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The Truth Behind Syria’s Oil Tanker Attacks

Warships

Syrian Kurd Oil Deals and Tanker Attacks

On Friday, Qatari and Turkish media were reporting that US-led coalition airstrikes took out three oil tankers in targeted airstrikes in eastern Syria, while Kurdish media invariably reported that the tankers were targeted with machine-gun fire and an anti-tank missile that made a direct hit on one ferry belonging to the regime. The oil was being transported from Syrian Kurdish territory (which the Turkish media refers to as territory “besieged by terrorist YPG/PKK”) to regime territory. The question to examine here isn’t whether the tankers came under fire by machine guns or missiles, but why the US-led coalition is now gunning for YPG (Syrian Kurd) targets.

The oil came from the Tanak fields near the Iraqi border. Indeed, the majority of Syria’s oil comes from territory controlled by the Syrian Kurds in Deir el-Zour, nominally under the YPG. All Turkish media describes the YPG as a “terrorist group”. They also play up these attacks exponentially, describing them as major airstrikes that create an image in the mind of huge tankers being blown up. Our intelligence on the ground suggests that one regime tanker was attacked with a missile over the weekend, while a convoy of YPG tankers were targeted with machine-gun fire in a less decisive attack.

US media do not report on these incidents, largely because the coalition does not issue any statements confirming them, but also because there seems to be some sort of intellectual embargo on anything that happens in Syria that doesn’t have to do with toxic gas, or that doesn’t have to do with carnage wrought by the regime itself.

The wider game being played out on this venue is a proxy war that involves a multitude of regional players centered around the Iran-Russia “axis” and the US-Israeli (plus Saudi/UAE friends) “alliance”. This means that readers must navigate reports based on their origins. Turkish and Qatari media have their own agendas here. Turkey’s is to report anything that rallies opposition to the Kurds and any chance to portray them as “terrorists” in Syria, particularly as they have been a long-time ally of the US against Assad.

So, why would the US attack tankers on Syrian Kurdish-controlled territory? After all, this is the territory through which the US operates in Syria, and the Syrian Kurds (in the form of the YPG) are allies of the US in this fight. That alliance has been in question since Trump called for a withdrawal of forces from Syria and began distancing the US from outright support for the YPG. When you nominally lose one ally, you look for another for support, and in this case, it’s the Russians, which also means selling oil to Assad, but that is not necessarily anything new. Nor are the Russians an ideal ally for the Kurds here because they will double deal with the regime and with Turkey.

But what investors and other observers should be aware of is the timing of the most recent targeting of oil tankers by the US-led coalition: In the last days of May, amid an escalating gasoline crisis, the YPG cut a deal with the regime to sell crude from Tanak for $41/barrel. Taking potshots at those first oil tankers carrying this new-deal oil was Washington’s response. Nor has it, until a couple of months ago, shown any problem with YPG selling crude to the regime. And there is a difference in the way that the US-led coalition chooses to target regime-owned tankers versus YPG tankers.

But it’s also important to consider the oil prospects in Syria, because at the end of the day, this entire conflict was about an oil pipeline, and now it’s about controlling Syria’s oil, its prospects in the massive-potential Levant Basin (where Israel made it’s huge gas find) and transit. At its peak, Syria can produce around 350,000 bpd onshore, and it’s only producing a fraction of that right now, but most of it is in YPG-controlled territory, including the country’s biggest field. The US distancing itself from the Kurds here is a boon for the Russians, who have largely secured their foothold in Syria’s oil future thanks to Trump’s move. The US can take pot shots at tankers here, but at the end of the day, this is a Russian game now and it won’t be more than an irritant.

The YPG control of Syrian oil is a nightmare for the Turks because not only is it bolstering the Kurds through sales of oil to Assad, but it’s also filling their coffers through the sale of oil to the Iraqi Kurds, who refine it and then transport through the Ceyhan pipeline, which is in Turkey. So at the end of the day, the irony is that the Turks are bankrolling their enemy to some extent. This is how Syrian oil can get out of Syria and onto world markets, albeit in very small amounts. And it helps that Russia’s Rosneft largely controls Iraqi Kurdistan’s export pipelines at this point.

In the meantime, Iran is believed to have resumed the transport of gas to the Assad regime in Syria. That is a clearer violation of the embargo on the Assad regime, while buying oil from the Syrian Kurds on the territory of Syria is a bit more difficult to count as a violation of the embargo; hence the pot shots at the tankers.

Another Algerian Setback (at least for the military clan)

In another major victory for Algerian protesters, the country’s constitutional council has cancelled new presidential elections for July 4th. These elections would have solidified the control of the military clan that has taken over and sidelined the presidential clan since the resignation of long-time leader Abdelaziz Bouteflika. At stake is the massive reform of Sonatrach, the country’s state-run oil giant, which operates as an entrenched part of the political and policy-making system. There is no chance for these reforms to restart in what promises to be a lengthy and difficult transition period, and the interim, military-led regime is bent on targeting Sonatrach in corruption investigations. And once a transition is complete, we do not expect any sweeping changes in terms of how Sonatrach operates. It is already clear that the interim government will not reform it to the extent of removing the 51% stake that Sonatrach must have in any project owned by a foreign company.

