THE FUEL SECTOR OF NORTHWEST Untangling the web for humanitarians DECEMBER 2019

1 / 22 EXECUTIVE SUMMARY

The fuel sector in Syria has changed radically since the outbreak of the Syrian conict in 2011. In the past nine years, the sector has transitioned from a market strictly regulated by the Syrian government, to one completely driven by the forces of demand, supply and the status of supply lines. As the conict erupted the Syrian Petroleum Storage and Distribution Company (SADCOB), the sole distributor of gasoline, diesel and gas in Syria, suspended operations and withdrew from areas beyond the Government of Syria’s control. Domestic oil reserves in the northeast were separated from the distribution network based in Damascus. The nation’s infrastructure and economy, 95% reliant on fossil fuels prior to 2011, was left at the whim of smuggling across lines of control, cross-border trade navigating extensive sanctions, and ongoing changes in suppliers, leading to signicant supply and price uctuations.

The fuel sector in northwest Syria epitomised this volatility. Longstanding public dissatisfaction with fuel prices, poor fuel quality, and inconsistent availability provided the Syrian Salvation Government an opportunity to intervene in the lucrative sector. Less than six months after the establishment of the Salvation Government, the Watad petroleum company emerged.

Since 2018, Watad fuel company, Hay'at Tahrir al-Sham (HTS), and the Salvation Government

2 / 22 have worked together to gain complete control of the fuel sector in northwest Syria. Not only is Watad the only company permitted to import petroleum into the area from Turkey, it has also worked with HTS to consolidate control of the crossline and smuggled fuel trade, from both Government of Syria and Kurdish self-administration (KSA) areas. Within a matter of months, Watad company became the sole distributor of gasoline, diesel, and gas throughout the opposition- controlled areas of northwest Syria.

Investigations revealed two fuel sources remaining outside Watad’s control in Idleb and western areas: The rst is fuel coming from Government of Syria areas suitable for vehicles, either smuggled by commercial trucks or on foot, to opposition-controlled areas in southern Idleb. The second stream is Asali fuel, suitable for generators and heating, smuggled from the northern Aleppo countryside via local residents. This is being sold across northern Idleb and the western Aleppo countryside. HTS is listed as a proscribed terrorist organisation by the United States, United Kingdom and like-minded countries. This report sets out the high degree to which Watad and HTS are intertwined, providing humanitarian organisations operating in Idleb and western Aleppo (and so purchasing fuel for their operations) the information to make informed procurement decisions.

This report demonstrates the fragility of the supply lines that makes the fuel sector open to manipulation to meet political means. The fuel sector in northwest Syria is a microcosm of the overall Syrian context, in that external actors have the means (ownership of supply, control of borders, air power) to directly affect the livelihoods of local populations. UPDATE FOR THE CHRISTMAS 2019 IDLEB OFFENSIVE

- 24 December, 2019

Prior to Operation Peace Spring, the majority of fuel supplied to Idleb and western Aleppo came from KSA-controlled areas in northeast Syria. This supply line has been cut since October 16, following the launch of Operation Peace Spring. Attempts by KSA to reopen it were thwarted by Russian airstrikes (see below).

The secondary source of fuel to the area, from Turkey via the Watad company, is still available but in limited quantities and inated prices. The third, and minor, source of fuel was smuggling from GoS areas, but this has been severely impacted by the launch of military operations on December 20. (1) Syria’s two main reneries are located in Homs city, Homs subdistrict and Banyas, Tartous subdistrict.

3 / 22 Watad’s reported counterpart on the Turkish side of the border, Transpet, is permitted by Ankara to exclusively export fuel to Syria via the Bab el Hawa crossing. It is unconrmed why Watad has not increased imports from Turkey to meet the extra demand. There are two possible causes; 1) Transpet is operating at its logistical capacity, or 2) Watad has reached its own nancial or logistical capacity to import more fuel.

The latter is far more likely, and aligns well with reports that Watad and Transpet are exploring opening imports to other Syria-based traders. New traders would bring extra nancial capital, the likely bottleneck for Watad given the drop in value of the Syrian Pound. These traders would benet from the security of selling the fuel via Watad’s monopolised distribution network. However, the fact that they would be buying from Turkey in Lira or USD, and selling in SYP, means their own capital would quickly be exhausted if the SYP continues to weaken.

Should this introduction of new traders eventuate, it would be the most likely short-term solution to the fuel crisis in NWS. However if the SYP continues to devalue, the solution would be short- lived, and in all scenarios the underlying structural weaknesses of the fuel sector will remain unresolved.

BACKGROUND ON THE SYRIAN FUEL SECTOR

Although Syria has never been a major global fuel exporter, prior to the conict it beneted signicantly from oil and gas elds in the Al-Hasakeh and Deir ez-Zor governorates, and reneries in Homs and Tartous. (1) In the 1980s the GoS began to rely on its oil elds to fund its massive public sector, provide cheap fuel to the domestic market, and run the majority of the country’s power plants. Due to the intensive extraction this required, by 2012 Syria’s extractable oil reserves had fallen from 6.9 billion barrels of oil equivalent (BBOE) to just 2.6 BBOE. Meanwhile, Syria’s

extractable natural gas reserves fared better, dropping from 371 billion cubic meter (Bm3) to 311

Bm3.

