FUEL IN GOVERNMENT OF 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 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 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-, 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 , 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 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 . 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

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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 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%. It also provided each Syrian family with a one-time fuel voucher of 18,000 SYP ($360).5 Since then, the Government has continued to gradually reduce fuel subsidies and increase fuel prices with a promise to

introduce a new compensation system.67

SMART CARD SYSTEM

In 2014 the Ministry of Oil and Mineral Resources started to implement the smart card system. The implementation was introduced in three stages; government vehicles in 2014, private cars in 2016 and fuel for families in 2017. A committee including representatives from SADCOB, the provincial council, and consumer protection, as well as representatives of the implementing company, Takamul, supervised each

stage of the implementation.8 The committee determined the allocations of subsidized fuel for vehicles at the governorate level, taking into consideration the total number of cars and the monthly fuel allocations in the province.

The implementation of the new system sparked discontent among the local population living in the Government-held areas. Officials stated that the smart card system aimed to prevent the smuggling of fuel

(4) In 2008, Abdullah Al-Dardari, Deputy Prime Minister for Economic Affairs, stated that government support for these goods amounts to 350 billion Syrian pounds, equivalent to 7 billion dollars, which presents 19 percent of the total national budget. (5) The fuel voucher system was conducted during 2009 and was not repeated. Locals reported that most of the families used to exchange their 18,000 SYP worth voucher for 5000 in cash, or less, in petrol stations. (6) In 2011, the Minister of Oil and Mineral Resources, Sufyan Allaw, stated that the annual fuel consumption in Syria reaches 22 million tons at a cost of $ 16 billion annually, 10 of which the government pays to provide subsidized fuel to the local market. (7) The most recent increase was announced in June 2016, when the Ministry of Oil and Mineral Resources increased the prices of gasoline by 40 percent per liter, diesel by 33 percent, and the household gas cylinder by 38 percent. (8) Takamul (Integration for trading L.L.C) is a private national company operating in the automation, information and communication technology services sector, including: internet, smart card services. It was established in March 2015.

6 / 13 products and their monopoly, but locals view the new system as a means to force them into buying unsubsidized fuel (priced according to the global market rates); for instance, private vehicles were permitted a maximum of 100 liters per month at a subsidized price of 225 SYP per liter; public cars (taxis) were permitted to a maximum of 350 liters per month; and licensed motorcycles were permitted 10 liters per month. To purchase fuel above the permitted amount, locals must purchase unsupported fuel, known as free fuel, at a price 375 SYP per liter, which is subject to a frequent increase in the price

depending on black market prices.9

Figure 3: -The Process of Issuing Smart Card

License Plate Private Car

Service Map Public Bus

4 3 2 1 Service Request Fuel Tankers

Driving License The Smart Card Car Insurance

Applicant is NOT the Owner of the Vehicle Applicant is the Owner of the Vehicle

+ + ID + Deligation ID Applicant Applicant

(9) Several pro-Government media outlets criticized the smart card system and the limitation of fuel consumption. Moreover, there have been several pro-Government notables, actors, and local figures who expressed their discontent over social media outlets.

7 / 13 REDUCTION OF PROVISIONS

Although the use of the smart card system dramatically limited the consumption of subsidized fuel products, the Government of Syria has repeatedly imposed additional austerity measures on the consumption of fuel products. In recent years, two main types of austerity measures have been monitored in areas under its control:

Temporary measures are often announced through the Ministry of Oil and Mineral Resources and the Provincial Council's social media during an ongoing fuel crisis. For example, during the last fuel crisis in April 2019, the Ministry of Oil and Mineral Resources announced on its social media outlets the reduction of fuel allocations provided to smart cardholders from 150 to 20 liters per week for cars and from 10 to 3 liters per week for motorcyclists for a period of six weeks. Additional measures included reducing locals' allowance for winter heating fuel from 400 liters to 200 liters and divided it into two batches, each batch of 100 liters. In most governorates, the second batch was not distributed due to insufficient quantities.

