How ISIS is Able to Sell Oil on the Black Market

FT reports:

Maplecroft, the risk management firm, says in a recent report that Isis now controls six out of 10 of Syria’s oilfields, including the big Omar facility, and at least four small fields in Iraq, including those at Ajeel and Hamreen.

Oil smuggling has deep roots in the region. After the imposition of UN energy sanctions on Iraq in the 1990s, a robust network of smugglers, traders and bootleg refineries have flourished.

Hundreds of entrepreneurs emerged, buying and selling small parcels of Iraq’s oil at discounted prices and transporting them across the Turkish border to sell at a markdown. Many of the business people have grown rich and powerful, with vested interests and political ties. 

Energy experts and western officials say Isis may be laundering up to 80,000 barrels of oil a day worth several million dollars through this shadow market. The oil is smuggled through rugged mountain and desert routes or even legitimate crossings at Reyhanli, Zakho or Penjwan for consumption in Turkey, Iran or Jordan.

“The fact that Iraq was under sanctions for so long led Kurdish and Iraqi businessmen to fill a vacuum and create smuggling networks for Iraqi oil,” says Valerie Marcel, a Middle East and Africa energy specialist at Chatham House, the London think-tank. “Turkish, Iranian, Syrian, Iraqi networks have grown because of decades of bans on exports. From Iraq and now from Syria there is this grey market. That’s becoming a huge problem.”

Black market oil is often refined at plants in Iraqi Kurdistan that are partly the byproduct of the tensions between Kurdish leaders and Baghdad. In recent years the Kurdistan Regional Government looked the other way as homegrown refineries popped up to supply the local market after Baghdad banned the export of petroleum products without its consent.

This means that the Kurds are potentially helping put money in the coffers of the jihadi group that its own peshmerga forces are fighting. “It’s now possible that Isis could be selling crude [via middlemen] to these knock-off refineries,” says Bilal Wahab, an energy expert at the American University of Sulaymaniyah. “The KRG is unwilling to shut them down because it would have to raise the price of gasoline. It can’t raise the price of gasoline because it can’t pay salaries, and it can’t pay salaries because the central government hasn’t given the KRG its budget in eight months. Yes, it’s illegal. Yes, it’s bad. But it is what greases the wheels of the economy.”