Before 2011, the Syrian Company for Storage and Distribution of Petroleum Products (SADCOB), a subsidiary of the Government of Syria Ministry of Oil and Mineral Resources known colloquially as (1) Syria’s two main reneries are located in Homs city, Homs subdistrict and Banyas, Tartous subdistrict.

4 / 22 “Mahroukat,” was the sole distributor of gasoline, diesel, and gas in Syria.(2) Despite tight government control of the fuel market, Syrian fuel products have been at the forefront of cross- border smuggling in the region. Several factors have encouraged the cross-border smuggling of fuel products such as gasoline, kerosene, and diesel from Syria to neighboring countries. The most signicant factor was the price disparity of fuel products between Syria and Turkey, Lebanon and Jordan. Beneting from lower prices in Syria, vehicles in border areas use extra tanks to smuggle fuel to neighboring countries and sell it at rates many times higher than the original price. Such practice generated high revenues.

Figure 1: Regional Gasoline Price Comparison 2.6 2.52 2.54 2.4 2.2 2.0 1.88 1.87 1.8 1.6 1.44 1.44 1.4 1.2 1.13 1.11 1.0 1.02 0.88 0.86 0.85 0.8 0.78 0.79 0.65 0.71 0.6 0.6 0.61 0.45 0.45 0.46 0.4 0.2 USD 1998 2000 2002 2004 2006 2008 2010 2012

Figure 2: Regional Diesel Price Comparison 2.4 2.33 2.2 2.03 2.0 1.8 1.62 1.63 1.6 1.4 1.2 1.12 1.0 0.97 0.8 0.78 0.76 0.77 0.66 0.62 0.6 0.53 0.47 0.43 0.45 0.4 0.36 0.31 0.25 0.2 0.14 0.13 0.13 0.13 0 USD 1998 2000 2002 2004 2006 2008 2010 2012

Jordan Lebanon Syrian Arab Republic Turkey

(2) Since its establishment in 1974, the Syrian Company for Storage and Distribution of Petroleum Products (SADCOB), transports, stores, and distributes petroleum products, whether produced domestically or imported, to the various consuming sectors in the country. The company receive petroleum products from two main reneries, Homs, Homs subdistrict and Banyas, Tartous subdistrict; while imported through the Prime Ministry’s Ofce of Oil Marketing. The company has branches in: Damascus, Rural Damascus, As-Sweida, Aleppo, Daraa, Homs, Hama, Tartous, Deir-ez-Zor, and Lattakia while its main ofce remained located in the Government of Syria Ministry of Oil and Mineral Resources building in Damascus city since its establishment. (3) Locals in border areas such as , al-Dana subdistrict in northern countryside and , in northern Aleppo countryside buy fuel at a rate of 20-25 SYP/(0.038-0.048 $) per liter, transport it to Turkey to be sold at a rate of 50 SYP (0.097 $) per liter. Reportedly this practice has signicantly reduced since the outbreak of the Syrian conict in 2011.

5 / 22 The Syrian conict completely disrupted the Syrian fuel sector. While SADCOB withdrew from areas outside of GoS control, the GoS lost control of oil and gas elds throughout the country. Without direct access to fuel, the GoS relied on various crossline arrangements with actors in northeast Syria and intermittent oil shipments from Iran. Meanwhile, the vacuum left by SADCOB’s absence in areas outside of GoS control was quickly lled by local traders. Although fuel smuggling to neighboring countries ended due to heightened border security, the emerging domestic crossline fuel trade proved just as protable for many traders. There are three main factors believed to have contributed to the rise of cross-zonal smuggling:

1. Unmet demand: Prior to the conict, much of Syria’s infrastructure relied on cheap fossil fuel. In 2011, 95% of electricity generation (and so heating, water supplies, etc) relied on fossil fuels. As the conict progressed and the transmission network fell out of repair, it was supplemented by smaller-scale generators that likewise ran off fossil fuels.

2. Motivated suppliers: The fall of main oil-producing elds under the control of players aspiring to independence. The two major players who controlled the vast majority of Syria's mineral resources werethe Islamic State in Iraq and Sham (ISIS) and the Kurdish Self- Administration (KSA), despite the difference in ideology, both sought toward independence. Such a lucrative operation soon presented itself as a co-nancing stream for the ghting actors, and despite ideological, political, and military differences, fuel products started to ow from oil elds in northeastern Syria to opposition-controlled areas in the northwest.

3. International sanctions increased the difculty of cross-border import of fuel products, and the conict itself caused neighboring countries to increase the strength of their borders. Additionally, the pre-existence of smuggling networks proved a great facilitator once these factors were in place.

Although the fuel smuggling across different zones of control a particularly lucrative process, it is very fragile and frequently interrupted. Short-term interruptions range from days to, occasionally, weeks. These interruptions typically occur due to inter-factional ghting over revenue and end with a change of control at checkpoints along smuggling routes. Longer interruptions occur when a major change in the context has occurred, and as outlined below are typically associated with a shift to a new source of fuel to opposition-controlled northwest Syria:

At the start of the conict, opposition-held areas in northwest Syria were dependent on 2011 fuel smuggled from GoS-held areas of the Idleb, Aleppo, and Hama governorates. The amount of fuel was limited and was subject to several short-term disturbances as ghting intensied and frontlines changed. Widespread opposition inghting allowed the Islamic

6 / 22 State in Iraq and Syria to gain control of major oil elds in northeast Syria in late 2013.

