The Fuse

Taking Stock of ISIS Oil: Part 2

October 29, 2015

Guest Post by Matthew M. Reed | @matthewmreed

Matthew M. Reed is Vice President of Foreign Reports, Inc., a Washington, DC-based consulting firm focused on oil and politics in the Middle East.

Connecting the dots when it comes to ISIS oil is no easy task. As Part 1 made clear, we’re left with rough estimates at best for prices and volumes. At the very least we can say that these guesses—official or otherwise—are trending in the wrong direction. ISIS oil operations are proving resilient and the latest reports confirm this much.

Part 2 tackles two other essential questions: who buys ISIS oil and how exactly has the coalition attacked the network?

Who buys ISIS oil?

The main customers for ISIS oil are local refiners inside Syria who buy oil at the source or from middlemen. These locals use simple furnaces in which they boil small batches of oil. The heat vaporizes lighter hydrocarbons and the resulting gas is cooled and condensed before being collected as diesel (or something similar); heavy fuel oil, which makes up the bulk of the refined product, is sold or blended with lighter products. The work is dirty and dangerous. Those doing it are typically desperate families who have learned on the job, often including children.

While the makeshift refineries look modest from above and up close, their combined refining capacity amounts to tens of thousands of barrels a day.

Yields vary, but at least 25 percent of each boiled barrel appears to be wasted in the process. None of these furnaces can handle much oil (likely less than 50 b/d each) but locals make up for limited capacity with more boilers. A quick search on Google Maps turns up hundreds of these furnaces, which are strewn across the Syrian countryside near fields like those in Deir az-Zor. Here we find clusters of moonshiner-style refineries set up neatly beside each other. Each cluster is run by one family or group. While the makeshift refineries look modest from above and up close, their combined refining capacity amounts to tens of thousands of barrels a day.

In the pictures below, the large black marks are where furnaces sit and are fired up. A long narrow trench extends from the furnace and is filled with water; these trenches used to cool a submerged pipe that carries vapor from the furnace. At the end of the trench is another hole where the condensed vapor—now refined product—spills out of the pipe and into a receptacle.

isis mini refineries 1

A cluster of unsophisticated mini-refineries.

isis mini refineries 2

Hundreds if not thousands of mini-refineries are now processing ISIS oil in Syria.

In a perfect world—one without ISIS—local demand would be twice what ISIS produced last summer and maybe three times what it’s producing now.

Not enough attention has been paid to consumption dynamics within ISIS territory. If ISIS is producing 50,000 b/d right now, which seems very possible, then all of its oil production could conceivably be sold to local refiners. The capacity is there and so is the demand: Some five million people trapped inside ISIS territory can consume that much or more. In a perfect world—one without ISIS—local demand would be twice what ISIS produced last summer and maybe three times what it’s producing now. ISIS-controlled Raqqa in Syria and Mosul in Iraq are major population centers that need fuel. Of course, the ISIS war machine also needs refueling.

So how much ISIS oil is being smuggled out? The likely answer is not much, for several reasons. First, ISIS already has a captive market. Second, ISIS was blown out of the refining business by the initial waves of airstrikes in September-October 2014. That means it’s stuck selling crude. There simply aren’t that many customers for crude outside ISIS territory. (The big money maker in Turkey has always been smuggled diesel and gasoline.) Third, the group’s access to smuggling routes is limited after battlefield advances by the Kurds in the north and crackdowns by Turkish authorities. Fourth, moving the oil costs money. Because ISIS oil is sold by the truckload, it makes sense to sell it as close to the source as possible, otherwise these middlemen lose profits paying ISIS tolls, customary bribes and their own fuel costs. And finally, ISIS faces stiff competition from other smugglers, who have better access and historical cross-border ties.

ISIS can count on one other local buyer: The Assad regime.

ISIS can count on one other local buyer: The Assad regime. Businessmen linked to the regime in Damascus have been sanctioned for trading with ISIS. There are also some eyebrow-raising gaps if we look at official Syrian Oil Ministry data. Earlier this year, International Oil Daily reported that government-run refineries processed 106,000 b/d in April. Some 65,000 b/d of that oil was supplied by Iran; another 10,000 b/d was said to be piped from fields in the northeast under Kurdish and regime control; western fields delivered another 10,000 b/d to the regime. That leaves about 20,000 b/d unaccounted for. The shelf life of any deal is uncertain, especially now that ISIS is driving the regime out of other oil-rich pockets of Syria, but ISIS is still selling gas to the regime in exchange for utilities.

Have coalition strikes against the ISIS oil network been successful?

Yes and no. If we measure success in terms of ISIS production and revenue, then the campaign has fallen short. Yet ISIS would be running a much more robust and diverse operation today if not for foreign intervention. The group would be significantly richer.

Going by U.S. Department of Defense press releases, it’s clear the coalition has a handle on the network. Their discretion in target selection is telling. Notably, the coalition has refrained from attacking oil at the source. US officials are sensitive to the fact that so many locals now depend on the trade. They’re also not eager to trigger an environmental disaster by attacking wellheads. Instead, the coalition has attacked more sophisticated refineries found in ISIS territory, plus pump jacks that lift oil and a handful of drilling rigs. The prime target for coalition strikes has been oil in storage. It’s safe to say ISIS has lost tens of millions of dollars from these strikes.

coalition isis strikes

A U.S. Delta Force raid in May killed ISIS oil emir Fathi al-Tunisi, also known as Abu Sayyaf. Leading up to the assault, the coalition had not hit an ISIS oil target in Iraq or Syria for weeks, but in June the coalition took out 17 ISIS oil depots—probably thanks to the intelligence haul at Abu Sayyaf’s compound. Strikes ramped up again in September-October, destroying 20 more oil depots in Syria and the Qayarrah Oil Refinery in Iraq, one of the few strikes against ISIS oil assets there.

ISIS will profit from oil as long as it holds oil-rich territory. The only way to cut off the group’s revenue stream is to capture it at the source and deny ISIS access to it. Airstrikes alone will never accomplish this goal.