September 12, 2014

ISIL: A Well-Oiled Machine

The speed at which the Islamic State of Iraq and the Levant (ISIL) has swept through and taken control of parts of Syria and Northern Iraq is both shocking and unexpected.  Thought to number between 30,000 and 50,000 fighters, ISIL has proven that it not only has the wherewithal to control huge swaths of territory, but that it is also a self-sufficient, financially viable entity with over $2 billion in assets. The group is funded through various illicit income-generating activities, and supplied from the military bases in Iraq and Syria from which they have looted weapons and equipment. However, the possibility of controlling and exploiting key oil fields is what truly has the ability to tip the financial scale further in ISIL’s favor. One facet of the long-term U.S. strategy to counter ISIL laid out by President Obama is to “redouble our efforts to cut off its funding.” Part of this strategy must be ensuring that they do not gain control of, and financially exploit, additional Iraqi or Syrian oil fields.

Currently, ISIL controls oil fields in both Eastern Syria (most notably, the Al-Omar oil field in Raqqa), and Iraq, including Najmah, al-Qayyara, Ujayl, Himreen, and al-Dujail. In total, these fields produce between 30,000 and 70,000 barrels per day (bpd). Although a small number for any significant oil producer, for a non-state actor to be in control of as much oil production as the countries of Bahrain or France is extremely concerning. Not only do they have the ability to use already refined oil to power their cache of military vehicles, but they are also able to illegally sell oil. Even when only fetching below-market prices, ISIL is sitting on an ever-growing hoard of cash. Currently, ISIL is reported to be generating around $2 million per day solely through discounted and illegal oil sales. As ISIL moves farther into Iraqi territory, the possibility that they could overtake oil fields farther into Kurdistan and potentially into Southern Iraq is a very real possibility that cannot be ignored. If this were to happen, their influence, and their financial assets, would only grow.

Not only is ISIL able to use the sale of oil to fund its terrorist activities, but it also has the ability to use oil as an economic weapon. If ISIL were to embark on a campaign of burning Iraqi or Kurdistani oil fields—within the territory they hold or outside of it—production in Iraq could be severely decreased. A tightened Middle Eastern oil market would mean an increase in global oil prices. So far, Iraqi oil exports are hovering at 2.4 million bpd. However, exports from the Southern region have fallen by around 140,000 bpd since July, which officials insist is not because of ISIL’s advances, but simply because of bad weather. Whatever the true cause of the decrease, a supply shortfall of any sort does not help an already unstable situation, especially because world oil market pries are so sensitive to changes in supply.

The ramifications of potential decreases in Iraqi oil production are not limited to global oil market prices. They could also cause supply problems with some regional neighbors. ISIL-related production disruptions could put pressure on Saudi Arabia to up their production in order to assist with market management, which they only have a limited ability to do in the short term. Saudi Arabia is currently producing at very high rates of around 10 million bpd and their spare capacity (the ability to increase production within 30 days for at least 90 days) currently hovers at around 1.5-2 million bpd. Saudi Arabia could draw on this spare capacity to help stabilize prices, but will not be able to sustain this for the long term.

Long-term decreases in Iraqi oil production could also mean that the West does not have as much influence over Iran through the current sanctions regime. As a long-time rogue actor, Iran’s ability to export oil has been severely hindered by a complicated web of international sanctions, which prevent it from exporting more than roughly 1 million bpd. However, Iran’s production capacity is much higher than that—around 3 million bpd. If world oil markets tighten, it could increase the chances that the international community (most notably, Asia) may ignore sanctions and buy more Iranian oil in order to stop prices from rising. Not only this, but a tightened world market with higher oil prices would make the West reluctant to impose further sanctions on Iranian oil exports due to the risk of increasing prices even further.

So far, ISIL’s influence is mostly concentrated in Northern Iraq, and Iraq’s Southern oil fields, where 70% of Iraq’s oil is produced, are not yet at risk of being overtaken. However, the amount of territory that ISIL has been able to seize in a short amount of time, and with relative ease, is striking. ISIL has proven its ability to quickly take over territory through the use of threats, deadly force and rapid mobilization. The already well-oiled machine that is ISIL cannot be allowed to take control of any more territory with key oil fields or impair their production through raids or attacks. Allowing its influence to spread to the oil fields of Southern Iraq would further threaten instability in the region and worldwide.

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