Between late 2013 and 2016, ISIS maintained control of the major oil elds in the Deir-ez- 2013 Zor, Ar-Raqqa, and Al-Hasakeh governorates. ISIS is believed to have sent approximately half of the oil extracted to Iraq where it controlled large reneries. The other half was distributed and traded inside Syria, both within ISIS-held areas of northeast Syria and opposition-held northern Syria. In late 2014, the International Coalition campaign against ISIS began to disrupt ISIS oil production and distribution, and it was completely stopped by the end of 2016 (Annex I).

While, the People’s Protection Units (YPG) enjoyed control of the large al-Rumailan oil eld 2016 in northern Hasaka since 2013, between 2016 and 2018, the Syrian Democratic Forces (SDF) recovered oil elds from ISIS across the Al-Hasakeh, Ar-Raqqa, and Deir ez-Zor

governorates.(4) As military operations subsided, the Al-Jazeera Fuel company, a subsidiary of the KSA Jazeera Region Economic Committee, began signing 12-month distribution contracts with a large local trader in Aleppo to transport fuel to Turkish-backed opposition- held northern Aleppo. While well organized, the trade was subject to two interruptions as a result of the Turkish led Operation Euphrates Shield and Olive Branch Operation in northern Aleppo, and an ongoing interruption as a result of Operation Peace Spring in northeast Syria.(5)

In early 2018, the HTS-afliated Watad Petroleum Company emerged as a response to the 2018 interruption to trade casued by the Olive Branch Operation. Since then, Watad has been the only company permitted to import fuel through the Bab El Hawa crossing, and with HTS support has gained near exclusive control over the cross-line fuel trade between northwest Syria and northern Aleppo. Watad is currently the sole distributor of gasoline, diesel, and gas throughout northwest Syria.

Figure 3: Timeline of Fuel Flow to Northwest Syria Operation Peace Spring Operation Olive Branch Operation Euphrates Shield

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fuel from ISIS-controlled areas Fuel from KSA-controlled areas Fuel from GoS-controlled areas Long-term interruption

At the start of the conict, opposition-held areas in northwest Syria were dep 7 / 22 2011 smuggled from GoS-held areas of the Idleb, Aleppo, and Hama governorates. T CURRENT FUEL STATUS IN NORTHWEST SYRIA

Since October 2019, Operation Peace Spring has completely disrupted the fuel trade between northern Aleppo and northeast Syria, triggering a fuel crisis across northern Syria. Disruptions to the trade began on October 16, when the SDF closed the Umm Jalud crossing, the main commercial crossing between KSA-held areas of northeast Syria and Turkish-backed opposition-held northern Aleppo. While the SDF reopened the crossing to fuel tankers in early November, Russian airstrikes targeted several tankers that had crossed into northern Aleppo. The SDF subsequently closed the crossing again, and have not reopened it to date.

While WATAD’s regular fuel imports through Bab Al Hawa continue to provide northwest Syria some rened fuel, the suspension of affordable Asali fuel from northeast Syria has created a fuel crisis. Consequently northwest Syria and northern Aleppo are witnessing unprecedented fuel price increases, with Asali fuel rising from 250 Syrian pounds (SYP) to 550 SYP per liter, European fuel rising from 500 SYP to 800 SYP per liter, and mixed fuel (a local mix of Asali and European fuel) rising from 350 SYP to 650 SYP per liter.

Rising fuel prices, combined with the ongoing devaluation of the SYP, have driven up the price of essential goods and services. As most of northwest Syria relies on diesel (Asali fuel) generators for power, price increases have driven up the cost of electricity, forcing some generator owners to suspend operations entirely and others to raise the price of amperes, from 2,500 SYP for four hours of power per day to 3,500 SYP for just two hours.(6) Due to this, the opposition Idleb Governorate Department of Health warned that dozens of hospitals and clinics could be forced to suspend service. Bakeries and the price of bread has also been impacted, seeing the size of bread packs reduce from 975 to 725 grams, and increase in price per pack from 200 to 250 SYP.(7)

(4) Since 2013, the KSA, then represented by the Democratic Union Party (PYD) and YPG, established control over al-Rmailan oil elds in northern al-Hasakah. While the eld can produce approximately 170,000 barrels per day at full capacity, it is unclear if the KSA has been able to achieve this. (5) The rst interruption was due to the Turkish-led Euphrates Shield Operation targeting ISIS in northern Aleppo, and lasted --- months. The second interruption was due to the Turkish-led Olive Branch Operation against the YPG in the . The third, ongoing interruption was caused by Turkish-led Operation Peace Spring against SDF forces in northeast Syria, and has likely continued due to Russian and GoS pressure on the KSA. (6) According to the Syrian Observatory for Human Rights, more than 22 generators in the city of Atab were completely deactivated due to the unprecedented rise in gasoline prices. (7) According to REACH the survival minimum expenditure basket (SMEB), a group of items required to support a 6-person household for a month, is currently at 74,104 SYP, the highest gure on record.

