Navigating the Complexities: Assessing the Viability of Reestablishing Syrian Iraqi Oil Transmission Pipeline

Mohamed Badr Alzeer

BEng Mechanical Engineering & MEng Engineering Management

November 7, 2023

Mohammed Badr Alzeer

Abstract

Discovering innovative methods to export Iraq's extensive reserves of crude oil has consistently remained a
significant priority for Iraqi authorities. The decision-makers in Syria, driven by their desire for favorable oil
prices, economic advantages, and strategic goals, have also played a pivotal role in shaping this endeavor.
Consequently, both countries have made persistent efforts to strengthen their collaboration within the oil and
gas sector, primarily through the establishment of a prominent oil pipeline that significantly influenced the
energy landscape of the 20th century. The relationship between Iraq and Syria has experienced fluctuations due
to various internal and external factors, often linked to the broader conflicts among different powers in the
Middle East. However, despite the undeniable socioeconomic importance of any initiative aimed at reinstating
the flow of Syrian Iraqi oil through Syria, current geopolitical challenges, which are intertwined with local,
regional, and global conflicts over energy control routes, appear to impede any progress in this direction.

Keywords: Transportation Pipeline; Cross-Country Pipelines, Middle East

Introduction

On May 4th, 2023, the Iraqi Trade Minister announced ongoing efforts to enhance economic cooperation with
Syria, particularly in the realm of oil and gas. During discussions with the Syrian side, the revival of the Banias-
Kirkuk pipeline emerged as a pivotal topic, with both countries poised to reap substantial benefits from its
restoration. One potential scenario under consideration is that the Syrian government would handle essential
tasks within its borders, while the Iraqis would oversee rehabilitation on their territory (SPUTNIK, 2023).
Similarly, the spokesperson for the Iraqi Government expressed the country's readiness to engage in talks with
Syria regarding the rehabilitation of the Banias-Kirkuk pipeline, noting that: “This initiative is predicated on
Syria's possession of renowned ports along the Mediterranean Sea. If Syria were to commit to a development
roadmap encompassing land and rail links connecting its ports with the Iraqi Syrian Turkish triangle, it could yield
significant financial advantages.” (RT, 2023). The vital significance of the Iraq-Syria border has ensured its
constant inclusion in various dialogues, often being a focal point for enhancing the interconnected ties between
Iraq and Syria. It has also become a key consideration in the efforts of pro-Iran groups who seek alternative
options to the Iraqi Turkish pipeline passing through Kurdistan. Additionally, it is sometimes seen as a component
in power plays between the United States and Russia in the region (Sky news Arabia, 2023).

Methodology:

The evaluation and analysis of factors impacting the potential reoperation of the Syrian Iraqi oil pipeline have
been conducted utilizing the PEST framework. This framework systematically assesses the external
environment's political, economic, social, and technological elements. Furthermore, an extensive review of
pertinent scholarly articles and media reports was undertaken. The overarching objective of this research is to
provide a comprehensive perspective on the historical context, current dynamics, and future prospects related to
the resumption of Iraqi oil transmission through Syria.

Historical Background:

1931 – 1982:

The period from 1930 to 1982 can be characterized as the "Golden Age" of oil pipeline collaboration between
Iraq and Syria. This era was marked by significant developments in the oil industry and diplomatic agreements
that facilitated the transportation of oil between the two countries.

The genesis of this collaboration can be traced back to the "Red Line" agreement established on July 28, 1928, as
a result of Western powers' interest in Arab oil resources. This agreement led to the formation of an
international consortium known as the "Iraq Petroleum Company" (Fitzgerald, 1991). Subsequently, in 1934, a
12-inch pipeline with a capacity of four million tons per year was constructed. Notably, in 1946, a parallel 16-inch
pipeline was built to extend to Tripoli, Lebanon, and Haifa, Palestine. However, the latter pipeline was closed in
1948 following the establishment of Israel.

To enhance the flow of oil and regulate it effectively, four pump stations were strategically constructed along the
pipeline route in Syria and Iraq. These pump stations included the first station (T1) located in proximity to
Haditha in Iraq, the second station (T2) positioned 60 kilometers southwest of Al Bou Kamal, the third station
(T3) near the town of Palmyra, and the fourth station (T4) approximately 100 kilometers east of Homs – see
Figure 1-.

A significant milestone was reached in 1952 when a 30-32-inch pipeline connecting Kirkuk, Iraq, and Banias,
Syria, was completed, boasting a capacity of 14 million tons per year. This development increased the overall
capacity of the system to 16 million tons per year. However, during the 1956 Suez Crisis, these pipelines suffered
substantial damage, although they were later repaired. In 1971, the IPC pipelines to the Mediterranean achieved
an average daily throughput of 1.1 million barrels of crude oil per day. This accounted for a substantial portion of
Iraq's total exports, representing 95.9%, and contributed significantly to the government's revenue, constituting
80.4% (Stevens, 2000).