Potential Trouble for BP in Senegal

In what is turning out to be a major trend across Africa, opposition politicians in Senegal are now calling for an investigation into alleged fraud in connection to two major offshore gas blocks operated by BP. The issue here is a journalistic investigation that uncovered a corrupt deal in which BP allegedly agreed to pay infamous African resources middleman Frank Timis, a Romanian-Australian, some $10 billion in royalty payments for its stake in the blocks. The questionable deal dates back to 2014, when Timis allegedly also paid $250,000 to Agritrans (a company run by the brother of the Senegalese president). BP denies every aspect of this narrative.

These are not good times for Frank Timis (or other corrupt deal-making middlemen who have long enjoyed bought-and-paid-for relations with African ruling elite, such as Israeli Dan Gertler), who also ran into major problems in Burkina Faso about this time last year, when the government decided to terminate his contract to develop one of the world’s largest manganese mines through Pan African Burkina Ltd.

Similar types of investigations have just led Glencore’s oil boss (Alex Beard) to quit, particularly with relation to Glencore’s use of Gertler for African deals.

Global Oil & Gas Playbook

Markets

- Overseas buyers are scooping up US medium-sour crudes originating from the Gulf of Mexico, with data showing a record number of six supertankers being loaded at LOOP (the Louisiana Offshore Oil Port) for late May and early June - that’s double the loadings in December.

- Venezuela’s state-run PDVSA has seen oil exports drop another 17% in May, reflecting the winding down of purchases in compliance with the US sanctions regime. That puts production now at around 875,000 bpd.

Deals & Contracts

- Colombia is offering up 11 E&P contracts for which seven companies have bid (out of some 24 pre-qualified). Ten of the 11 blocks are onshore, and results will be released in mid-July. The seven bidders include, most notably, Frontera Energy, Geopark, Ecopetrol and Gran Tierra.

- BP has sold its Egypt Gulf of Suez concessions to the UAE’s Dragon Oil, a subsidiary of the Dubai national oil company. BP’s plan is to divest some $10 billion in global assets over the next two years.

- Ithaca Energy is set to acquire 10 producing fields in the UK North Sea from Chevron, scooping up around 80,000 bbl/d of oil equivalent (based on 2019 production levels).

- Brazil’s state-run Petrobras is selling two onshore concessions in the Rio Ventura and the Reconcavo Cluster, in the state of Bahia, which most notably have an average production of around 1.5 Mmcf/d of gas and 20.7 million cubic feet per day, respectively.

- The UK Oil and Gas Authority (OGA) has offered 37 license areas over 141 blocks as part of the 31st Offshore Licensing Round. A total of 30 companies will bid on acreage here in frontier areas (Faroe-Shetland Basin and the Moray Firth). The next round is scheduled for later this summer and will include exploration and development opportunities in mature areas of the UK Continental Shelf.

- Marathon Oil has sold its 15% interest in the Iraqi Kurdistan Atrush Block, as foreign investors (aside from Russian) divest from a complicated venue embroiled in an ongoing battle over oil with Baghdad. The block sold to Canadian ShaMaran Petroleum for $63 million, finalizing Marathon’s exit from the KRG. The block is estimated to hold nearly 103 million barrels of recoverable oil and was discovered in 2011, with production launched in 2017.

- Toshiba is planning to sell its Texas-based US LNG business to French Total after the original deal to sell to the Chinese fell through. The deal still requires US regulatory approval.

Discovery & Development

- Italian ENI has made another light oil discovery offshore Angola, in Block 15/06. That would make Eni’s fifth discovery in a year in Angola. Drill results indicate 300-400 million barrels of light oil in place in the newest discovery.

- Israeli gas firm Delek is planning to begin gas exports from its giant offshore Levant Basin fields (Tamar and Leviathan) to Egypt by the end of this month, targeting $15 billion in natural gas exports. The gas will transit through the subsea EMG pipeline that runs from Israel to Egypt and which is presently undergoing technical testing.

Legal & Regulatory

- Norway narrowly averted a strike this week before oil workers clinched a wage deal Tuesday with employers after threatening to shut down nine offshore fields producing 440,000 bpd.

- While the general understanding is that the Iraqi Kurds have already lost the Kirkuk oilfield to Baghdad, the Khurmala Dome is still in the hands of the Kurdistan Regional Government (KRG), and Iraq’s state-run North Oil Company wants it back, which would cripple the KRG. The Khurmala Dome, part of the Kirkuk oilfield, accounts for over 30% of Iraqi Kurdistan’s oil production. The Iraqi NOC has filed a lawsuit to attempt to reclaim the Dome. This is just one facet of the ongoing oil dispute between Erbil and Baghdad. The Khurmala Dome produces approximately 160,000 b/d.

- Libya’s National Oil Company president alleges that the eastern NOC (aligned with General Haftar) is attempting to sell crude unilaterally to small companies at below-market prices despite UN restrictions. In earlier briefings, we noted that Haftar may move to sell oil on his own.




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