8 / 22 The fuel trade between northern Aleppo and northeast Syria is unlikely to resume in the near term. The Russian airstrikes against fuel tankers in northern Aleppo in November, and the GoS’s claim of responsibility, indicate that Russia and the GoS are likely in agreement on preventing the KSA from proting from the fuel trade with northern Syria. Not only does this policy seek to bankrupt the KSA and place it under greater pressure to reach an agreement with the GoS, but the subsequent fuel crisis in northern Syria also works to pressure Turkey in northern Aleppo and weaken HTS and opposition resolve in northwest Syria as the GoS resumes its campaign to take parts of the M5 highway.

FUEL LANDSCAPE IN IDLEB AND WESTERN ALEPPO

There are three main types of fuel available in opposition-held northwest Syria. The most common and important is the relatively cheap, locally rened Asali fuel from oil elds in KSA-held areas of northeast Syria. It is brought from northern Aleppo, and is primarily used for heating and operating generators. Over the past three years, the price of Asali fuel has uctuated between 250 and 300 SYP per liter, but with Operation Peace Spring it has risen to 550 SYP per liter.(8) There is also more expensive, better quality fuel imported from Turkey via the Bab Al Hawa border crossing, known as European fuel. It is primarily used for vehicles, as local Asali fuel is of inconsistent quality and is known to damage engines, and has ranged in price between 500 and 650 per liter. Finally, there is SADCOB fuel brought through southern Idlib from GoS-held areas. It is also used for vehicles and has been sold for between 300 and 350 SYP per liter.

(8) Due to the high density of Asali fuel, locals prefer to buy a mix of Asali and European or SADCOB fuel, simply referred to as mixed fuel.

9 / 22 Some reports indicate that Watad Petroleum has been established in Idleb Governorate since 2017, while others believe it was founded in early 2018 by a group of Syrian businessmen based in Turkey. What is certain is that the company's rst public appearance was a swift response to the fuel crisis caused by Turkey’s Operation Olive Branch in the northern countryside of Aleppo. Watad gradually developed from a local initiative to monitor prices and availability of fuel products in Idleb and the western countryside of Aleppo to becoming the sole distributor of gasoline, diesel, and gas throughout northwestern Syria. Although Watad claims to be a private company unafliated with the Salvation Government or HTS, there is

signicant evidence disputing this.(9)

1. Since Watad was established in early 2018, the Civil Administration of Bab El Hawa border crossing, the main commercial crossing between Turkey and Syria in northern Idleb, which has been under full control of HTS since late July 2017, reduced taxes on imported fuel

products from (10 USD) per ton to (3 USD).(10)(11)

2. In March 2018, the Salvation Government’s Ministry of Local Administration and Services signed a Memorandum of Understanding with Watad that designated the company as the main provider of fuel for facilities managed by the Salvation Government, including water stations, schools and hospitals, and for gas cylinders distributed to the public by Salvation Government-afliated local councils.

3. In June 2019, the Salvation Government’s Ministry of Economy imposed mandatory registration of petrol stations in Idleb and western Aleppo.(12) Similar to SADCOB’s (the state regulator) role in pre-conict Syria, Watad became the sole supplier of fuel, determining how much fuel each station is provided, retail price, and stations’ prot margins. Stations not complying with the pricing and prot margin levels set by Watad are subject to questioning and possible closure by the Salvation Government.(13)

There is very limited information available regarding Watad management. Local sources state that the company has four main divisions: the petroleum department, which is reportedly run by Alaa Shamout, a local from Rural Damascus; Markets department,

(9) On 7 November 2018, Watad company published a statement on its social media account denying any relation with HTS and conrming that Watad is a fuel company owned by civilians. (10) Since late July 2017, Hay’at Tahrir al-Sham (HTS) seized full control of the Bab El Hawa border crossing in northern Idleb countryside. Before HTS, the border was under the control of Ahrar al-Sham, the main rival of HTS in Idleb. (11)The tax of fuel tanker has been reduced from 250USD to 75USD as each fuel tanker usually carry 25 ton of fuel. (12) On 25 June 2019, the SSG Ministry of Economy required petrol stations who are not registered with the Syrian Government to start the registration process within the ministry while stations who had registration from GoS had to submit a copy of the registration papers to the ministry. (13) At present, Watad and the SSG allow petrol stations in Idleb and western Aleppo to add 10 percent in prot margins to the fuel prices.

10 / 22 currently run by Ali Ayoub, a local from Sarmada town; reneries department, and gas department with unknown managers at the moment.

Figure 4: Current Structure of Watad Company

WATAD COMPANY

MTAyRpKeET S PETTyRpOLeU M RTEFyIpNEeR Y GAS

FUEL COMING FROM NORTHERN ALEPPO COUNTRYSIDE

All fuel coming from northern Aleppo is Asali fuel. By mid-2018, HTS and Watad controlled much of the Asali fuel trade between northern Aleppo and northwest Syria, with just limited competition from Nour al-Deen al-Zenki. With HTS’s defeat of Nour al-Deen al-Zenki in January 2019, HTS and Watad gained full control of the trade.

