Fuel in Government of Syria Controlled Areas Thematic Report March 2020
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FUEL IN GOVERNMENT OF SYRIA CONTROLLED AREAS THEMATIC REPORT MARCH 2020 1 / 13 EXECUTIVE SUMMARY The fuel crisis which has debilitated the Syrian economy since late 2018 has caused massive lines at pumping stations, battered domestic economic activity, threatened transportation and agricultural output and crippled fuel-dependent services nationwide. The shortage is a result of the conflict itself and a consequence of sanctions targeting the Government of Syria in Damascus and their Iranian backers. Destruction of domestic petroleum infrastructure and fragmented control of resources has shrunk domestic oil production from approximately 385,000 barrels per day in 2010 to no more than 24,000 barrels per day, far short of national demand. To cover the shortfall, the Government of Syria has explored piecemeal schemes to circumvent the restrictions and secure its energy needs. One such scheme was the use of a line of credit extended by Iran in 2013. This has become increasingly unstable as the Trump administration announced its strategy to “confront and contain Iran”, implementing sanctions which have all but halted critical Iranian tanker shipments to Syria. In response to its embattled position, Damascus then explored the possibility of importing fuel products from ISIS-controlled areas in the northeast of the country. The Government turned to the young businessman, Muhammad Bara al-Qaterji, who had extensive tribal connections in Ar-Raqqa, to arrange the supply of fuel products into Government-controlled areas. Qaterji, who was included in the US sanctions list, continued to supply the Government of Syria with fuel from northeast Syria under Kurdish self-administration (KSA) control. The Ministry of Petroleum and Mineral Resources also started to import high-octane fuel from Lebanon, which was exported to the Syrian market at prices reaching 260% of their Government-set subsidized cost, and in quantities far short of fulfilling needs. This scheme came after an attempt by the Ministry to encourage fuel imports by authorizing private manufacturers to individually import fuel via land and sea routes for a period of three months. Individual-manufacture importing was then halted following an announcement by the US Treasury Office of Foreign Assets Control (OFAC) which imposed sanctions on any “insurers, shipping companies, financial institutions, and others involved in petroleum-related shipping transactions with the Government of Syria,” as stipulated in an OFAC advisory issued 20 November 2018. On a national level, the Government of Syria attempted to contain the shortfall through a strategy of close management that has succeeded only in inflaming discontent. Since early 2016, the Ministry of Petroleum and Mineral Resources has implemented a ‘smart card’ distribution system and imposed ever-tightening restrictions on daily and monthly fuel quotas. 2 / 13 The Ministry has announced the ceiling imposed by the smart card will be lifted for consumers willing to buy fuel at cost (375 SYP per liter rather than the subsidized price of 225 SYP per liter) for quantities above the quota. The Ministry of Petroleum and Mineral Resources also reduced the fuel quotas for government vehicles (up to 800 liters per month) by 50% and reduced locals’ allowance for heating fuel in the winter from 400 liters to 200 liters. FUEL SECTOR IN SYRIA BACKGROUND Although research and exploration for oil in Syria started in 1933, the production of oil did not begin until the Ba'ath Party came to power.1 In 1974, the Syrian Company for Storage and Distribution of Petroleum Products (SADCOB), known colloquially as Mahroukat, was established, along with several other companies specialized in refining and transportation, all of which are linked directly to the Government’s Ministry of Oil and Mineral Resources. Following its establishment, SADCOB participated in and supervised the development of the country's geological map in cooperation with the Soviet Union. In the late 1980s, the Government of Syria began to rely on its oil fields to fund its large public sector, provide subsidized fuel to the domestic market and run the majority of the country's power plants. Rumaylan Syria ranks 27th in oil production worldwide. Its production of oil in 2010 amounted to 0.48% of Tishreen al-Tabqa Shadadi the world's oil production, with reserves estimated Kisham Jafra al-Kharta al-Omar at 2.5 b barrels, representing 0.2% of total world al-Tanak Mount Sha'ar al-Ward reserves.2 Most of the oil reserves are located in eastern Syria near the Iraqi border and distributed over three main sites: in the northeast