Assad preparing to handover Syria’s energy sector to Russia

The New Arab reports: The regime of Bashar al-Assad is reportedly seeking to rehabilitate and operate oil fields and power plants in areas controlled currently by the rebels and the Islamic State group respectively — areas that the regime forces began recapturing in northern and Western Syria backed by Russian airstrikes.

Measures are already in place by the Syrian regime to hand over the Syrian energy sector to Russian companies, led by a law on partnership between the private sector and foreign companies issued in early 2016.

Last month as well, Russian press reports said Bashar al-Assad, during a recent visit to Moscow, signed an agreement consisting of ten clauses purportedly giving Russia the right to freely operate in Syria, which cannot be revoked except by written agreement.

In the same vein, a recent report published by Russia’s RIA agency said Syria’s ambassador to Moscow, Riad Haddad, had met with the chairman of Russian gas company Gazprom Alexei Miller, and discussed giving Russian energy firms oil and gas concessions in Syria and other forms of cooperation. [Continue reading…]

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Battered by war, Iraq now faces calamity from dropping oil prices

The New York Times reports: Iraqis seeking to withdraw money from banks are told there is not enough cash. Hospitals in Baghdad are falling back to the deprivation of the 1990s sanctions era, resterilizing, over and over, needles and other medical products meant for one-time use.

In the autonomous Kurdish region in the north, the economic crisis is even worse: government workers — and the pesh merga fighters who are battling the Islamic State — have not been paid in months. Already, there have been strikes and protests that have turned violent.

These scenes present a portrait of a country in the midst of an expensive war against the Islamic State that is now facing economic calamity brought on by the collapse in the price of oil, which accounts for more than 90 percent of the Iraqi government’s revenue.

Analysts and officials, though, say much tougher economic times are ahead, even as they insist the war will be largely unaffected because of help from foreign powers determined to defeat the Islamic State. The United States, for instance, recently extended new loans to Iraq to buy weapons, and other countries are stepping up with donations of arms and ammunition. [Continue reading…]

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Iran sanctions: Middle East stock crash wipes £27bn off markets as Tehran enters oil war

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The Telegraph reports: Stock markets across the Middle East saw more than £27bn wiped off their value as the lifting of economic sanctions against Iran threatened to unleash a fresh wave of oil onto global markets that are already drowning in excess supply.

All seven stock markets in the Gulf states tumbled as panic gripped traders. London shares are now braced for a second wave of crisis to hit when they open on Monday morning after contagion from China sent the FTSE 100 to its worst start in history last week.

Dubai’s DFM General Index closed down 4.65pc to 2,684.9, while Saudi Arabia’s Tadawul All Share Index, the largest Arab market, collapsed by 7pc intraday, before recovering to end down 5.44pc at 5,520.41, its lowest level in almost five years. [Continue reading…]

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Armed with intel, U.S. strikes curtail ISIS oil sector

Iraq Oil Report reports: An intensifying campaign of U.S. air strikes on the self-proclaimed Islamic State (IS) has nearly shut down its oil operations in Iraq and has hampered its more lucrative business in Syria, eroding the group’s largest source of financing and threatening its ability to govern territory.

Iraq Oil Report has compiled a comprehensive history of the IS oil sector based on the organization’s own records, details of which have just been declassified by the U.S. government and are being published here for the first time. Those accounts have been broadly corroborated by the first-hand testimony of residents and oil workers in IS-occupied territory.

They show that, until recently, nearly 2,000 IS oil workers, many recruited from abroad, were able to outfox early U.S. attempts to derail the group’s oil operations. From the end of 2014 through May 2015, even after being hit by a series of air strikes, the highly bureaucratic and organized operation generated as much as $40 million per month from the sale of crude oil. (The IS organization generated millions more by taxing transportation and refining, though the U.S. officials declined to give more detailed figures.)

“From the documents, we see this: oil has traditionally been approaching 50 percent of their profits. And the other 50 percent was the total of all the other things,” said Amos Hochstein, the State Department’s Special Envoy for International Energy Affairs, who is at the center of the U.S. government’s efforts to identify weaknesses in the IS group’s oil sector. [Continue reading…]

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Chaos in Libya: It’s the oil, stupid

Issandr El Amrani writes: There seems no end to the bad news coming out of Libya.

