by Rich Clabaugh/Staff
Source: The Christian Science Monitor


1) The Twentieth Century — For the majority of the twentieth century, Syria's aspiration to be become an energy hub toward the Mediterranean Sea and Europe were nullified by Middle Eastern politics. And in the past sixty years, despite many difficulties, Syria has been a partial transport hub only from the 1950s to 1982 (be it clear in a non continuous manner) thanks to the Kirkuk-Baniyas Pipeline, which used to transport oil from Iraq and the Trans-Arabian Pipeline (Tapline), which used to transport oil from Saudi Arabia. The slides below provide additional details about these two pipelines. 



Kirkuk-Baniyas Pipeline — Source: Wikipedia


Trans-Arabian Pipeline — Source: Saudi Aramco Expats

Until the increase of oil prices in the 1970s, Syria earned more from the transportation fees of these two international pipelines that crossed its territory, than from its limited internal oil production. Then in 1972, Syria and Iraq started to quarrel with reference to the tariffs applicable to the transportation of Iraqi oil via the Kirkuk-Baniyas Pipeline. In the end, Iraq decided to build the Strategic Pipeline linking Kirkuk to southern Iraq and the crude oil that before flowed north now was directed south. Similarly, in 1980 Iraq and Turkey bypassed Syria when they built the Kirkuk-Ceyhan Pipeline, Iraq's largest oil pipeline, in order to export crude oil from Iraq's northern oil fields.
During the Cold War years, diplomatic relations for Syria were quite complex because of the country's alignment with the Soviet Union, the attacks against Israel and its support of anti-Western terrorist groups. In specific, the political proximity to the Soviet Union was a real issue for Saudi Arabia and the other Persian Gulf countries. Things did not improve during the Lebanese Civil War. After the end of the Cold War, Syria was still entangled in Lebanon and continued not to be seen as a reliable partner by possible investors.     
2) The Projects of the New Century — In 2009, President Assad announced the "Four Seas Strategy", which consisted in transforming Syria in an oil hub for regional transportation between the Persian Gulf, the Black Sea, the Caspian Sea and the Mediterranean Sea. It was a grandiose and far-fetched strategy, but realistically it was impossible to achieve especially because it relied on Turkey's support. And, the relationships between Ankara and Damascus in the last years have deteriorated consistently. Currently, Turkey requires President Assad to step down from power.
At the end of July 2010, the Syrian government signed a memorandum of understanding (M.O.U.) with Iraq in relation to the construction of two oil pipelines for transporting oil from Iraq's Kirkuk Field. The signature of this memorandum, which included a section related to the construction of a gas pipeline from the Akkas Field in Iraq, was then followed in July 2011 by the announcement of another gas deal between the two countries. Syria and Iraq discussed these possible developments in the energy field thanks to the improved relationships between the two countries after 2005 when Shia-dominated governments started to hold on power in Iraq. Previously, the relationships between the countries had been very difficult. This was especially true after the Iranian Revolution in 1979, when Syria became one of Iran's most important allies and Saddam Hussein's Iraq was Iran's sworn enemy.  
3) Syria's Main Issues — One important caveat: Because of the current civil war it is almost impossible to think of specific pipelines passing across Syria.
And, before any energy projects involving Syria may be discussed the country has to solve three main issues:
  • First, to maintain its current borders and not to be split among competing groups. The second possibility would be a disaster because there would not be any possibility of transporting crude oil through a divided territory. This is exactly what is occurring in Iraq where the Kirkuk-Ceyhan Pipeline has not been transporting oil through the Iraqi section since March 2014. The reason is simple: The pipeline runs across territory occupied by the Islamic State, which damaged the infrastructure.
  • Second, all of the security issues must be solved. Again Iraq is a good example of a country that seemed pacified but that in reality had a lot of simmering tensions. Today, Iraq is in complete turmoil and the very existence of the country is not sure 100 percent. The result of this civil war in Iraq is that the country is able to extract oil only from the southern fields (the K.R.G. is apart) and then to export it via the Basra terminal. The reason is quite simple: political stability and more security in the area. Syria needs to learn the Iraqi lesson.
  • Third, the type of Syria that will emerge from the civil war will tell us a lot about the possible future agreements with neighboring countries. The current deep split between countries aligned with Iran on one side and countries aligned with Saudi Arabia on the other side won't abase soon. According to who will be the winner in Syria, there will probably be different investment agreements, which not necessarily will follow sound economic foundations. This was the rule in the past and will probably be in the future. In other words, it will be the relationships between Syria (it's not clear what Syria will become), Iraq (it's not clear what Iraq will become), Turkey and Iran that will decide the route of the pipelines in the area.      