The trajectory of this collaboration underwent a significant shift in 1972 when IPC was nationalized. This move
resulted from a series of political and economic disputes involving the British government and Arab nationalists
in Iraq and Syria (Brown, 1979). Consequently, the company was renamed the Syrian Company for Oil
Transportation. However, a new agreement was eventually reached between Iraq and Syria, allowing oil
transportation through IPC pipelines to continue, and a capacity increase of 200,000 barrels was achieved
through the construction of the Entrepose pipeline in 1975. Pumping, however, faced a suspension in 1976, and
it was not until 1979 that it resumed, albeit with modified offtake arrangements. Unfortunately, political tensions
between Syria and Iraq escalated, leading to the permanent closure of the pipeline in April 1982 (Stevens, 2000).

Figure 1. The Red Line, reproduced from (Quentin)

1982-2011:

Following the cessation of oil pumping between Kirkuk and Banias, the Syrian government adopted an
alternative approach to meet its oil requirements. It utilized Banias's terminal to import the necessary oil needed
to power the Homs refinery, which was the sole refinery operational during that period. This unconventional
method involved pumping the imported oil in reverse through the pipeline, from Banias back to Homs.

The consequences of the closure of the Banias-Kirkuk pipeline had a dire implication for the Syrian economy.
Syria had previously benefited from low offtake oil prices, amounting to $2.75 per barrel. However, the pipeline's
closure forced Syria to procure oil at a significantly higher market price, exceeding $12 per barrel (SCOT, 1986).
This stark increase in oil costs played a pivotal role in the sharp devaluation of the Syrian Pound during the
1980s. Contrary to prevailing narratives, which attributed the currency devaluation to political conflicts between
President Hafez Al-Assad and his brother Rifaat, it is argued that the primary cause was the economic impact of
the pipeline closure.
A similar economic downturn was witnessed in Lebanon during this period. While the common explanation for
the collapse of the Lebanese Pound attributes it to the withdrawal of Palestinian funds from Lebanese banks, an
alternative perspective posits that the collapse coincided with the complete cessation of the Iraqi oil exports
through the Tripoli port, and so, the transmission tariffs previously contributing to the Lebanese treasury were no
longer available (dgo, 2023). It may not be the sole reason, but it definitely played a crucial role in both
countries’ pound degradation.

Between 1986 and 1995, a surge in oil discoveries occurred in the northeast Syrian oil fields. During this period,
the nationalized IPC network was repurposed to transport light crude oil from the Deir Al-Zour oil fields. This was
achieved by connecting the upstream network in Deir Al-Zour with T2. Consequently, the pipeline played a crucial
role in transporting Syrian light crude oil through the Banias terminal, and providing a reliable source of oil for
the operation of the country's only two refineries located in Homs and Banias (CEIC, 2021).

In the early 2000s, numerous attempts were made to revive oil flow through the pipeline. In 2001, Syria and Iraq
reached an agreement to gradually resume pumping. Subsequently, substantial efforts were invested in repairing
the pipeline to enable it to pump 80,000 barrels per day. This capacity gradually increased to 120,000 barrels per
day in 2002, and it eventually reached 165,000 barrels per day. Furthermore, work on a 40-kilometer gas pipeline
to power the gas turbines at T2 was completed, contributing to the pipeline's capacity expansion. However, the
supply was abruptly halted in May 2003 due to the U.S. military intervention in Baghdad.

2011-2023: Turmoil and Fragmentation of Oil and Gas Fields

Starting from 2012, following the loss of control by the Syrian regime over the country's oil and gas-rich regions,
a diverse array of forces took control of key oil and gas fields in eastern and northeastern Syria. These included
local militant groups supported by Arabian tribes, Kurdish parties backed by the United States, the Syrian Free
Army, and radical Islamist organizations like Al-Qaida and ISIS. Some of the area’s most susceptible to extensive
damage, such as the T2 and T3 terminals, fell under the control of these groups, leading to significant destruction
(aawsat, 2023).

However, the T4 terminal remained under the control of the Syrian government throughout the years of conflict .
Its strategic location near the T4 military airport transformed it into a crucial base for countering ISIS and served
as a frontline hub for Syrian and Russian air forces (Reuters, 2018). In 2018, the Syrian army, aided primarily by
militias with Iranian support, managed to recapture the T2 and T3 areas.