11 / 22 While Operation Peace Spring has led to a suspension in most Asali fuel, prior to the operation it traveled from northern Aleppo to northwest Syria through two main crossing- points. The primary crossing is the al-Ghazawyeh crossing point, which is located 8 km southeast of al-Ghazawyeh town in Afrin subdistrict in northern Aleppo and 5 km northeast of Daret Azza city in western Aleppo. The other crossing is the Dier Ballout crossing point, located 5 km southeast of Dier Ballout town in Jandairis subdistrict in northern Aleppo and 1

km north of Atmeh town in Dana subdistrict in northern Idleb.(14) Both crossing points are under the control of Faylak al-Sham, a member of the Syrian National Army (SNA), on the

northern Aleppo side, and HTS control on the northwest Syria side.(15)

Fuel tankers entering opposition-held northern Aleppo via either crossing point are directed

to the Watad fuel depot in Sarmada to ofoad fuel.(16) From the Watad fuel depot, Asali fuel is distributed throughout northwest Syria. Some of the fuel is sent to three smaller Watad depots in eastern Maasaran town, Mar’arrat An-Nu’man subdistrict; Maaret Elnaasan town, Teftnaz subdistrict; and Harza town, Dana subdistrict.(17) From these depots and the main fuel depot in Sarmada, Watad then distributes the Asali fuel to SSG-afliated local governance and service bodies, and limited amounts to SSG-registered local petrol stations.

Locals are also allowed to bring a maximum of four Asali fuel barrels from northern Aleppo to northwest Syria via HTS crossing points (approximately 840 liters of fuel). HTS taxes each barrel at 5,000 SYP. While the fuel is supposed to be for personal use, much of it is sold to small local reneries and small local traders.

(14) Both the Al-Ghazawyeh and Deir Ballout crossing points also permit civilian passage, though civilians are required to present documentation signed by armed factions present in Afrin to secure passage. The road from Deir Ballout is unpaved and hard for fuel tankers passage. (15) The Deir Ballout crossing point has always been under the HTS control, while the al-Ghazawyeh crossing point fell under HTS control in early January 2019 after it captured the crossing from Nour al-Deen al-Zenki. (16) Watad’s fuel depot was established in Sarmada town, Dana subdistrict, in northern Idleb countryside in March 2018. The depot includes Watad’s main ofces, large underground fuel storage tanks, and unloading and ofoading areas for fuel tankers. (17) Watad operated additional fuel depots in Saraqeb and Kafr Batikh in Saraqeb subdistrict; Sanjar, Sanjar subdistrict; and Khan Shaykun, Khan Shaykun subdistrict; but were shut down due to proximity to frontlines or loss of territory.

(16) Both the Al-Ghazawyeh and Deir Ballout crossing points also permit civilian passage, though civilians are required to present documentation signed by armed fact 12 / 22 present in Afrin to secure passage. The road from Deir Ballout is unpaved and hard for fuel tankers passage. (17)Faylakal-ShamisanallianceofarmedoppositiongroupscurrentlyoperatingintheSyriannorthwest,ThegroupwasfoundedinMarch2014. FUEL COMING FROM TURKEY

In early February 2018, Watad imported the rst shipment of European fuel from Turkey through the Bab El Hawa commercial crossing in northern Idleb. The delivery came after Watad reportedly signed an exclusive contract with Transpet Petrol company, the Turkish fuel company permitted to export fuel from Turkey to Syria.(18) The ow of European fuel has been relatively consistent since then and prices remained xed at USD 0.80 for one liter of fuel. The ow of European fuel products to the opposition-held areas of Idleb and Aleppo is limited to the Bab El Hawa commercial crossing in northern Idleb. The process begins when a Turkish fuel tanker

convoy transports its cargo to Watad trucks at the border zero point.(19)(20) At the Syrian side of Bab El Hawa, controlled by HTS, a tax of USD 3 per ton is imposed on imported fuel. The fuel tanker is subsequently directed to the central Watad market in Sarmada. Currently, Watad distributes European fuel to Idleb and the western Aleppo countryside via two pathways:

(18) Local sources reported that the Turkish Ministry of Trade and Economy granted the fuel export permission exclusively to a turkish company called Transpet Petrol. (19) Turkish trucks are not permitted to enter opposition-controlled areas in Idleb and Aleppo countryside. (20) Local sources reported that the convoy sizes usually range between 15 and 20 fuel tankers.

13 / 22 1. Registered Petrol Stations: only petrol stations registered with the SSG’s Ministry of Economy are eligible to receive European fuel supplies from Watad. Similar to arrangements under the state-owned SADCOB company, the petrol station has to submit a purchase order and a downpayment at the Watad ofce, located in Sarmada. Once the purchase order is submitted, Watad will give a receipt to the petrol station including the exact date and time of delivery. As noted above, Watad determines how much fuel each station is provided, its sale price, and limits stations’ prot margins. If the station does not comply with the pricing and prot margin levels set by Watad, it is subject to questioning and possible closure by the Salvation Government.

2. Local markets: the three satellite fuel markets across Idleb and western Aleppo run by Watad: one in eastern Maasaran town, Mar’arrat An-Nu’man subdistrict; one in Maaret

Elnaasan town, Teftnaz subdistrict; and one in Harza town, Dana subdistrict.(21)

FUEL COMING FROM GOS-CONTROLLED AREAS

(21) There were additional fuel markets in Saraqeb and Kafr Batikh in Saraqeb subdistrict; Sanjar, Sanjar subdistrict; Khan Shaykun, Khan Shaykun subdistrict; these fuel markets have been shut down either due to conict escalation or loss of territories.