Permanent measures are announced through a legislative decree by the Ministry of Oil and Mineral Resources or the Council of Ministers. Often this type of measure is followed by modifications. For instance, in November 2014, the Ministry of Oil and Mineral Resources issued a decree reducing fuel allocations provided to the industrial sector from 30% to only 10%. The decision was followed by a decree issued by the Minister of Economy and Foreign Trade permitting industrial sector actors to import fuel and diesel materials exclusively through seaports, in favor of cities, industrial areas, and licensed industrial facilities. In another case in April 2019, the Council of Ministers and the Ministry of Oil and Mineral Resources issued a decree reducing fuel quotas for government vehicles (up to 800 liters per month) by 50%. After the decision to cut fuel quotas by half, the cabinet agreed to add 200 liters per month to the smart card of a government car driver, provided that the driver pays the cost.

8 / 13 RAPID INTERVENTION FUEL TANKERS

In an attempt to reduce pressure on gas stations, especially during severe fuel crises, the Syrian Ministry of Oil and Mineral Resources allocated several rapid intervention fuel tankers equipped with 6,000 liters of fuel to distribute directly to locals and gas stations at the subsidized price. This method soon expanded to other government-held areas, such as Latakia,

Homs, and . Local sources reported Photo Credit: Takamul Private Company that the rapid intervention tankers has significantly reduced the 8 to 14 hour waiting time for vehicles at gas stations, present during the active fuel crisis.

HIGH-OCTANE FUEL

The Ministry of Oil and Mineral Resources began importing high-octane fuel from Lebanon and selling it at the international price, or cost price, according to the official

designation adopted by the Government.10 Damascus governorate set two mobile stations to sell Octane 95 fuel at 600 SYP per liter, 260% more than the Government-set

subsidized price, and in quantities that come Photo Credit: Takamul Private Company

far short of filling needs.11

(10) In addition to the traditional routes of smuggling fuel, taxi drivers and locals in Damascus city were reportedly making the trip to Lebanon to fill their cars with fuel during active fuel crisis. (11) At these prices, Syria, for the first time, registered a price of fuel higher thanLebanon, in which the price of a liter equals about 500 Syrian pounds.

9 / 13 PRIVATE SECTOR

In an unprecedented event, the Government of Syria allowed private sector contractors and companies to participate in the oil sector, a sector that was previously limited to government institutions. It was in November 2014 when the Minister of Economy and Foreign Trade, Humam Al-Jazairi, issued a decision permitting private sector contractors and companies to import fuel and diesel materials exclusively through seaports, in favor of industrial facilities in cities, industrial areas and licensed industrial facilities. Although it is not clear if the decree was implemented at the time, similar legislation was passed in subsequent years. In 2017, the Syrian prime minister, Bashar al-Assad, permitted industrialists to import fuel from Lebanon, but the Lebanese Ministry of Economy issued a decision within two months not to allow exports of fuel products to Syria. In 2019, the Council of Ministers issued a decree permitting industrialists and traders to import fuel and diesel oils by land and sea for a period of three months. The government-owned SANA agency stated that this decision came in response to demands from industrialists and traders and was recommended by the Government's Economic Committee and it would be implemented in coordination with the Ministry of Oil and Mineral Resources.

In early 2020, the Government approved the licensing of ten private companies to operate in the oil sector. The Ministry of Internal Trade and Consumer Protection granted license for ten private companies, out of 58 companies which applied, to work in the Syrian oil sector without stating the type of activities these companies will perform. The companies that were permitted included Massa Petroleum Services, White Stone, Makan Projects and Logistics Support, Wood Line, Rayan Trading and Contracting, and The Fastest Car, established in July 2019; and Akma, Life Keeper, Zadelda and Awada for Import and Export,

einst aSbelpistheemdber 2019; all of which registered and located headquarters in Damascus and Rural Damascus. It is worth mentioning that two of the licensed companies belong to businessmen that assisted the Government of Syria in importing fuel

from northeast Syria during ISIS control.12

Photo Credit: Enab Baladi

(12) Massa Petroleum Services Company owned by Basil George Hasswani who was reportedly one of the mediators between the Syrian Government and the Islamic State in supplying oil products from northeast Syria oil fields towards the Government of Syria controlled areas.