Despite the Syrian government's dominance over the pipeline, it remained vulnerable to sabotage by opposition
forces. An example of this vulnerability occurred on August 24, 2019, when an unidentified attack caused severe
damage, resulting in three terminals going out of service and the destruction of six offshore lines in Banias
(Almohrarmedia, 2019). In another incident of similar nature, the Syrian Ministry of Oil reported that frogmen
launched an attack on the subsea lines in January 2020, inflicting severe damage to the Banias terminal
(Skynewsarabia, 2020). Additionally, in August 2021, a drone attack targeted an Iranian oil tanker anchored in
Banias, resulting in the reported deaths of three workers (BBC, 2021). These occurrences underscored the
ongoing challenges and security risks associated with the operation of the Syrian Iraqi oil pipeline.
Struggles to Overcome the Legacy of the Redline Agreement

Prior to the US invasion of Iraq in 2003, both Iraqi and Syrian authorities shared the conviction that it was no
longer viable to rehabilitate the aging IPC Kirkuk-Banias pipeline. Its deteriorating condition was ill-suited to
accommodate the increased flow rates required for oil exports. Consequently, serious discussions ensued
regarding the construction of a new pipeline with a projected capacity of 1.4 million barrels per day. The intent
was for this new line to supplant the aging IPC infrastructure. Unfortunately, the outbreak of the invasion
disrupted these plans (Aljazeera, 2001).

In a similar vein, 2008 witnessed the signing of a memorandum of understanding between officials from both
Iraq and Syria, aimed at establishing new cross-border pipelines for the transportation of oil and natural gas.
These pipelines were intended to originate from the Kirkuk oil fields in northern Iraq and terminate at Bania's
port on the Mediterranean Sea. Officials at Syria's General Petroleum Corporation (GPC) disclosed that the
proposed pipeline would have had an operational capacity of 2.5 million barrels per day. Moreover, it was
envisioned to extend from the Al Basra oil fields in southern Iraq to a designated area near the city of Tartus on
the Mediterranean coast (Reuters, 2008).

Despite the advanced stage reached in discussions between the two countries, these plans never materialized
due to the eruption of the Syrian conflict in 2011. The ongoing turmoil in the region hampered efforts to
implement such ambitious projects, casting a shadow over the prospects of revitalizing the Syrian Iraqi oil
pipeline and reshaping the energy landscape in the region (Bloomberg, 2010).

Finding and Results

Navigating the Political Quagmire

(Abi-Aad & Grenon, 1997) posit that the construction of oil pipelines in the Middle East was primarily driven by
security concerns related to supply and export, rather than the pursuit of lower oil prices . While this perspective
may find agreement when considering countries with ample access to seaports, such as Saudi Arabia, it appears
insufficient when examining countries lacking such maritime advantages, notably Iraq. For Iraq, a central concern
revolves around establishing a cost-effective and efficient means of exporting its substantial oil production, this
may explain why Iraq has tried multiple times to revive its strategic line through Syria.

It is apparent that any endeavor to transport Iraqi oil through Syria has consistently encountered obstacles
rooted in the tumultuous political relations between the two countries. Presently, these bilateral challenges have
evolved into a more intricate and pressing issue, exacerbated by the volatile aftermath of the Arab Spring, which
has given rise to a myriad of micro and macro-level security concerns. These challenges manifest in the form of
various jihadist organizations utilizing the shared Syrian and Iraqi desert as a base (Balanche, 2017).

Furthermore, the escalating conflict between US-backed Kurdish factions and Iranian-supported Arab tribes vying
for control of the oil-rich regions has further obstructed any attempts to revitalize Syrian Iraqi oil cooperation.
The resolution of these disputes hinges on achieving an all-encompassing political settlement, a task that remains
elusive. The localized issues merely reflect the influence of major actors who have impeded similar initiatives in
the past, unless these projects align closely with their strategic interests (aawsat, 2023).
For instance, the presence of the US military in northeastern Syria underscores America's firm determination to
prevent the Syrian regime from benefiting from the region's oil and gas resources. Recent robust actions by the
US and its allies, exemplified by the Syrian Free Army's efforts to curtail the "Iranian Corridor" and exert control
over the border region spanning Syria and Iraq, epitomize the complexity and formidable challenges inherent in
any venture seeking to rehabilitate the pipeline.

Additional factors, such as joint political sanctions imposed by the United States and Europe on the Syrian
regime, serve as further deterrents to substantial investments in the energy sector. The multifaceted power
struggle involving Russia, Iran, and Turkey in Syria also dissuades prospective investors from committing
resources to the region. Similarly, the reluctance within the Arab world to normalize relations with the Syrian
regime and integrate it into broader political resolutions serves to keep the door firmly shut for large-scale
projects in the short to medium term (Reuters, 2018).

As illustrated in Figure 2 These intricate political dynamics and the involvement of multiple stakeholders continue
to cast a shadow over the viability of revitalizing the Syrian Iraqi oil pipeline, rendering it a complex and elusive
endeavor.

Figure 2. The distribution of control by various powers over Syria in 2023, reproduced from (Aljazeera, 2023)

Evaluating the Technological Aspects

A comprehensive examination of the technological facets of the Banias-Kirkuk transportation system provides
crucial insights into the challenges facing its potential revival.

