Sun 13 Oct 2019

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Looming Oil Crisis in Syria Catalyzed by International Sanctions

Minister of Oil and Mineral Resources, Eng. Ali Ghanem, on a visit to al-Taim oil field in Deir ez-Zor - May 2019 (Syrian Ministry of Oil on Facebook)

Minister of Oil and Mineral Resources, Eng. Ali Ghanem, on a visit to al-Taim oil field in Deir ez-Zor - May 2019 (Syrian Ministry of Oil on Facebook)

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Syria is anticipating a new oil crisis that is becoming more apparent with growing US and European sanctions on Syria that closed the doors of Iranian support, as well as domestic measures that give signs of an expected crisis.

The government of the Syrian regime suffers from mounting economic pressures, following sanctions imposed by the United States and European states.

With the loss of access to most oil resources in eastern Syria, and the international blocking of the supply coming from Iran, the government is unable to secure needs for oil derivatives, sourced either internally or externally.

It is expected that the upcoming crisis will cast a shadow on all sectors in Syria, especially industrial and agricultural production, as well as transport and heating. Its outcomes reflect on Syrian citizens with the absence of alternatives and solutions, especially that official statements attributed all crises to international sanctions on Syria, according to the Deputy Minister of Economy in the Syrian Interim Government, Abdel Hakim El Masri, in an interview with Enab Baladi.

Indicators of Future Crisis

Current data indicates a compounded crisis awaiting Syrian regime-controlled areas, with increasing international sanctions on Syria and Iran, after a severe crisis witnessed by these areas during the last winter season.

The economic sanctions imposed on Syria and Iran led to the loss of access to sea ports to Syria, with the impounding of the Iranian oil tanker Grace 1 in the Straits of Gibraltar in July, after it was en route to Syria. Sanctions have also threatened land routes to Syria, and blocked the credit line between Damascus and Tehran.

Last March, the United States warned the shipping cargo community not to ship to the Syrian regime, publishing lists of handles for ships that have done so since 2016. This is according to a statement from the Treasury Department’s Public Affairs Office, which included that the Office of Foreign Assets Control (OFAC) updating its warning to the offshore shipping community to highlight the risks associated with transporting oil to Syria.

Iran supplied the Syrian regime with fuel under three credit contracts, which began in 2013 with two lines worth $1 billion and $3.6 billion, and a third was signed in January 2017 worth $1 billion.

The third credit line was suspended in late 2018 due to sanctions, according to the Director of the Syrian Petroleum Company (SADCOB) of the Ministry of Oil in the Syrian regime, Mustafa Haswiya.

In an interview with the Syrian News Channel (al-Ikhbariya) on 13 April 2019, Haswiya said that the Iranian credit line signed with the government to supply crude oil from Iran to Syria has been suspended since 20 October.

Haswiya said that Iran was supplying Syria with millions of barrels of oil per month, and the amount reached three million barrels in some months. However, no oil tankers have reached Syria from Tehran for six months, he said.

This was followed by a statement by an official in the Syrian Ministry of Oil, quoted by the government newspaper Tishreen on 26 May 2019, in which he considered that the return of the Iranian credit line to Syria is not soon to occur, and would be a major breakthrough in the current crisis.

According to a report by the Wall Street Journal in March 2019, Iran has been unable to deliver oil to Syria since January 2019, according to data from marine service providers. This is the case after up to 66,000 barrels per day of Iranian oil use to make its way to Syria until the end of 2018.

Syrian Prime Minister Imad Khamis said in April 2019 that “US forces in the Mediterranean announced that each tanker headed for Syria is the target of its gunfire, in parallel with the prevention, control and punishment of individuals, crews and ships, and strict prevention of transfers… which have rendered the import of oil and its derivatives very difficult,” as Khamis was quoted in the news agency Sputnik.