UN-led negotiations to unite the divided country — it has two parliaments, two governments, two militia coalitions that have been competing for control of a rapidly failing state since summer 2014 — are stalling. Fighting continues apace in Benghazi, the city that was the first to rebel against the rule of Muammar al-Gaddafi in 2011 and is now a byword for extremism. The Islamic State is growing by the day in the Gulf of Sirte in the center of the country, imposing its cruel dictates and making inroads elsewhere in the country. Criminal gangs – often the same militias that have had the run of the country since Gaddafi’s fall – are doing a brisk trade in people smuggling, sending off desperate migrants and refugees on rickety boats across the Mediterranean.

Oh, and by the way, Libya is also going broke.

That last tidbit should be surprising. Libya has Africa’s largest oil reserves and has long been an important supplier of light sweet crude, the kind made into gasoline and kerosene. It also had tons of money in both hoards of cash reserves and investments across the globe.

But the oil, which used to bring in 96 percent of the country’s income, is not flowing anymore. From a high of at least 1.6 million barrels per day at the beginning of 2011, Libya is lucky to export a fourth of that today. Militias have taken control of oil fields, pipelines and export facilities across the country. At first, they sought to extort the central government to keep the oil flowing. But since the country was divided into two rival governments, they are simply fighting to keep oil revenue from each other: you take over my oilfield, I block your pipeline. Since earlier this year, IS has jumped into the fray, simply destroying facilities to keep any government from getting its revenues — although, in the longer term, it may very well want to control the oil itself. [Continue reading…]

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The prize: Fighting for Libya’s oil wealth

International Crisis Group reports: Libya’s economic conditions could turn sharply for the worse, as rival authorities vie to control rapidly shrinking national wealth. The struggle affects oil fields, pipelines and export terminals, as well as the boardrooms of national financial institutions. Combined with runaway spending due to corruption and dwindling revenue because of falling exports and energy prices, the financial situation – and with it citizen welfare – faces collapse in the context of a deep political crisis, militia battles and the spread of radical groups, including the Islamic State (IS). If living conditions plunge and militia members’ government salaries are not paid, the two governments competing for legitimacy will both lose support, and mutiny, mob rule and chaos will take over. Rather than wait for creation of a unity government, political and military actors, backed by internationals supporting a political solution, must urgently tackle economic governance in the UN-led talks.

Since the Qadhafi regime fell in 2011, Libya has been beset by attacks on, labour strikes at and armed takeovers of oil and gas facilities, mostly by militias seeking rents from the fledging central government. Initially brief and usually resolved by government concessions, the incidents gradually took on a life of their own, in an alarming sign of the fragmentation of political, economic and military power. They show the power accrued by militias during and since the 2011 uprising and the failure of efforts to integrate them into the national security sector. The dysfunctional security system for oil and gas infrastructure presents a tempting target for IS militants, as attacks in 2015 have shown.

One aspect of the hydrocarbon dispute is a challenge to the centralised model of political and economic governance developed around oil and gas resources that was crucial to the old regime’s power. But corruption that greased patronage networks was at that model’s centre, and corrupt energy sector practices have increased. A federalist movement some consider secessionist controls a number of the most important crude-oil export terminals. It exploits the situation by pursuing its own sale channels, adding to the centrifugal forces tearing Libya apart. [Continue reading…]

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Taking stock of ISIS oil

Matthew M. Reed writes: The early estimate for ISIS oil revenues was $2-3 million a day. Media coverage ran with that number and so did U.S. officials for a time. However, the price/volume assumptions built into it were never clear. “It’s not an estimate that the U.S. intelligence community or the Pentagon is endorsing or has come up with,” a Pentagon spokesman said in September 2014.

The first official U.S. government estimate for ISIS oil revenue came in October last year. Then-Treasury Undersecretary David Cohen estimated that ISIS probably earned $1 million a day in June—before the anti-ISIS coalition intervened. That estimate held up until February 2015 when Cohen said ISIS revenues had fallen to just $2 million a week (or ~$300,000 a day). At that point, U.S. officials became convinced oil was not the top money maker for ISIS; instead the group relied more on taxation, tolls, ransom and theft. Official estimates came with big caveats but the U.S. government apparently believed it had cut down ISIS oil revenues by two-thirds.