of the country in Swediyeh and al-Remilan, in the Euphrates basin at Omar and Tayem fields, and in the (1) According to the historical information of the Syrian Ministry of Oil, research and exploration activities for oil began in Syria in 1933 as the Iraqi oil company I.B.C discovered the oil fields in Kirkuk Iraq and expected it to extend to Deir-ez-Zor in eastern Syria. The Ba’ath Party took power in Syria with the March 8, 1963 military coup. (2) In context, this is almost equal to UK oil reserves, which currently stand at 2.8 b barrels 3 / 13 Badiyat al-Sham desert. There are two main types of crude oil produced in Syria: light oil free of sulfur, and heavy oil containing a high proportion of sulfur, which is used for the extraction of low-quality oil products and exists in large amounts. Regardless of the type, crude oil is refined locally in two refineries owned by the state, Banias refinery at a rate of 133,000 barrels per day, and Homs refinery at a rate of 107,000 barrels per day. Although not a large oil producer or exporter on the world market, Syria exported approximately 150,000 barrels of crude oil per day to Europe through three ports on the Mediterranean; Banias, Tartous, and Latakia. Syria estimated net crude oil exports were 109,000 barrels per day in 2010, the vast majority of which went to OECD European countries; Germany, Italy, France, and the Netherlands received over 80% of Syria's crude oil exports, and according to the European Commission, EU countries imported 1.35% of their petroleum from Syria in 2010. Although exports from Syria represented a small share of the EU's overall oil needs, these exports accounted for 30% (or $4.1 b) of Syrian government revenues in 2010. Oil revenues have always been separated from the state's budget and allocated directly to the state's army treasury on the pretext of a military build-up against Israel. Figure 1: Percentage of Syria's Fuel Exports to EU Countries Germany 32% Italy 31% France 11% Netherlands 9% Austria 7% Spain 5% Other 5% 4 / 13 REDUCTION IN OIL PRODUCTION According to the World Energy report issued by the British Petroleum (BP) site, average Syrian oil production from 2006 to 2010 was approximately 400,000 barrels per day but declined steadily after that period. The official oil production of the Syrian government dropped from 385,000 in 2010, to 24,000 barrels in 2018 and 2019, which covers only 24% of the daily needs in Government of Syria-controlled areas. These figures are intended to be the official production of the Government, while there has always been parallel production by the forces controlling oil fields in the east and northeast of the country. Figure 2: Government of Syria Oil Production 450 400 400 400 400 400 385 353 y 350 a D r 300 e P s l 250 e r r a 200 B d 171 n a 150 s u o h 100 T 59 50 33 27 25 25 24 24 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 The decline in oil production can be attributed to several factors, the most important of which is the loss of control over the country's oil resources in the northeast. In 2012, the Government began to lose effective control of the country's oil fields near the border with Iraq and eastern Homs to two groups; the Syrian Kurdish forces and the Islamic State of Iraq and Sham (ISIS). The Syrian Kurdish Forces (YPG/SDF) seized control of al-Rumailan fields in northern Al-Hasaka, which were producing around 170,000 barrels per day, while ISIS seized control of Ward, Tank, Taim, Jafrah, and al-Omar oil field which solely produced about 80,000 barrels per day of high quality oil, in Deir-ez-Zor. According to the Ministry of Communications, Transport, and Industry in the Syrian Interim Government, by 2015, ISIS was controlling 80% of the oil and gas fields in the country, the Kurdish forces dominated 12%, while the Syrian government retained control over only about 8%. (3) Armed opposition factions and Jabhat al-Nusra (currently known as Hay’at Tahrir al-Sham HTS) controlled oil fields in Deir-ez-Zor province in late 2012, prior to the control of the Islamic States (ISIS). 5 / 13 MITIGATION MEASURES To understand the mitigation measures taken by the Government of Syria, one must understand the nature of the state's contribution into the fuel sector. The Government has supported fuel products for local consumption by up to 40% since it came to power. In 2008, government officials announced that the state budget could not continue to subsidize fuel products at the same rate and began to cut fuel subsidies.4 In 2008, the state raised fuel prices from 7 SYP ($0.14) to 25 SYP ($ 0.50) per liter (approximately 350%). As a mitigation measure for this unprecedented increase, the state raised the salaries of government employees by 25%.