The records from the Syrian Company for Oil Transportation reveal that this system comprises two 30-inch trunk
lines, constructed using various steel grades tailored to specific design requirements. Predominantly, the line
sections are crafted from API X42 and X48 steel, known for their susceptibility to corrosion and relatively lower
strength when compared to contemporary steel grades. Notably, certain segments, particularly those installed
for rehabilitation between 1972 and 2011, consist of Gr B and X52 steel (Alzeer et al., 2023).

An issue of paramount concern arises when considering the condition of the pipeline before and after 2011. Prior
to this critical juncture, numerous inline inspections consistently exposed extensive corrosion throughout the
line. This extensive corrosion implies that the pipeline's reliability for handling high flow rates was considerably
compromised.

However, the challenges did not end there. Post-2011, the pipeline became a target for sabotage attacks, each
exacerbating the already precarious state of the infrastructure. Some of these attacks were driven by the motive
to pilfer equipment, subsequently selling it on the clandestine market to finance the agendas of various warlords
(Butter, 2014). Others resulted from coalition attacks targeting ISIS, which actively exploited such facilities during
its period of dominance in the region.

The Syrian government's estimate of the cost required to rebuild the damaged infrastructure stands at a
staggering $6 billion. This figure underscores the magnitude of the technological overhaul needed to render the
pipeline operational and reliable once more. The corrosion issues, coupled with the persistent vulnerability to
sabotage, add layers of complexity to the technological aspect of any rehabilitation efforts.

In light of these substantial technological challenges and the associated costs, it becomes evident that
reactivating the Banias-Kirkuk pipeline is a formidable undertaking, demanding not only significant financial
resources but also innovative engineering solutions to ensure its durability and security.

Balancing Financial Risks and Economic Gains

The revival of the Banias-Kirkuk pipeline project presents a conundrum in terms of financial risks and potential
economic benefits. A detailed examination of the costs and returns underscores the complex financial dynamics
involved.

As it stands, the utilization or rehabilitation of the existing IPC line is deemed impractical due to its deteriorated
condition. Therefore, the most viable option is the construction of an entirely new pipeline. According to an
Iraqi expert the estimated cost for this endeavor is approximately $8 billion (Sky news arabia, 2023). This
substantial investment includes not only the pipeline itself but also the construction of four pump stations,
necessitated by the replacement of existing damaged stations. In addition to that, the project encompasses the
creation of a new single-point mooring terminal designed to accommodate large tankers for loading along with
giant storage tanks, incurring an additional expenditure of approximately one billion dollar. Consequently, the
total project cost is estimated to reach approximately $9 billion.

The financial outlay for this ambitious project is substantial, prompting a consideration of the potential economic
gains. Building the new pipeline would enable Iraq to export more than 1.5 million barrels of oil per day. At an
estimated average oil barrel price of $80 in 2023, this translates to a substantial export value exceeding $43
billion annually.

The economic benefits extend beyond Iraq, as Syria stands to gain significantly as well. The direct revenues for
Syria from transit fees could potentially reach up to $1 billion per year, providing a substantial infusion of funds.
Furthermore, there are potential secondary benefits to be derived from discounts on the offtake, which would
subsequently impact oil product prices in the Syrian market .

This juxtaposition of high financial risk against considerable economic rewards underscores the complex financial
calculus facing stakeholders considering the revival of the Banias-Kirkuk pipeline. While the potential economic
benefits are undeniably enticing, they must be weighed against the considerable financial investment required to
undertake such a project. Additionally, the intricate geopolitical and security considerations further complicate
the decision-making process, necessitating a comprehensive assessment of all relevant factors before embarking
on this endeavor.

Assessing the Social Impact

The potential revival of the Banias-Kirkuk pipeline project carries significant implications from a social
perspective, particularly in light of the challenging socioeconomic conditions in both Syria and Iraq.

In Syria, the prospect of resuming the flow of Iraqi oil through the pipeline assumes heightened importance in
the face of mounting social unrest. The southern region, particularly in Al-Swaida, has witnessed intensifying
protests, largely triggered by the reduction of fuel subsidies (BBC, 2023). These demonstrations underscore the
increasing frustration and anger among the Syrian populace due to deteriorating living conditions. An alarming
statistic reveals that as much as 90% of Syrians now live below the poverty line, reflecting the dire economic
situation.

However, the resumption of oil flow through the Banias-Kirkuk pipeline could potentially alleviate some of these
social challenges. If the two countries reach an agreement for discounted offtakes for Syria, it could lead to a
decline in fuel prices, offering much-needed relief to the Syrian population. Furthermore, the financial revenues
generated from transit tariffs would provide an additional source of foreign currency. This, in turn, could have a
positive impact on the exchange rate of the Syrian pound, potentially reversing the decline that has eroded the
value of public sector salaries. The anticipated economic benefits, if realized, have the potential to enhance
social stability within Syria.