14 / 22 Until the start of European fuel imports, fuel products from SADCOB in GoS-controlled areas, locally known as "regular fuel" or “SADCOB fuel”, was the highest in terms of both quality and prices. Locals preferred buying regular fuel for their vehicles since locally rened fuel is known to cause severe damage to vehicles. Cheaper products such as Asali fuel coming from KSA-controlled areas were reserved for electricity and heating.(22)

Fuel supplies coming from GoS-controlled areas have always been in limited quantities and subject to frequent interruption, but were a mainstay within opposition-held areas in Idleb and western Aleppo until recently. Prior to 2018, SADCOB fuel products used to ow to opposition-controlled Idleb and western Aleppo through three main crossing points: (1) Murak crossing point: located in northern Hama countryside, approximately 2 km south of Mourek town in Suran subdistrict. (2) al-Rahjan crossing point: located 20 km north of As-Saan subdistrict in northeast Hama countryside. (3) Al-Iss crossing point: located in southern Aleppo countryside, approximately 1 km east of al-Iss town in Hadher subdistrict. All three crossing points were controlled by HTS on one side, and the Russian military on the other.(23)

(24)

Despite HTS efforts to prevent fuel import from GoS-controlled areas, supplies continue. Local sources reported that at present, ‘regular fuel’ reaches the opposition-controlled areas in Idleb and western Aleppo in two ways: First, through commercial trucks coming from the Government controlled areas. Although HTS prevented fuel tankers to cross into opposition- controlled areas of Idlib and western Aleppo, commercial truck drivers started to smuggle regular fuel via an additional hidden fuel tank. Second, smuggling on foot, where locals residents in areas near frontlines smuggle barrels of fuel on foot. Both methods provide only a limited amount of regular fuel to the fuel market in Idleb and western Aleppo.

(22) Prices of regular fuel products were 300 - 350 SYP compare it to Asali fuel 150- 200 SYP in 2017 (23) Murak crossing point was established in November 2017 in coordination with Russian military forces after the government of Syria captured Abu Dali, and subsequently replaced the Abu Dali crossing. The crossing point was closed since the Syrian forces seized control of northern Hama in 23\08\2019. (24) al-Rahjan crossing point which was located 42 km east of Khan S Murak crossing point was established in November 2017 in coordination with Russian military forces after the government of Syria captured Abu Dali, and subsequently replaced the Abu Dali crossing. The crossing point was closed since the Syrian forces seized control of northern Hama in 23\08\2019. Al-Iss crossing in the southern countryside of between the Al-Iss and Al-Hadr regions opened by HTS in April 2018, the crossing permit commercial transit.

15 / 22 FUEL LANDSCAPE IN NORTHERN ALEPPO

Two main types of fuel are sold in opposition- controlled northern Aleppo: expensive fuel imported from Turkey and cheaper, locally rened fuel supplied from oil elds in KSA-controlled areas in northeast Syria. The rst type is locally known as “European fuel”. Locals usually buy this higher quality type for their vehicles, since locally rened fuel is known to cause damage to vehicles. The second type is locally known as Asali Fuel (or Hazel Fuel). This type of fuel is relatively inexpensive and is used mostly for heating, electricity and water generators.(25)

FUEL COMING FROM NORTHEAST SYRIA

(25) Due to the high density of Asali fuel, locals prefer to buy a mix of Asali and European fuel for the price of 650 SYP/per liter to be used in heating, electricity and water generators

16 / 22 Military operations in northeastern Syria have repeatedly resulted in interruptions to the fuel supply line from northeastern Syria to opposition-held areas in northwestern Syria. The rst major interruption was recorded during Operation Euphrates Shield in late 2016. The second interruption was during the Operation Olive Branch in January 2018. The third interruption, which is the current, is due to the ongoing Peace Spring Military Operation in northeastern Syria. The current interruption, since October 16, has seen the price of Asali rise from fuel from

250 SYP/liter to 650 SYP/liter.(26)

The supply of Asali fuel has been consistent and in large quantities since 2016. Al-Jazeera Fuel company, a subsidiary of the KSA Economic Commission, signed an exclusive, rolling 12-month contract with a local trader called Mahmoud Khalifa for distribution of oil products to the opposition-controlled northern Aleppo countryside.(27) The journey starts with al-Jazeera Fuel Company sending a convoy of 70-100 fuel tankers, with a capacity of 110 barrels each, to the Tal Adas renery in Al-Malikeyyeh subdistrict, northeast Al-Hasakeh, to collect crude oil.(28) Once fuel tankers are lled, they depart in smaller convoys, between 20-35 fuel tankers, towards opposition-controlled areas in northern Aleppo countryside.

The fuel convoy is not subject to any taxation within KSA-controlled areas. Departing from Tal Adas renery in al-Rumailan oil elds, fuel convoys travel through Tal Tamer, Tal Tamer subdistrict; Ein Issa, Ein Issa subdistrict, to reach the Umm Jalud crossing point, Menbij subdistrict, in the northern countryside of Aleppo Governorate. Local sources reported that the KSA authorities provide drivers of fuel tankers a permit, usually signed by al-Rumailan oil eld supervisors, to facilitate smooth passage through checkpoints. These permits are checked at three locations in KSA-controlled areas: rst at military checkpoints in the town of Ein Issa, the second at the Qara Qozak bridge, and the last at the military checkpoint at the Umm Jalud crossing.