So, under the current circumstances only general considerations may be thought of with regard to Syria's possible future role as a transportation hub for oil.
4) The Oil Transported Across Syria Will Arrive from Iraq — From an economic point of view it seems plausible that the oil that will transit through Syria will primarily arrive from northern Iraq (and/or from Kurdish areas in Syria and/or in Iraq according to the future political developments). Shipping crude oil from southern Iraq or the Persian Gulf via pipeline to Syria and/or Turkey may be based on political reasons or on the necessity of diversifying exports routes — a couple of years ago many experts were talking of bypassing Hormuz in case of an Iranian blockade of the strait — but from an economic standpoint it could be expensive. Moreover, oil from southern Iraq is very close to the port city of Basra, which is home to all of the six Iraqi ports, including the country's unique deep-water port. And Basra terminals are currently able to export 2.4 million bbl/d, which right now is practically the whole Iraqi oil exported.
When in 2013, Ankara and Baghdad discussed the possibility of connecting Basra to Ceyhan via pipeline — current events in Iraq have completely ruled out this project — the idea was to build only a new pipeline between Basra and Kirkuk and then to pass oil to the Kirkuk-Ceyhan Pipeline, which despite, a capacity of 1.6 million bbl/d, transported only 400,000 bbl/d. In other words, the idea was to ship via the Kirkuk-Ceyhan Pipeline around 700,000 bbl/d — the Kirkuk-Ceyhan Pipeline consists of two twin pipelines, but at that time only one leg was operational, while since March 2014 the pipeline has been completely out of service from Kirkuk to the border with Turkey. This project wanted to reconstruct the Iraqi oil system of the end of the 1970s, which was based on the Kirkuk-Ceyhan Pipeline and the Strategic Pipeline. The latter, which is now not operational and severely damaged, was a north-south system, consisting of a reversible 1.4 million bbl/d pipeline. Through the Strategic Pipeline, Iraq could export Kirkuk crude from Basra and southern Rumaila crudes from Turkey.   
The idea of constructing a new pipeline between Basra and Kirkuk might have been correctly motivated. In fact, once a pipeline has been laid, like the Kirkuk-Ceyhan Pipeline, it has to be used. With pipelines, idle capacity means economic losses. But, the complete construction and the use of a new pipeline from southern Iraq or other Persian Gulf countries to Syria and/or Turkey are very expensive tasks, especially in light of the proximity of Persian Gulf countries to the sea. In general, crude oil is cheaper to transport by tanker than by pipeline. The two slides below provide additional details about transporting oil via pipelines and tankers.



5) Syria's Four Complex Options — The final customer for the oil transiting through Syria or its neighboring countries is primarily Europe (E.U.-28), whose first supplier in 2012 was Russia with 33.7 percent of the E.U. crude imports. Saudi Arabia was the third supplier with 8.8 percent and Iraq the seventh with 4.1 percent (Eurostat data). Data show that Middle Eastern crude oil exports first and foremost go to Asia. According to the Energy Information Administration (E.I.A.), in the year 2011 an average of 14 tankers per day passed out of the Persian Gulf through the Strait of Hormuz. These tankers carried 17 million barrels, whose 85 percent was plying to Asian markets. Last year, China overtook the U.S. as the world's largest oil importer and Japan, India and South Korea are all in the first five positions in this ranking. In the Middle East, only Iraq has a higher percentage of exports toward Europe (20 percent) - geography tells us something. All these data mean that with a European economy dormant it won't be easy to find additional markets for crude oil shipped to Turkey or Syria via new pipelines.          