On the Iraqi side, the revival of the pipeline carries implications for addressing poverty and growing injustice. Iraq
faces its own socioeconomic challenges, including a high poverty rate and perceived injustices (Qardaghi, 2023).
The financial gains expected from exporting Iraqi crude oil through the pipeline could play a pivotal role in
advancing Iraq's development-focused strategies. These gains could be channeled into critical areas such as
infrastructure development, with the potential to reduce unemployment rates and strengthen the national
currency. Consequently, the perceived economic benefits could contribute to greater social and political stability
within Iraq.

In summary, the revival of the Banias-Kirkuk pipeline project has the potential to bring about significant social
improvements in both Syria and Iraq. The economic gains, if effectively managed and distributed, could
ameliorate the harsh living conditions faced by the populations in these countries. This, in turn, may contribute
to enhanced social and political stability and support the broader rebuilding efforts in both countries.

In Conclusion
The prospect of commissioning the Syrian Iraqi transmission pipelines, particularly the Banias-Kirkuk pipeline, is
fraught with challenges and complexities, primarily driven by the current political landscape in the Middle East.
While the project holds undeniable strategic importance for both Iraq and Syria, its realization faces formidable
technical and geopolitical obstacles shaped by regional and global dynamics.

The endeavor to resurrect these transmission pipelines, at the present juncture, appears to be an unrealistic
undertaking. Sustainability and reliability, fundamental prerequisites for any pipeline project, are compromised
by the intricate political circumstances that characterize the Middle East. A multitude of regional and global
forces, each with its own interests and agendas, converges on this volatile region, exacerbating the challenges
associated with such a venture.

The political rifts and ongoing conflicts in Syria and Iraq, combined with the emergence of complex security
issues in the wake of the Arab Spring, have created a microcosm of instability that engulfs these countries. The
presence of various jihadist organizations, exploiting the shared Syrian Iraqi desert as a base, further complicates
the situation. Additionally, the rivalry between US-backed Kurdish factions and Iranian-backed Arab tribes for
control of oil-rich areas poses a formidable barrier to the resumption of cooperation in the oil sector.

Furthermore, the influence of global powers on the region, particularly the United States, is evident in the US
military presence in northeastern Syria. This presence is indicative of the US's determination to prevent the
Syrian regime from accessing the region's oil and gas resources. Recent actions by the US and its allies, including
the Syrian Free Army, to close the "Iranian Corridor" and exert control over the Syrian-Iraqi border region
underscore the complex web of challenges facing any initiative aimed at reviving the pipeline.

Economic sanctions imposed by Western powers, including the United States and Europe, on the Syrian regime
further obstruct significant investments in the energy sector. The regional ambitions and conflicts involving
Russia, Iran, and Turkey also contribute to the discouragement of potential investors in the region.

Moreover, the reluctance of Arab countries to normalize relations with the Syrian regime and tie it to a political
resolution remains a significant obstacle to large-scale projects in the short to mid-term.

From a technological standpoint, the condition of the existing Banias-Kirkuk pipeline is a cause for concern. Its
degradation, coupled with its vulnerability to sabotage attacks, raises questions about its reliability, especially for
high-flow rates.

Considering these multifaceted challenges, it becomes clear that recommissioning any transmission pipeline in
the future necessitates an inclusive and comprehensive resolution. Such a resolution must pave the way from the
Iraqi oil fields to the Mediterranean Sea, addressing the intricate political, security, and economic issues that
currently obstruct this ambitious undertaking. Until such a resolution is achieved, the revival of the Syrian-Iraqi
transmission pipelines remains a distant prospect, influenced and shaped by the ever-evolving dynamics of the
Middle East.
Oriental Oil Pt. 1 — Iraq

How Baghdad impacts 'Berta.

WTIRealist

Apr 27, 2023

Iraq is an interesting place — often forgotten in the international oil discussion, it’s the second largest producing
member in OPEC, and the third largest in the broader OPEC+ group, with production comfortably cresting above
4mb/d in 2H22. Iraq produces almost as much oil and liquids as Canada — around 4% of global supply. While
they have certainly had their share of geopolitical struggles, and have failed multiple times to reach the
ambitious goal of overtaking Saudi Arabia’s oil production figures — securing top spot as the world’s biggest oil
producer (in the late 2000s, Iraq had the goal to produce 12mb/d, blandishing headlines eerily similar to today);
Iraq has some serious potential to meaningfully add production over the coming decade. Since the 2003 invasion
by the USA, political instability has been the headline — with little to no relief from deteriorating quality of life,
increasing unemployment, bouts of hyperinflation, terrorism, and growing tensions in the north with the
autonomous Kurdish government, an area in Iraq (and neighbouring countries) that holds up to 45 billion barrels
of oil. This is part 1 in a series where I discuss the state of the industry in countries under conflict, embargo, or
where data is otherwise hard to come by — Libya, Iran, Russia, Algeria, etc. — today we start with Iraq.

