(Zaman Al Wasl- Financial Times)- U.S. led air strikes in Syria have inflicted "significant damage" to Islamic State's ability to fund itself, the Pentagon said on Friday.
Recent strikes in an air operation dubbed "Tidal Wave II" have been concentrated on oil facilities in the Deir Ezzor region, which provide an estimated two-thirds of Islamic State's oil revenue, Pentagon spokesman Col. Steve Warren said at a news briefing, Reuters reported.
While airstrikes have targeted oil facilities in the past, Warren said they were against parts that were being easily repaired or replaced.
Oil revenue is one of the largest sources of income for the Islamic State and the operation could have a significant impact on the terrorist organization, according to Frederic Hof, a senior fellow at the Atlantic Council think tank.
ISIS controls most of Syria’s oil fields and crude is the militant group's biggest single source of revenue. the Financial Times followed the progress of a barrel of oil from extraction to end user to see how the ISIS production system works, who is making money from it, and why it is proving so challenging to disrupt.
Where the oil is extracted
ISIS’s main oil producing region is in Syria’s eastern Deir Ezzor province, where production is somewhere between 34,000 to 40,000 barrels a day, according to locals.
The group also controls the Qayyara field near Mosul in northern Iraq that produces about 8,000 barrels a day of heavier oil that is mostly used locally to make asphalt.
It is difficult to determine a definitive oil production figure for Isis-controlled areas. But it is clear production levels have dropped in the Syrian fields since they were taken over by the militants. Most oil fields in the area are aging and despite the group's efforts to recruit skilled workers, it does not have the technology or equipment needed to maintain them.
Even so, they continue to provide Isis with its most lucrative income stream.
The price of the oil depends on its quality. Some fields charge about $25 a barrel. Others, like al-Omar field, one of Syria’s largest, charge $45 a barrel. Overall, Isis is estimated to earn about $1.53m a day.
Selling crude oil
Though many believe that Isis relies on exports for its oil revenue, it profits from its captive markets closer to home in the rebel-held territories of northern Syria and in its self-proclaimed “caliphate”, which straddles the border between Syria and Iraq.
The group sells most of its crude directly to independent traders at the oil fields. In a highly organised system, Syrian and Iraqi buyers queue in their tankers at the entrances to fields, often waiting for weeks.
Oil refineries
Most traders prefer to sell the oil on immediately and return to queue at the fields. They can expect to make a profit of at least SL3,000 (about $10) per barrel.
The bulk of oil refineries are in Isis-controlled Syria. The few in rebel-held territories have a reputation for lower quality output than the refineries in the east.
The refineries produce petrol and mazout, a heavy form of diesel used in generators – a necessity as many areas have little or no electricity. Because the quality of the petrol can be inconsistent and is more expensive, mazout is in greater demand.
Refining is done by local residents who constructed their rudimentary refineries after Isis's prefabricated "mobile" facilities were destroyed by coalition air strikes. The owners make purchase agreements with the militants for their products.
At ISIS refineries, the former owner stays on as a "front" man. The group supplies the oil; in return it takes all mazout production and splits the profits on petrol production with the original owner.
Traders say ISIS has its own tankers that supply crude to its refineries from oil fields regularly. The group also appears to retain many of its earlier contracts with unaffiliated gas stations and other refineries.
There are also signs that in recent months Isis may have returned to refining. In interviews with traders, the FT discovered the group had recently bought five refineries.
Fuel to market
Once the oil is refined, it is bought by traders or taken by dealers to markets across Syria and Iraq. At this point, Isis is almost completely disengaged from the trade. About half the oil goes to Iraq, while the other half is consumed in Syria, both in Isis territories and rebel-held areas in the north.
There are fuel markets throughout Isis-controlled areas and rebel-held Syria, often located close to refineries. Most towns have a small fuel market where locals buy and sell oil. But traders supplying these smaller markets often buy their oil in bulk from larger hubs.
ISIS markets
There are larger Isis-controlled markets in towns like Manbij or al-Bab in Aleppo’s eastern countryside. Traders here must present a document proving they have paid zakat, a tithe, to buy oil without tax. Traders from rebel-held Syria who have not paid the tithe, must pay a tax of SL200 per barrel, or about $0.67.
Some privately-owned markets also levy taxes. Al-Qaim market, one of the largest in the region, charges buyers and sellers about SL100 ($0.30) per barrel of crude purchased.
Mosul
In ISIS-controlled Iraqi cities like Mosul, the fuel is sold at mini “petrol stations” with two pumps. They are ubiquitous on Mosul street corners and locals usually name the oil according to the part of Syria it came from. This helps buyers determine the quality of the oil and compare prices.
Rebel markets
Two types of fuel are sold in rebel-held Syria: pricier fuel refined in Isis areas, and cheaper locally refined fuel. Residents typically buy a mix of both, and use the cheaper variety for generators and keep better quality variety for their vehicles.
The importance of Isis oil to those living in rebel-held areas of Syria is one reason why the US-led coalition has been reluctant to target the group's trade routes. The coalition says it is wary of alienating local populations by bombing fuel now critical for their daily lives.
Fuel Smuggling
With ISIS only concerned with making its profits ‘at the pump’, smuggling fuel into neighbouring countries can be good business for entrepreneurial Syrians and Iraqis. Syrian smugglers say it has been declining in recent months, not because of tighter border controls but because the sharp fall in international oil prices make it unprofitable. But some determined smugglers continue their trade.
Most of the smuggling from the Syrian side has gone through opposition areas in the northwest. Locals buy fuel at the market, pour it into jerry cans and carry it over the border on foot or, in mountainous areas, by donkey or on horseback.
In Iraq, the bulk of smuggling through the northern Kurdistan region has been blocked, so locals say the route now goes south through Anbar province towards Jordan.
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