In general, four are the possible options for Syria:
  • To be a transit country toward Turkey (final destination) — At the time of this writing, the utilization of this route is completely interlocked to a regime change in Syria. Given the current tense relationships between Syria and Turkey, Ankara would not accept a deal with Syria unless President Assad steps down and a Sunni-oriented Syria emerges.
  • To be a transit country toward Lebanon (final destination) bypassing Turkey — This is a strange route. First of all, if oil is shipped to Lebanon it has to pass across Syria. And if oil transits to Syria what is the reason not to export it through the Syrian ports, which have been exporting oil for the last thirty years?
  • To be the destination country bypassing both Turkey and Lebanon — Many factors play a role in the implementation of this route, which Turkey does not favor. But, if in both Syria and Iraq the incumbent governments could recover their legitimacy with reference to respectively the whole Syrian territory and the whole Iraqi territory this option could be implemented. If, instead in both Syria and Iraq gained power two Sunni-led coalitions it would still be possible to be implement this option, but in reality it would be more difficult in light of Turkey's opposition.
  • To be excluded by pipelines that will arrive in Turkey — If chaos continues in Syria this will be a very probable option. It already happened twice in the past when the Kirkuk-Baniyas Pipeline and the Trans-Arabian Pipeline were shut down. Investors (private and public as well) want stability. Lacking this, there won't be any investment. 

After the 2003 invasion of Iraq, the Pentagon studied the possibility of utilizing the oil route Mosul (Iraq)-Haifa (Israel). In fact, between 1935 and 1948 a pipeline run from Mosul to Haifa, which at that time belonged to the British Mandate of Palestine. After the creation of the state of Israel, Iraq shut down the pipeline. This project — let's call it the fifth option, Syria excluded by pipelines that will arrive to Israel — under the current circumstances is absolutely not doable.     
The "Four Seas Strategy" is not a viable option because at least two of its pillars, the Black Sea and the Caspian Sea, are not achievable by Syria. A simple look at the map well clarifies that the only real country that could play a four-sea strategy is Turkey. Geography matters and it's difficult to understand why crude from the Black Sea and the Caspian Sea should travel to Syria's ports and not to Turkey's in order to reach Europe.
Moreover, in this game of pipelines, Turkey, as well as Syria, wants to be a transportation hub for oil and gas. And Turkey may eventually accept Syria only as a transit country, but not as the final destination of pipelines that bypass Turkey. It's quite understandable why Ankara is against the possibility of reopening the Kirkuk-Baiynas Pipeline, which would challenge the Kirkuk-Ceyhan Pipeline, notwithstanding that the latter is currently not working from Kirkuk to the Turkish border, but only from the border between the K.R.G. and Turkey where it receives Kurdish oil via the Iraqi Kurdistan Pipeline.     
6) The Last Factor: Syrian Kurds — Another factor that will play an important role with reference to the future development of Syria's oil sector is the emergence of an area under Kurdish control in Syria's northeastern corner, which is the territory where most of Syria's oil reserves are located. As it was explained in the first chapter, it's thanks to the Syrian Kurds' resistance that Hasakah Governorate with its oil riches has not fallen yet under the Islamic State.

Syrian Kurdistan — Source: Wikipedia

The events of the last three years have shown that Iraqi Kurds want to manage their oil and gas resources independently of Baghdad — some members of the K.R.G. political establishment plainly speak of independence for Iraqi Kurdistan. It's quite probable that something similar will happen also in the "Syrian Kurdistan". If Syrian Kurds are able to repel the Islamic State attack, at least they will request a slice of the oil pie, no matter what the Syria's political system will be. For instance, Syrian Kurds could offer Iraqi Kurdistan a direct route (Rojava Route), for its oil exports. In practice, the K.R.G. could have a second route in addition to the one to Ceyhan.
It is too early to understand whether there will be a new actor in the Syrian-Iraqi oil chessboard in addition to the K.R.G. For the time being, apart from fighting the Islamic State, Syrian Kurds are correctly maintaining a neutral position between President Assad and the Syrian National Council (S.N.C.). In specific, the P.Y.D., which is linked to Turkey's Kurdistan's Workers Party (P.K.K.) considers the S.N.C as a pure marionette from Ankara. If the recent vicissitudes of the K.R.G are any guide, Syrian Kurds will progressively assert themselves as an element in the Syrian equation. In other words, this means that they will look for more autonomy. And, for them, oil will be an important tool as it has been with the K.R.G.