To understand Iraq’s oil production potential, you must understand the history, and dynamics of Kurdistan. The
Kurdish people (Kurds) are an ethnic group living in the western parts of Iran, northern parts of Iraq and Syria,
and the eastern part of Turkey, this area (shaded in orange below) is called Kurdistan, with majority of its self-
identified inhabitants living in Iraq and Turkey. For decades, Kurdish nationalists have pushed for an independent
Kurdistan, as early as Iraq’s independence from Britain in 1932 they have been fighting for autonomy. Tensions
rose throughout the 60s when the Kurds (supplied by the Iranians) and the Iraqi government (funded by
Baghdad) clashed, in a conflict that left over 10,000 dead, and lasted almost the entire decade. Between 1970
and the 2003 invasion, Erbil (the capital of Iraqi Kurdistan) and Baghdad (the capital of Iraq) fought numerous
times in bids for the state’s autonomy. In 2005, Iraqi Kurdistan was recognized as an autonomous region by
Baghdad and gained its official independence in 2017.

Though, the contention of natural resource control has remained. The the nature of the basinal geography in the
Middle East is such that the larger structure known as the “Gotnia Sub-Basin” straddles both Iraq and Iran — and
the shape of Iraq means their massive oil deposits are bifurcated between the north (Kurdistan) and the south
(Basra). Much to the chagrin of Baghdad, this means that the Kurdistan autonomous region sits atop ~30% of the
nation’s oil reserves. This is what has been so vehemently contested — Erbil believes they should have autonomy
over the export of their resource, while Baghdad continues to insist the state oil marketer (SOMO) should control
the export of Kurdish oil, depositing the proceeds into a Kurdish state-held bank account at the Iraqi Central
Bank.

In 2014, a lawsuit was brought to the International Court of Arbitration to decide who controlled the claim to
export the oil produced in the (at the time, only autonomous) region of Kurdistan. Throughout this arbitration,
Kurdistan continued to export ~350kb/d of crude through Turkey, to the port of Ceyhan on the Mediterranean
Sea.

In March 2023 — the International Court of Arbitration ruled that Baghdad had control over the export of
Kurdish oil, and flows through Turkey to Ceyhan stopped — they’ve been nil for a month now. Ankara was also
ordered to pay a (net) ~$800m fine to Baghdad — the approximate proceeds they earned as a transit country for
Kurdish crude between 2014 and 2018.

Below is a map that details Iraq’s current petroleum infrastructure. The major fields (Kirkuk in the north, and
Rumaila in the south) are under control of Baghdad (though Kirkuk is in mostly Kurdish territory, it was seized by
the Kurds in 2014 and returned in 2017 following the Kurdish independence referendum). To the west, Iraq
currently trucks oil to Jordan, though in the mid-1900s had a pipeline through Jordan to the Israeli port of Haifa.
There is currently a proposed pipeline project which would bring Iraqi oil to the port of Aqaba in Jordan, giving
Iraqi crude a direct route east through the Red Sea, or west through the Suez and into the mediterranean.

Now defunct, Iraq also had a pipeline running east through Syria, to the port of Baniyas, which was damaged
beyond repair during the 2003 invasion. Since then, Syria and Iraq have attempted to construct a new twinned
pipeline to Baniyas, along with a new natural gas pipeline that would connect Iran, and Iraq with Europe, through
the Aegean states.

The main export line from the north leaves Iraqi Kurdistan through the Duhok province, into Turkey, and reaches
water through Ceyhan. The ruling that Iraqi Kurdistan cannot control their own exports, severely undermines the
region’s independence, as without revenues from oil, their economy is critically stunted. As of now, no
arrangement with SOMO has been made, and Iraqi Kurdistan is not receiving oil revenue. Erbil has agreed to
negotiate with Baghdad, but no agreement has been reached a month later. On April 24th, Reuters reported that
‘Iraq’s northern oil exports show few signs of restarting after stoppage’. On April 4th, a week after the initial
stoppage, Erbil and Baghdad had reportedly reached a deal to restart exports, though exports have not resumed
as they “work to iron out several aspects of the deal”. The arbitration that came in March only covered the
period between 2014 and 2018 — Turkey wants to reach a settlement for oil exported between 2018 and 2023,
but Baghdad has apparently been apprehensive. Approximately 3,000kbbl of tanker capacity has sat moored in
the port of Ceyhan — waiting for flows to resume.

