The Syrian Oil Report

Syria has around 2.5 billion barrels of crude oil, which makes it the largest in terms of proven reserves in the eastern Mediterranean, but overall in the global scheme of things, a small player, accounting for less than 1% of the world's output. But this onshore oil-largely concentrated in the east and northeast--was in the past a critical element of the country's economy, at one time accounting for more than 25% of Syria's economic output. Production has now fallen by 95%, while the government has lost control of the oilfields and Islamic rebel groups are engaged in bloody rivalry over them. Once the dust settles, exploration and production companies will also be eyeing Syria's oil shale potential, which the government estimated in 2010 to be as high as 50 billion tons. Offshore, in Syria's portion of the Levant Basin-where Israel has already made hefty finds and Lebanon hopes to start exploration if it ever manages to install a new Cabinet to pass the necessary legislation-Russia is closing in already.

Onshore, the situation right now is untenable. Islamic rebel groups are vying for control of the oilfields in the Deir az-Zor (Deir al-Zor) province, and Assad is has little choice but to deal with them as they hold the country's energy hostage for all intents and purposes. This means more funding for these Islamist rebels, which Assad is hoping to use to his benefit by getting the West to respond to the situation under the umbrella of the "war on terror".

The most recent development as of 10 February is that one of two key al-Qaida-linked groups has withdrawn from Deir az-Zor having temporarily lost out to its rivals. There are two al-Qaeda splinter groups-both taking their cue from Iraqi jihadists-trying to control Syria's oil: the Al-Nusra Front and the Islamic State of Iraq and Greater Syria (ISIS). On 10 February, reports began to emerge that ISIS had withdrawn from the province after heavy fighting with Nusra. ISIS has apparently been pushed back to Raqqa province, its stronghold, and Hassaka province.

The dynamics between these former allies is complex. In January, several secular rebel groups and the Islamist al-Nusra began a campaign to push ISIS out of the province starting a complicated battle over territorial and ideological differences. ISIS' forces are small in number, but they continue to gain new Iraqi recruits and their tactics, including beheadings and terrorizing of civilians, has alienated them from the rest of the rebel outfits. In this microcosm of the Syrian civil war, over 2,300 rebels have reportedly been killed since the beginning of January alone.

On an "ideological" level, the difference between the two Islamic groups is largely over timing. ISIS was trying to set up Islamic caliphates as it went alone, seizing territory and immediately installing Islamic law. Al-Nusra apparently believes it is necessary first to topple Assad and then to install an Islamic government across Syria. The secular rebel groups for now favor Nusra's approach as the lesser of two evils, and the one that buys it more time to maneuver if they manage to overthrow Assad.

Where does this leave the oil? Deir az-Zor is now controlled, as of 10 February, by al-Nusra and some 10 other rebel groups. This leaves millions of Syrians without power unless Assad cuts deals with the rebels to buy this oil.

The oil supply is controlled from these fields by a network of pipelines running to the key population centers westward. The bulk of the deals are made by al-Nusra with local tribes. But al-Nusra does not control all the fields and supply. There are other actors here who are using this to profit from an illicit trade in oil. These organized criminals, or war profiteers, add another element to the complicated equation.  

Further complicating the playing field has been the European Union, which has demonstrated a gross lack of understanding of the situation. In the fourth quarter of 2011, the EU banned imports of Syrian oil hoping to punish the Assad regime. In April 2013, it removed that ban in an effort to support the "Syrian opposition" by buying oil from them, viewing the situation as one of rebel control of the country's oilfields.  The EU approved imports of oil and petroleum products from Syria, exports of oil and gas equipment and technology to Syria, and investment in the oil and gas industry in Syria.

Offshore oil and gas is another matter, entirely. No one controls the offshore, but there's nothing to control yet at any rate. Oil & Energy Insider broached the subject of Syria's offshore oil and gas potential in an Executive Report in April 2013. At the time, we noted that in 2011, shortly before the conflict broke out, the Syrian government was preparing to begin bidding for its first offshore exploration blocks in the Levant Basin region, the geology of which is highly prospective with Syria afforded three key basins to tap into: Cyprus, Levantine and Latakia.

According to the US Geological Survey, the Levant Basin, which covers Israel, Syria, Lebanon, Cyprus and Palestine, contains around 122 trillion cubic feet of gas and at least 1.7 billion barrels of oil. The Israeli discoveries in the Levant basin, at its Leviathan and Tamar fields, have brought this into clearer focus. We noted, specifically, that "this is the thing to watch as the end game for the Syrian conflict unfolds."

That end game is indeed panning out in Russia's favor. In late December, Syria signed its first-ever agreement for joint oil exploration off the Mediterranean coast. There was no bidding. The deal went to Russian oil and gas company SoyuzNefteGaz.

Under the terms of the 25-year contract, SoyuzNefteGaz will perform offshore drilling, development and production activities in Syria's territorial waters. The agreement covers 2,190 square kilometers in the Mediterranean waters, at an initial cost of some $90 million, all assumed by SoyuzNefteGaz. It's a deal that Syria's opposition has roundly condemned as they believe Syria's offshore oil blocks are being swapped for weapons that will be used to quell the rebellion.