Commentary: ISIS victories and oil

Right now, oil prices seem under pressure from any number of forces: Saudi market share strategies, Iran’s quiet sales from floating stocks, historically high U.S. and Chinese inventory levels, and a very large backlog of uncompleted tight oil wells in the United States. But over the longer term, the situation on the ground with the Islamic State for Iraq and Syria (ISIS) could render some of that surplus necessary, as ISIS emerges as an increasingly larger risk to regional oil production capacity.

News this week that ISIS had scored a major victory in Ramadi has forced several regional rivals to change their calculus in material ways. Syria’s brutal regime is now retrenching to large population centers to ensure it can best protect its base of Alawite constituents and strongholds. Some commentators are saying the shift in approach will result in a de facto partition of the country. Iranian backed Hezbollah will have to make similar choices given its small numbers and recent indications that defending their “homeland” in the mountains of Lebanon is the priority. Meanwhile, Saudi Arabia is finding that it is harder than it might have supposed to prevent ISIS lone wolfs from making substantial attacks on the ground inside the kingdom. ISIS’s heinous attack on a mosque in the Eastern province demonstrated that the group could operate in that region, home to the majority of the kingdom’s oil infrastructure.

ISIS’ ability to hold territory is critical to its survival but its original concept to grab as many oil fields as possible to fund that future “statehood” is not succeeding. The terror-statist group is finding that the operational challenge of running those oil facilities is beyond the extremist group’s technical capacity.

When ISIS began its campaign in June 2014 to form an Islamic caliphate by seizing large swathes of land in northern Iraq and eastern Syria, of paramount interest to the group was gaining control of producing oil fields and capitalizing on existing oil smuggling operations out of Iraq and Syria to help fund the group’s high operating costs.

Instead, the extremist group is finding it cannot sustain oil production, both because it lacks the technical know-how and also because its fighters cannot stave off attacks to recapture key installations. Few people with strong technical expertise have remained in ISIS-controlled territory and the group’s efforts to coerce skilled staff into staying by threatening the lives of their families or seizing the assets of engineers who have fled in hopes of prompting their return has proved ineffective. ISIS was originally relying on junior engineers who it has either pressured to stay on at their jobs or recruited. However, anything involving serious repair or more complex procedures, such as water injection at Syria’s mature producing fields, is proving a challenge. At one juncture last summer, ISIS was controlling a half a dozen Syrian oilfields (including al-Furat, al-Omar, and Deir ez-Zor) that prior to the war had a capacity of 114,000 b/d.  At present, ISIS current production capacity in Syria is roughly 15,000 to 30,000 b/d. ISIS has also captured 6 oil fields in northern Iraq since last summer, including the Ajeel, Himrin, Ain Zalah, Safiyah, Batmah, and Qayara. The fields which have nameplate capacity of 175,000 b/d are now producing less than 10,000 b/d, down from peak levels of 37,000 b/d from peak levels seen when they were first taken over by ISIS.

ISIS oil experience in Syria and western Iraq paints an increasingly dire picture for oil infrastructure in the region. ISIS’ oil strategy is now a risk in more than one way: not only by military battles over control of facilities but also in the event that ISIS wins control, accidentally post-capture by technical ineptitude. The oil experience highlights an even more dangerous outcome, were ISIS to capture major dams in Iraq.

Seeing that controlling oil fields on the ground might not be as large an economic boon to its future as it was hoping, ISIS may also come to see more benefit to simply attacking oil facilities to deny access to the oil revenue for its enemies: the many governments it is targeting. In Libya, parties appear to have moved away from simply grabbing oil facilities to bombing export cargoes. Armed forces affiliated with ISIS had already been conducting a string of attacks on energy facilities in central and eastern Libya, including on fields run by joint-ventures with Western companies.

So far, the surplus of potential oil production capacity in Saudi Arabia, Kuwait, UAE and the United States is replacing oil being brought off line by ISIS. But eventually, if the group is not stopped, more and more facilities will be damaged, lowering the amount of oil that can be produced across the Middle East. That would add an even higher long term economic toll to the already unthinkable human tragedy the extremist group has created. It is difficult to imagine what the remedy is since no country appears ready and willing to provide “boots on the ground” but destruction of an entire region doesn’t seem to be in anyone’s interests.