Taxes begin once the fuel tankers enter opposition-held areas in northern Aleppo through the Umm Jalud commercial crossing. Until recently, each fuel tanker paid USD 50 to the al-Shamia Front, which controls the crossing. USD 50 was then paid per tanker to the Ahrar al-Sharqiya. The greement sees Ahrar Al-Sharqiya provide protection to all fuel tankers in return for a xed

(26) Although the supply line of Asali fuel from KSA-controlled areas has been suspended since early October, there is a limited amount of this fuel type currently available in ta very high prices in local markets of northern Aleppo countryside. (27) Mahmoud Khalifa is a local trader from As-Sara town in the eastern countryside of Aleppo Governorate who is reportedly well-connected to the Turkish-backed Sultan Murad Division in northern Aleppo countryside. (28) There is another type of fuel tankers with a capacity of (210) barrels called the “Whale” but tankers with a capacity of (110) barrels are commonly used in Syria.

17 / 22 monthly payment, reportedly 60,000 USD per month, to be paid by al-Jazeera Fuel Company

and the owners of reneries.(29)(30)

As the tankers carrying crude oil arrive at the rening sites in Tarhin, it is sold to the reneries at a price of 33000 SYP (64 USD) per barrel. Of note, local sources reported that the vast majority of renery owners in Tarhin are from Sara town in the eastern countryside of Aleppo Governorate, Khalifa’s home town. In turn, renery owners process the majority of the oil to produce petrol and mazout, and sell the remaining crude oil to smaller traders in the area for local consumption.

FUEL COMING FROM TURKEY

European fuel was rst introduced to the northern Aleppo market in early 2018, as the Turkish government allowed the export of fuel in response to the severe fuel crisis caused by Operation Olive Branch, and the supply has been relatively low but consistent since then.(31)(32)

(29) Formed in December 2014, al-Shamia Front, or the Levant Front, is a coalition of armed opposition groups present in Aleppo Governorate. The group is part of the the Turkish-backed National Army and headquartered in A’zaz city, Azaz subdistrict, in the northern countryside of Aleppo. (30) Formed in 2016, Ahrar al-Sharqia is a local armed opposition faction operating in Aleppo Governorate. The group is mainly comprised of displaced ghters from Deir-Ez- Zor Governorate. Currently, the group falls under the coalition of the Turkish-backed National Army.

18 / 22 The price of Turkish fuel remained xed at USD0.80 for one liter of fuel, but as the SYP fell, the price of European fuel witnessed an unprecedented increase reaching 800 SYP for one liter. The Turkish fuel company supplies fuel products to northern Aleppo countryside in two main ways:

1. Direct Delivery: Turkish fuel tankers cross to opposition areas in northern Aleppo, through the Jarablus border crossing or Bab al-Salama border crossing, and deliver direct to the nal destination. This type of delivery takes place only if the fuel is allocated to Turkish-owned petrol stations or establishments afliated with the Turkish government (hospitals, power stations, local councils, etc). Three petrol stations, reportedly owned by Turkish companies, receive direct fuel deliveries in Jarablus subdistrict, Mare’ subdistrict and in A’zaz subdistrict.

2. Indirect Delivery: Turkish fuel tankers deliver the fuel to Syrian fuel tankers waiting on the Turkish side of the border crossing, to then be driven to Watad market in Sarmada. This type of delivery is used to supply the local markets. Only a selected group of petrol stations can receive deliveries of European fuel regularly. Although the terms of the selection process or the cooperation agreement are unknown, the geographic distribution seems to be a factor of importance. Five main petrol stations receive indirect fuel deliveries from Turkey in opposition-controlled northern Aleppo: al-Salam station and Ya Sham station in Azaz city, Azaz subdistrict; Sheikh Salem station, in al- Bab city, al-Bab subdistrict; Haj Fadel station in , Akhtarin subdistrict; and a newly established station in Afrin, Afrin subdistrict.

(31) Local sources reported that the Turkish Ministry of Trade and Economy granted the fuel export permission exclusively to a turkish company called Transpet Petrol. (32) Operation Olive Branch is an ongoing Turkish-led operation on Afrin and A’zaz districts in the Syrian northwest. It is led by the Turkish army and the Turkish-backed NAtional Army. The operation originally began in January 2018.

19 / 22 ANNEXES Annex I: FUEL FROM ISIS-CONTROLLED AREAS

From its emergence in 2013, the crude oil and fuel trade was the primary source of revenue for the Islamic State of Iraq and Syria (ISIS) in the region. In early 2014, and in addition to its control of oil elds in Mosul, northern Iraq, ISIS took control of the main oil-producing elds in Deir-ez-Zor, Ar-

Raqqa, and Al-Hasakeh Governorates in northeast Syria.(1)(2) According to local organizations, fuel production from ISIS-controlled Deir-ez-Zor oil elds used to range from 50,000 to 56,000 barrels per day prior to the International Coalition Campaign, reducing to 30,000 to 54,000 barrels per day during the campaign. Although the campaign resulted in a sharp drop in the group’s nancial prots of oil production, these gures suggest that the group was earning about 1.3m USD a day from oil

production and trade in northeast Syria alone.(3)

