Ben Cohen: Will Oil Make or Break the Islamic State?

by Ben Cohen

Now, with the Islamic State's self-proclaimed caliphate having captured key oil wells in the Middle East this year, foreign oil has become an even more lethal financial weapon-of-choice for those seeking to destroy democracy and further escalate the War on Terror.
That President Barack Obama failed even to mention oil as a critical factor in the war against IS during his speech to the nation on September 10, is an omission both revealing and dangerous in terms of how his administration wants to depict the stakes involved in this latest confrontation with the jihadis.

America's failure to achieve energy independence over the last 30 years has resulted in exponential oil price increases that have hurt our nation. Trillions of dollars have left, and billions more continue to leave our economy to purchase oil from countries that seek our destruction, and to support madrassas [Islamic religious schools] that teach new Muslim generations how to hate -- and worse.

Now, with the self-proclaimed caliphate of the Islamic State [IS] having captured key oil wells in the Middle East this year, foreign oil has become an even more lethal financial weapon-of-choice for those seeking to destroy democracy and further escalate the War on Terror.

Recent reported developments: The Islamic State accelerated its rampage through northern Iraq at the beginning of the summer. Its terrorists quickly captured seven oil fields in the region with the capacity to produce 80,000 barrels of oil per day – assets worth, at international market prices, around $240 million per month.

The IS met virtually no armed resistance as it seized these fields. Indeed, two of them, Najma and Qayara, had already been abandoned as far back as February, when Sonangol, an Angolan company with a 75% stake in the fields, announced that its operations were no longer feasible because of the prevailing climate of insecurity.

Similar reports came from the other fields seized by IS. In early August, as IS terrorists captured the strategically vital Mosul dam, which provides water and electricity to the region, the Ain Zalah oil fields were taken with little resistance from the surrounding Kurdish peshmerga forces. Significantly, this particular seizure took place at the same time that the Kurdish political leadership was bemoaning the Obama Administration's reluctance to back them with weaponry, military advisers and air strikes. The White House had also attempted to prevent the Kurdistan Regional Government (KRG) from separately trading its own oil, in a bid to arrest the disintegration of Iraq as a federal state.

Kurdish peshmerga soldiers patrol an oil installation on the outskirts of Kirkuk, July 2014. (Image source: VOA video screenshot)

At the Ajeel oil fields near Tikrit, an on-site engineer reported that IS terrorists overran the wells -- which produce 28,000 barrels of oil per day -- as part of a coordinated onslaught against military and oil installations elsewhere in the locale. A few days after Ajeel fell to IS, a local official, Shallal Abdul Baban, reported that smuggling operations had begun. "People who buy the oil use paved roads controlled by militants and take it through the cities of Kifri or Qadir Karam to civil refineries or across the Iranian border," Abdul Baban said.

Despite these battlefield successes, IS remains some distance from Qatari or Saudi levels of oil wealth. Cut off from the international oil market, where a barrel of oil is valued at around $100, the terrorists have no choice but to sell for cash or barter their oil at much lower prices, using the services of Turkish, Iraqi and Iranian middlemen to collect the revenues. Additionally, the oil fields under IS control are, in terms of capacity, extremely modest when compared to the Kurdish-run oil fields around Kirkuk in the north and the Iraqi government-run oil fields around Basra in the south.

As the Wall Street Journal reported at the end of August, the Islamic State sells a barrel of heavy oil for between $26 and $35. A separate report from the London-based Syrian Observatory for Human Rights estimates the price per barrel even lower, at $12. All told, oil analysts calculate that revenues from Iraqi oil fields currently net the terrorists between $1-3 million per day: that is enough to shore up its Shari'a-law based reign of terror, but hardly the sum needed to create a functioning state capable of defending itself from the robust counter-attacks launched by Kurdish and Iraqi forces over the last few weeks.

IS's fragile jurisdiction over its Iraqi oil properties -- Ain Zalah, for example, was reported to have been retaken by the Kurdish peshmerga at the end of August -- is offset, however, by the iron fist it wields in neighboring Syria, where around 60% of the oil fields remain under IS control. Among those fields is Al Omar, which produced around 30,000 barrels per day prior to the outbreak of civil war in 2011. The fall of Al Omar was a key consideration in the decision of fighters previously associated with rival Islamist Nusra Front to throw in their lot with the IS instead. Now, IS is reported to be producing and smuggling approximately 50,000 barrels of oil per day in Syria alone, an amount worth $2 million per day in addition to its monetary gains in Iraq.

As a consequence, IS still retains the potential seriously to disrupt the oil exports upon which the Iraqi economy rests. A successful offensive in the south could significantly multiply the revenues available to the aspiring caliphate. Given the growth-potential for Iraq's oil industry – projected to reach 6.1 million barrels per day by 2020 – both the human rights and national security implications can be judged as disastrous.

For the moment, though, there are three main factors that can hamper the progress of the IS. First, further gains by Kurdish and Iraqi forces against the already-stretched IS will obstruct its ability to send trucks carrying oil into neighboring countries. Second, oil fields require maintenance. Most of the fields and equipment now under the control of the IS are old and decaying; without further investment, production levels will decline.

Finally, the oil with which IS may have intended to build its caliphate could turn out, ironically, to be its undoing. As IS's footprint has grown larger, its dependence on oil revenues has increased, at the expense of other revenue streams such as kidnappings (after the brutal decapitations of journalists James Foley and Steven Sotloff, Western governments may be growing reluctant to pay ransoms), as well as the illicit trade in ancient religious artifacts, and extortion operations against those populations suffering under IS rule (non-Muslim minorities are apparently now forced to pay the special jizya tax to the terrorists.)

Hence it is crucial for the U.S. to provide significant Western assistance to forces, especially the Kurds, who are taking on IS directly. The more manpower and cash the IS is forced to spend to protect its oil fields, the more vulnerable their supply lines stretching from Syria into Iraq become.

Of course, IS can always follow the example of the late Iraqi dictator Saddam Hussein, who set hundreds of oil wells in Kuwait ablaze when his occupation forces were expelled from the Gulf state in 1991. Indeed, when Kurdish peshmerga forces recaptured the Ain Zalah field, the retreating IS terrorists set three wells alight. That partly explains why the Kurds and their allies are wary of any military measures that might provoke the IS into a wider "burn-and-flee" maneuver.

That possibility should also compel western policy-makers to understand that the coming weeks will be critical to ensuring that the Islamist rogue state does not become a petro-state as well. That President Barack Obama failed even to mention oil as a critical factor in the war against IS during his speech to the nation on September 10 is an omission both revealing and dangerous in terms of how his administration wants to depict the stakes involved in this latest confrontation with the jihadis.


Ben Cohen

Source: http://www.gatestoneinstitute.org/4712/islamic-state-oil

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