MS Risk Blog

Questions Surface About Whether Turkey Really Gets Its Oil from IS

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In early December, Russian President Vladimir Putin suggested that the decision by Turkey to shoot down a Russian military aircraft in late November was “dictated by the desire to protect the oil supply lines to Turkish territory.” His remarks, which occurred at a news conference on 1 December, effectively implied that the Turkish government was not only complicit in the smuggling of oil produced in areas of Syria that are controlled by the so-called Islamic State (IS) group, but that it was also so heavily committed to this trade that it was willing to provoke an international crisis in a bid to protect it.

While it is doubtful whether President Putin genuinely believes this accusation, it has raised the issue of the possible dealings between Turkish government agencies and IS. Furthermore, by putting forth such an accusation, President Putin has the chance to gain propaganda points in his tussle with Turkish President Recep Tayyip Erdogan and in some ways, it may legitimize recent Russian attacks on targets in parts of Syria that are held by non-IS rebel forces backed by Turkey. Amongst these attacks were the destruction of a large bakery built by the Turkish IHH Humanitarian Relief Foundation.

While the ongoing Syrian conflict has given rise to an extensive war economy, in which deals are struck between a number of partners, that include groups that are fighting each other on the battlefield, the smuggling of oil and petroleum products from Syria into neighbouring Turkey has been going on for decades, as traders and security officials have cashed in on the difference in prices that have been created by the heavy subsidies in Syria.

However with the ongoing civil war in Syria, the trade of oil and petroleum products has vastly evolved and in 2014, it saw IS take over much of the production of crude and refining business along the Euphrates river valley. This effectively represented about one-third of the country’s pre-conflict oil capacity, with most of the remainder under Kurdish control.

While there are many steps before oil produced under IS control reaches an end-user, it is highly likely that Turkish business people, customs officials and intelligence agents are amongst the people implicated. However it must be noted that the scale of the entire trade is small compared with Turkey’s own energy economy, in which Russia plays a dominant role. Furthermore, most of the participants are within Syria.

According to widely reported estimates, in mid-2015, oil fields under the control of IS produced between 30,000 and 40,000 barrels per day. Sources have disclosed that the supply chain entailed IS selling crude to traders, who would then transport it to small refineries that were set up in IS-controlled areas. The petrol and diesel produced in these refineries was then sold across Syria and Iraq, while any surplus was smuggled across the border, mainly to Turkey. While the quality of these products was poor, many buyers, particularly those in rebel-controlled areas, had little other option and typically paid a heavy premium over international prices. While IS was able to profit from the well-head sales, as well as gain from taxes along the supply chain, the profitability of the Syrian illicit oil trade was hit by the collapse in world oil prices in October 2014.

Oil purchased at the well-head for US $20 – 25 per barrel in mid-October could end up in Turkey being sold at below the world market price of over US $100/barrel, effectively yielding health profits to everyone involved. For a trader to make a profit selling bad quality Syrian products in Turkey now the well-head price would have to be much lower, and this would not necessarily make commercial sense for IS.

Since mid October-2014, the IS oil business has been further hit as US and French jets have started to target well-head facilities and tanker trucks for the first time. Furthermore, Kurdish and local Arab rebels have also seized an oil field from IS in the southern province of Hassakeh.

Turkey relies almost entirely on imports for its total oil consumption, which is about 720,000 barrels per day. A large number of those imports come from Russia. In 2014, Russia also supplied 27 billion cubic metres of natural gas to Turkey, effectively representing 56% of its total consumption. Russia was also Turkey’s largest source of imports, supplying goods worth US $2.3 billion, or more than 10% of Turkey’s total imports.

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