That’s generally what you need to know about the Kurdistan situation. They gained independence, marketed
their own oil, an international court found that in violation of the original export agreement with Turkey, so now
Erbil has to appeal to Baghdad and work out a deal to get their oil to market. This is not an ideal situation for
Kurdistan who has recently gained their independence, as it routes their primary source of government funding
through Baghdad — but if they want to continue to operate their government, it’s imperative they resume
exports. The dynamic between Erbil and Baghdad is certainly changed, but this is a highly tame (and frankly one
of the least bad things that has happened over the past few decades) impasse, and something that will likely be
resolved. Baghdad has shown their willingness to ‘play ball’ with Kurdistan in the recent iteration of the nation’s
budget — but more on that soon.

So, back to the buy-in-large state of Iraq’s oil industry — in 2023, Iraq should produce around 4mb/d, in
accordance with their OPEC+ agreed-upon quota. They have brushed up on 5mb/d before (in 2019), and around
700kb/d of spare capacity post-cut, with 500kb/d of true capacity (able to be sustained for many months).
Relative to reserves though, Iraq is absolutely stacked with resource, at current production forecasts, their total
2PCX reserve life (proved, probable, contingent, and estimated) is ~70 years, which rivals Venezuela, Saudi
Arabia, and the UAE. There is absolutely no shortage of oil in Iraq, and Iraq’s vast reserves are low-cost, relatively
predictable conventional reservoirs, allowing for easy access with no need for fracking such as shale basins in the
US.

Though, the history of field abuse by Iraq has presented a hurdle to seriously becoming the global oil superpower
they had once hoped to be. As of today, they sit with 62 rotary rigs, according to Baker Hughes — they are a
dozen short from their 2019 high, and two dozen short from their 2012 era high, though relative to total OPEC
rigs, they have passed their 2018/19 high and are spitting distance to the 2014 peak. The government has
signalled their intentions to continue to grow production, with the new oil minister of the country aiming for
7mb/d of capacity in 2027.

The thing about Iraq, currently, is they can’t export any potential growth, they are volume constrained in the
south (through Basra, by sea), and in the north (through Kurdistan, to Turkey) — not to mention the non-
mandatory OPEC production quota they agreed to in April, but that isn’t stopping them from growing capacity,
which is the key here. In a 2024/25 market that is likely to be cleared through OPEC spare capacity, it’s as good as
production in my view, and while immediate spot prices may see volatility, spare capacity anchors the back ends
of the curve, which is what really drives an E&Ps valuation (recall the discussion on curve shapes). While Iraq
continues to add rigs, looking historically, any production that wasn’t immediately counted, was added to spare
capacity. When Iraq is growing at 40% a year, they are also drawing down spare capacity. Today, we sit with ~60
rigs, which would imply a ~10%/yr growth rate (+500kb/d) — if that doesn’t make it to production (it won’t), it
will manifest as spare capacity in the coming years.

Iraq has been getting busy indeed — from the Weatherford 3Q22 conference call, CEO Girish Saligram had said
“we see over the next two to three years a tremendous amount of investment and it's in Saudi Arabia. It's in the
UAE. It's in Oman. It's in Kuwait. It's in Qatar. It's in Iraq. So every country – and we are tremendously excited
about the amount of investment that's going on there, the commitment of not just the national oil companies,
but all the affiliated IOCs and their partners into it” (recall that Weatherford sold a chunk of their Iraq rigs to
ADES International who now operates those rigs throughout the Gulf region). Along with Weatherford and ADES,
a handful of international operators, and a few dozen local and Persian Gulf focused services companies are
currently operating in Iraq. There is no shortage of rigs (though only a few which are effectively hot stacked in
the region), and even the ambitious 300 well/yr goal by 2024 should be comfortably accommodated by regional
providers. Like the US, labour is still a concern though the nature of the Gulf state economies, foreign labour
practices, migration, and GDP makeups make it less of an issue. Gulf state government revenue is up to 70% oil
based, while GDP is 30-40% oil based — compared to the US with both categories representing <10% of GDP and
revenue. Western economies are significantly more diversified, allowing people to move between jobs/industry
with relative ease — the same is not the story in Iraq or Iran where the unemployment/labour force makeup is
much different. Skilled labour can generally not move regions or jobs, and unemployment is structurally high
across all sectors. Not to say that they don’t have a labour issue in the Middle East, but it’s (logically and
anecdotally) less of an issue.

Higher activity levels also mean rig contracts are renewed, extended, and added. KCA Deutag has extended or
added a half dozen new rig contracts in the Middle East during 4Q22, with momentum likely to stick. With rigs
being added, at 62 rigs (now) and 70 at EOYe — we’re looking at 10-20% total capacity growth per year, for the
foreseeable future (just going off rig count, not holistically). The capacity growth, I would argue, is more
important than production growth, as it’s what dictates the shape and movement of the strip.