10 / 13 FUEL IMPORTS

Despite the above mitigation measures, securing sufficient quantities of fuel was a top priority for the Government of Syria. Since the beginning of the crisis, it has relied on two sources of fuel; the first is a credit line provided by Iran. This credit has become increasingly unstable as the Trump administration announced its strategy to "confront and contain Iran," and implement sanctions that have stopped all

critical Iranian oil tanker shipments to Syria.13 The second is to purchase fuel from actors controlling the oil fields in northeast Syria. In early 2014, the Government turned to the young businessman, Muhammad Bara al-Qaterji, who has an extensive tribal connection in Ar-Raqqa, to arrange the supply of fuel products into

Government-controlled areas.14 In 2018, Qaterji established the Arvada Petroleum Company in Damascus. The company, owned by Qaterji (33% share), his son Ahmed (33% share), and his brother Hussam (34%

share), is licensed to buy and sell crude oil and fuel products internally and externally.15 Fuel products flow from the oil wells controlled by Saudi Arabia in northeastern Syria to the Government-controlled areas in two main ways:

The first, which is known as the commercial fuel line, is through sending large convoys of fuel tankers directly from Deir-ez-Zor to the Government-controlled areas through the Tabqa commercial crossing, 15 km south of Tabqa city. The smuggling network is established and managed by Mohaisen al-Orwa, a notable member of the al-Baqara tribe and a representative of Deir-ez-Zor in the General Council of

Kurdish self-administration of Ein Issa.16 Local sources reported that approximately 150-200 fuel tankers, some of which have a capacity of 100 barrels (called a whale), while others with a capacity of 200 barrels (called a worm), enter daily into the Government-controlled areas through this commercial crossing.

The second, known as the fuel smuggling line, includes transporting crude oil and fuel through ferries from the KSA-controlled areas in the eastern bank of the Euphrates river to the Government-controlled areas west of the river.

(13) The Trump administration declared in April 2019 that it will not renew waivers allowing eight countries to import oil from Iran. This was part of the administration’s “maximum pressure” campaign aimed at decreasing Iranian oil exports alongside placing diplomatic and economic pressures on the country. (14) In mid-2013, Muhammad Bara al-Qaterji, born in Raqqa in 1976, started supplting the Syrian government with wheat crops from the wheat-growing areas in the northeast of the country, which were under the control of the opposition armed factions and Jabhat al-Nusra at that time. Of note, al-Qaterji’s office manager, Mohammed Kassab, confirmed that the group was providing Syrian government territories with wheat from the northeast of Syria through the Islamic State territory but denied any contact with Islamic State. (15) Hussam Qaterji is a member of the Syrian Parliament presenting the workers and peasants sector as an independent candidate from Governorate 2016-2020.

(16) Mohaisen al-Orwa, a wealthy local from al-Jneineh town in Deir-ez-Zor subdistrict. Local reports indicate that al-Orwa worked in the fuel sector and owned a petrol station prior to 2011. Additional reports indicate that al-Orwa has an exclusive 12-month contract with Al-Jazeera Fuel company, the subsidiary of the KSA Economic Commission in Deir-ez-Zor province.