Preemptive Measures

In order to avoid an expected winter crisis, the newspaper Al Watan, affiliated with the regime, quoted a source in the Fuel Company on 27 June saying that the Company will distribute heating gas to citizens in all governorates starting next August, prior to the winter season, with specific daily amounts allocated to microbuses, describing the diesel reservoir as “decent”.

In conjunction with this crisis, Syria’s Ministry of Internal Trade and Consumer Protection, last June, raised the price of subsidized gasoline to the international price of gasoline, while the price of subsidized fuel remained at its previous level. As such, the price of unsubsidized Octane 90 petrol reached 425 SYP instead of 375 SYP, while the price of Octane 95 was lowered to 550 SYP instead of 600 SYP.

At the time, the Minister of Internal Trade and Consumer Protection, Atef Naddaf, was quoted by the official news agency SANA saying that the price of unsubsidized gasoline will be adjusted monthly according to international prices (i.e. cost plus extra expenses), and the price of the unsubsidized gasoline will be raised accordingly.

The move is the first step in lifting subsidies on the price of gasoline, and its sale at international prices averaging at $1.14, or 621 SYP, in an attempt to raise liquidity. This is especially the case after the government announced it needed $200 million per month to secure fuel, according to what Al Watan reported from the Ministry of Oil last October.

Stopgap Solutions to the Crisis

Assistant to the Minister of Economy in the Syrian Interim Government, Abdel Hakim al-Masri, believes that the regime seeks to compensate its sources through partial solutions of land imports from neighboring countries. This poses the possibility of export of Iraqi oil through Syria, after reports of an Iraqi study revealed by Iraqi Prime Minister Adil Abdul-Mahdi at a press conference on July 10 to export Iraqi oil through Syrian and Jordanian seaports.

Speaking to Enab Baladi, al-Masri added that there is information about the supply of Libyan oil to the Syrian regime through Lebanon, with a Russian-Iranian initiative, in exchange for support with weapons to the Libyan National Army forces headed by Khalifa Haftar. These are solutions sought by Assad’s allies to circumvent the American sanctions imposed on Syria, according to al-Masri.

However, these possible solutions only address 5% of the Syrian market needs for oil, which, in addition to the high costs of road transport, will be reflected in high oil prices in Syria. Moreover, US threats that will target land transport convoys from neighboring countries reduce the likelihood of their reaching Syria, especially from Libya, according to al-Masri.

With the regime losing most of its oil resources in Syria, the eastern region appears as a great hope to meet its oil needs through the resumption of supply at the present time, especially given its proximity and ease of transport, as confirmed by the Syrian Ministry of Oil last May.

At the time, an official source in the ministry told the government newspaper Tishreen that the optimal solution to the oil crisis the return of oil access from northern Syria, through the resumption of fuel supply according to previously signed contracts, which have been hindered by economic sanctions imposed on Syria. The source indicated that, if resumed, the contracts signed can be sufficient for two years, according to his description.

However, al-Masri believes that the supply of oil from Self-Administration areas in northeastern Syria to regime areas is not possible with the existence of US sanctions and pressures. This is especially the case as Washington supports the regions east of the Euphrates politically and militarily, and as the US repeatedly warned of oil smuggling to the regime, and targeted oil tankers en route to the latter.

Nuri Mahmoud, the spokesman for the Kurdish People’s Protection Units (YPG), the main component of the Syrian Democratic Forces (SDF), denied what US President Donald Trump said that the YPG in northeastern Syria sells oil to Iran, which he claimed in a tweet last January. Mahmoud said that there was no truth to claims about oil sales to Iran.

Mahmoud added that oil within SDF-controlled areas in northeastern of Syria is extracted for daily domestic consumption, and for household purposes, as the SDF lacks oil refineries.

Oil production in Syria recently fell to about 14 thousand barrels per day, after daily production before 2011 was estimated at 400 thousand barrels, more than half of which is consumed internally and the rest is exported, according to official government statistics.

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