That estimate lasted until July, when Treasury’s Assistant Secretary for Terrorist Financing Daniel Glaser concluded that oil ranked third among ISIS revenue streams, but it was still significant. “Earlier this year ISIL made about $40 million in one month, off of the sale of oil. So if you want to extrapolate that out, you get to about $500 million in the course of a year,” he said. $500 million a year works out to almost $1.4 million a day, which is almost a five-fold increase from the lowball claim made in February. (FT estimates revenue at $1.5 million a day as well.) [Continue reading…]

See also Part Two of this report.

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Saudis risk draining financial assets in 5 years, IMF says

Bloomberg reports: Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the International Monetary Fund said, underscoring the need of measures to shore up public finances amid the drop in oil prices.

The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said.

Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit. Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. [Continue reading…]

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Saudi Arabia targets Russia in battle for European oil market

Reuters reports: From global majors such as Shell and Total to more modest Polish energy firms, oil refiners in Europe are cutting their longstanding use of Russian crude in favour of Saudi grades as the world’s top exporters fight for market share.

Russia has for years been muscling in on Asian markets where Saudi Arabia was once the unchallenged dominant supplier. But now Riyadh is retaliating in Moscow’s backyard of Europe with aggressive price discounting.

This has nothing to do with Western sanctions imposed on Russia over Ukraine, which apply to energy industry equipment but not to oil or gas itself. Instead it is a commercial battle for customers as both exporters ramp up their output despite weak world oil prices. [Continue reading…]

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Oil nations feel the strain of  OPEC’s continuing price war

The Telegraph reports: Oil is arguably Saudi Arabia’s best weapon against both Russia and Iran. Although the kingdom’s finances are under severe strain from the collapse in export revenues it can still fall back on its $655bn (£423bn) of foreign assets while Russia and Iran will feel the impact of another year of weak oil prices more acutely.

After a year of carnage in the oil industry, it is now clear that it will take more time for Al-Naimi’s strategy of allowing weaker prices to do the job of totally shutting down higher cost producers.

A 60pc slump in oil prices since last November has caused havoc but the main target of Opec ‘s campaign, shale oil in the US, has so far proved to be remarkably resilient.

Hardest hit have been the high cost producers in areas such as the North Sea where prices below $50 per barrel have placed the entire offshore industry at risk.

Energy consultant Wood Mackenzie now fears that 140 fields in the waters off north-east Scotland, where oil has been pumped since the 1970s, could be closed down over the next five years if oil prices remain so low. [Continue reading…]

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Indigenous Canadians take leading role in battle against tar sands pipeline

The Guardian reports: Chief Na’Moks stood in the dark of a small smokehouse nestled in the Coast range of British Columbia. Hanging above him were nearly a thousand fish which glinted over the fire below.

“For us, it’s one of the most highly prized commodities that we have,” he said, pulling one of the glistening candlefish off the rack. “People don’t get why we want to keep what we have. We don’t want anything from anyone. We just want to keep what we have.”

Not so long ago, the chief’s ancestors traded fish oil along the grease trails up and down the coast of British Columbia. Today, however, Chief Na’Moks and many other First Nations leaders are at the forefront of a struggle against a very different kind of oil business: Canada’s largest proposed tar sands pipeline, the Northern Gateway.

It is the country’s environmental battle of the decade, uniting a wide variety of citizens’ groups against the billions of dollars of investment by oil companies and millions in secret funding from the government. First proposed in 2004, the Enbridge Northern Gateway pipeline was planned for a 731-mile (1,177km) stretch from the center of Alberta to the coast of British Columbia. [Continue reading…]

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How ISIS became a petrostate

The Financial Times reports: Minutely managed, Isis’ oil company actively recruits skilled workers, from engineers to trainers and managers.

Estimates by local traders and engineers put crude production in Isis-held territory at about 34,000-40,000 bpd. The oil is sold at the wellhead for between $20 and $45 a barrel, earning the militants an average of $1.5m a day.

“It’s a situation that makes you laugh and cry,” said one Syrian rebel commander in Aleppo, who buys diesel from Isis areas even as his forces fight the group on the front lines. “But we have no other choice, and we are a poor man’s revolution. Is anyone else offering to give us fuel?”

Isis’ oil strategy has been long in the making. Since the group emerged on the scene in Syria in 2013, long before they reached Mosul in Iraq, the jihadis saw oil as a crutch for their vision for an Islamic state. The group’s shura council identified it as fundamental for the survival of the insurgency and, more importantly, to finance their ambition to create a caliphate. [Continue reading…]

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