11 / 13 The smuggling network is managed by Muhammad Eid Al-Tala'a, also known as the Hyena, and Rabah al-

Lous, both members of al-Aqedat tribe in Shiheil, Basira subdistrict.17 Reports indicate that 20,000-25,000 barrels of fuel are being smuggled daily from several towns on the eastern bank of the Euphrates river towards the Government-controlled town of Baqras, Al subdistrict, to be emptied in Qaterji-

owned fuel tankers.18

Qaterji smuggling networks buy crude oil from local tribes in Deir-ez-Zor, refine it in the east of the region and smuggle it to Government-controlled areas. The local tribes supplying the fuel are able to broker profitable deals with the KSA authority. The terms and conditions of these agreements depend primarily on two main factors; the tribe's proximity to an oil well and its pipelines, and the size and influence of the tribe in the area. For instance, the oil pipes of al-Ezba oil well go through the town of Khasham, Khasham subdistrict, which is held by the al-Bakir tribe. It is reported that the tribe brokered an advantageous deal

with the oil field management after threatening to damage the oil pipelines. The agreement, according to local sources, provides the tribe with a ten-day privileged investment of the oil well with the tribe paying only 40% of the actual cost of the oil well investment. Of note, despite the type of agreement, tribes had full control over the extracted oil during the investment period. On the other hand, the deal is less fortunate for tribes far from oil fields. For example, agreements with both the al-Bakir and al-Baqarah tribes provide the same ten-day investment period, but the tribes had to pay the full cost of investment

upfront.1920 Moreover, there are different types of arrangements with tribes that are largely distant from the oil fields but have a strong influence in the area. For instance, the al-Shaitat tribe has an agreement locally known as a "skip the line" permit. This agreement allows members of the al-Shaitat tribe to skip to the

head of the queue at the oil field and get 1,000 barrels of oil at once.21

(17) Local sources reported that Muhammad Eid Al-Tala'a, AKA the Hyena, enjoyed close relationship with ISIS security office in Deir-ez-Zor while other reports suggest that Al-Tala'a was a member of the security office of ISIS. (18) Fuel smuggling is widely spread in the towns of Hawayej, Kisreh subdistrict; Darnaj, Abu Hardoub and Thiban subdistrict; Kishkiyeh, subdistrict; in east of Deir-ez- Zor province. (19) al-Bakir clan is part of the larger al-Aqedat tribe in Deir-ez-Zorprovince. The clan is known for its close ties to the SDF forces in Deir-ez-Zor, for instance, recent reports suggest that the new Amir is affiliated to the Deir-ez-Zor Civil Council. It is worth mentioning that al-Bakir position from ISIS-control was controversial. Some reports indicate that a large number of the clan members joined ISIS during its control over Deir-ez-Zorr province. (20) al-Baggara tribe is one of the largest Sunni Arab tribes encompasses a number of clans that reside in Deir-ez-Zor, northeast Syria and widespread across Iraq and . The tribe has strong connections to the Syrian government in Damascus with many tribe members joining the Baqir Brigade; a brigade allied with Iran and during the conflict. (21) al-Sha'itat is an Arab Sunni majority tribe alongside the towns of , Al-Kashkiyah, and Ghranji, Deir-ez-Zor Governorate. They reside along the al-Omar Oil areas. It is headed by Sheikh Rafe' Aqla Al-Rajou, and is estimated to have around 90,000 members who reportedly engaged in fighting against ISIS since July 2014. ISIS committed multiple crimes against the tribe such as mass beheadings.

12 / 13 CONTACT Nicholas Bodanac Humanitarian Access Team [email protected]

The Humanitarian Access Team (HAT) was established in Beirut in March 2015 in response to the collective challenges facing the remote humanitarian response in Syria. Successful humanitarian and development interventions require a nuanced and objective understanding of the human ecosystems in which these interventions occur. To this end, the HAT’s most important function is to collect, triangulate, synthesize, analyze and operationalize disparate data and information. Since 2015, HAT analysis has provided a forward-looking template for international interventions in Syria, and facilitated an increasingly nimble, adaptive, integrated, and ultimately impactful international response to the Syrian con ict.

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