The Coalition campaign against ISIS severely disrupted the group's oil extraction and collection process before it ultimately collapsed. Before the campaign, the group used to sell most of its extracted oil directly to independent traders in the oil elds. Syrian and Iraqi traders used to send their fuel tankers directly to oil elds to buy crude oil, with long queues of trucks sometimes sitting for weeks on end. When the Coalition's campaign began in 2014, it initially targeted oil reneries and fuel tankers near oil elds. As a result, ISIS adjusted its distribution system to prevent fuel tankers from queuing near the oil elds by establishing remote trafc control ofces.(4)

Fuel traders were required to submit a fuel purchase order to the trafc control ofce. The purchase order included the amount of product needed, the fuel tanker capacity and plate number, in addition to a copy of the trader's and driver's ID. Once the purchase order was submitted, the trafc ofce gave the trader a ticket with a specic date and time to return. Traders willing to pay the entire cost upfront were offered a special ticket allowing them to avoid the queue and receive 1,000 barrels of oil at once.

(1) Qayyara eld near Mosul in northern Iraq that produces about 8,000 barrels a day of heavier oil that is mostly used locally to make asphalt. (2) According to Justice for Life CSO, in Deir-ez-Zor Governorate, ISIS seized control of ve oil elds: al-Omar eld, al-Tanak eld, al-Jafra eld, al-Ward eld, and al-Taim eld. In Ar- Raqqa Governorate, ISIS controlled two oil elds: al-Sah oil eld, and al-Habari oil eld. In Al-Hasakeh Governorate, ISIS controlled four main oil elds: al-Jabsa, Kabiba, Markada, and Teshreen oil eld. (3) According to Justice for Life CSO, prior to the Coalition Campaign, ISIS oil production from Deir-ez-Zor oil elds was (44,000) barrels per day, from Al-Hasakeh oil elds was (11,000) barrels per day, and from Ar-Raqqa oil elds was (1700) barrels per day. As a result of the Coalition campaign, ISIS oil production dropped as reaching (26,000) barrels per day in Deir-ez-Zor, (7,500) barrels per day in Al-Hasakeh, and (1000) barrels per day in Raqqa. (4) For example, on August 9, 2016, the IC reportedly struck 83 oil tankers in Deir-Ez-Zor resulting in nancial damage estimated at USD11 million; by December 8, 2016, the IC reportedly struck 168 oil tankers near Palmyra resulting in revenue damage estimated at USD2 million. Additionally, the IC reportedly struck several oil-renement types of equipment, oil storage tanks, oil wellheads, and oil pumps during this period.

20 / 22 Once the fuel tanker was lled, the trader had the freedom to either rene at an ISIS-owned renery, or private renery, to produce petrol and mazout, or sell the cargo as crude oil to smaller

traders or at a local oil market.(5) Since the vast majority of reneries, whether mobile or stationary, were located in ISIS-controlled areas, and only a few low-quality reneries existed in opposition- held Idleb and western Aleppo, traders preferred to rene in ISIS-controlled areas before export.(6) In ISIS-controlled areas, there were two types of reneries: ISIS-owned and privately-owned mobile reneries. If the trader chooses to rene at an ISIS-owned renery, the trader was not required to make any advance payment but instead pay a share of the prots after the sale of the rened fuel.

ISIS established large fuel markets throughout its areas of control, often located close to reneries.

(7) In ISIS-controlled markets such as Menbij, Menbij subdistrict and al-Bab, al-Bab subdistrict in northern Aleppo countryside, smaller traders had to pay an approximate of 200 SYP (0.67 USD) per barrel in tax on top of the purchase price. ISIS role in the process was complete once the fuel was sold and Zakat paid. (8)

A new tax regime began once fuel tankers entered opposition-held areas in northern Aleppo. The exact amount of tax was dependent on the fuel tanker's nal destination. For tankers intending to ofoad in local fuel markets in opposition-controlled areas of northern Aleppo, each tanker paid approximately 300 USD in entrance fees to the Liwa al-Tawheed armed faction, which used to control the crossing-point. If the tanker was destined for opposition-controlled areas in Idleb and western countryside of Aleppo, each tanker paid approximately 100 USD to the Liwa al-Tawheed in escort and protection fees to reach the Daret Azza commercial crossing in Daret Azza subdistrict. At the Daret Azza commercial crossing, the tanker paid approximately 300 USD in fees to the Nour al- Deen al-Zenki group, which controlled the crossing point.(9)

(5) Mazout, a heavy form of diesel used in generators, has seen great demand during the Syrian conict as petrol prices rose and quality dropped. (6) According to several local media sources, ISIS had bought at least ve reneries since mid-2015 in northeast Syria while establishing dozens of other local reneries. (7) For instance, ISIS established a large oil market in Sabha town, Basira subsitrict of Al Jafra oil eld, Deir-ez-Zor subdistrict, in Deir-ez-Zor Governorate. (8) Throughout ISIS-controlled areas, traders presented a document proving they had paid the purchase tax. (9) Liwa al-Tawheed was an armed opposition group active during the Syrian conict from July 2012 - 2014. The group was afliated with the Mulsim Brotherhood, and reportedly received funding from Qatar. The group had a large presence in northern Aleppo Governorate.

21 / 22 CONTACT

Jon Novakovic HAT Interim Director [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 conict.

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