Then, there’s China — there’s always something to do with China. In 2013 China announced their ‘One Belt One
Road’ (OBOR) initiative, wherein they intended to invest five trillion dollars in countries across every populated
continent. The project, lasting through to the PRC’s centennial celebration in 2049, intends to establish (and in
some cases reestablish) economic corridors across Eurasia and Africa, with billions being spent on land and ocean
infrastructure over the past decade, and trillions to come. Below depicts the current state of the Eurasia focused
OBOR programme. Similar to the Silk Road of old, the OBOR initiative pushes to link China to Europe through the
Central Asia, onto Iran, Iraq, Turkey, and up through the Balkans, to Moscow. Both Baghdad and Basra (two of
the major petroleum focused areas of Iraq) have been targeted as majors stops along the OBOR route, one by
land, and one by sea.

Since the implementation of the OBOR initiative, the balance of Chinese petroleum imports has also shifted —
with China concentrating their African purchases from Angola, South American from Brazil, and increasing their
import presence in the Middle East, with the UAE, and Kuwait both joining the ‘major supplier’ club in 2021
(compared to 2015). The Persian Gulf now accounts for ~50% of China’s total crude imports

While Iran and Venezuela are both not shown as major providers (as most imports are unofficial or not easily
tracked), it’s important to note that Venezuela ships its crude through Malaysia, so while it is not considered
currently as a major Chinese supplier, it is understood that Merey and Mesa crude is routed from Venezuela,
through Malaysia, rebranded as Singma or Mal blends, then shipped onto whomever the ultimate buyer may be.
From Iran, China was pegged as unofficially importing as much as 850kb/d in 1Q21, while official imports were
reported as <100kb/d. In 2023, China will likely source ~80% of their total crude imports from just Russia,
Kazakhstan, and the Persian Gulf, compared to ~60% from those countries in 2019, and ~65% in 2015 (the
baseline for the map below).

Unsurprisingly, the countries which China has concentrated their oil imports from, have been major recipients of
foreign investment from the People’s Republic. Both to the excitement, and vexation of spectators. While it has
been estimated that the OBOR plan could add $7tn yearly to GDP by 2040, China has also been long accused of
using ‘debt-trap diplomacy’ in a scheme where they seek to finance countries that may not otherwise be able to
obtain debt, only to assert leverage in the future when the borrowers begin to default, or struggle with
payments.

The main issue with the ‘debt-trap diplomacy’ thesis, is there isn’t really any trap. China issued these loans
outside of the Paris Club (an international standard that is essentially a debt collector/counsellor for struggling
sovereign nations), bilaterally with the borrowing nation, oftentimes competing with support offered by the IMF.
Short of a military happening, there is no recourse to force payment for the debt, besides garnishing cashflow
from the projects — which are mostly non-cashflowing infrastructure assets to begin with. While the OBOR
certainly has the goal of bringing strategic benefit to China (economic influence, access to resources, soft power,
etc.), a ‘debt-trap’ scheme would be a misclassification — it’s more of an ultra-nationalist, fairly open experiment
to consolidate resources and expand their quasi-collectivist leadership throughout Asia. It’s important that the
PRC (and the CCP) continue to proliferate a stance of unity throughout the continent, for their own survival (they
lack natural resources, though have amassed serious human capital).
From the quashing of the Tibet separatists to Muslim camps to fight the Turkestan Islamic Movement, to the
swift reflexive implementation of national security legislation after Hong Kong’s failure to abide by Article 23 —
the CCP has relied on fervid nationalism (and frankly, public anxiety) to maintain both economic utility, and
collective unity. This mentality is being spread through Central Asia using the OBOR as a vehicle in a bid to drum
up access to resources. Iraq is resource rich, and primed for some sweet Chinese intervention, and, no surprise,
in 2021 Iraq received $10.5bn of infrastructure investment from Beijing, one of the largest beneficiaries of the
past few years. The chart below shows the ramp of China’s foreign investment in Gulf states, and the relative
stagnation of investment in non-resource-rich states.

Thursday, November 6, 2014

Syria's Oil Sector in the Fall of 2014

November 6, 2014
Beirut, LEBANON

ABSTRACT — The Syrian energy industry is currently in complete turmoil as a consequence of the Syrian Civil
War, which started in March 2011. After more than three years and a half of civil war, Syria is divided between
warring parties. This paper develops an analysis of Syria's energy industry with reference to the "oil" sector —
the natural gas sector is not considered. Despite scarce and reliable data because of the ongoing war, the first
chapter "The Current Condition of the Oil Sector in Syria" tries to understand the present state of the oil business
in the country. The second chapter "The Syrian Oil Sector: An Overview" presents a general description of the oil
sector as this was before the war. Finally, the third chapter "Will Syria Be an Oil Transportation Hub in the
Future?" considers whether Syria could one day become a Middle Eastern transit hub for oil. This last point is
quite relevant because in the last decades many opportunities related to this goal have been missed.

CHAPTER I — The Current Condition of the Oil Sector in Syria

In fall 2014 discussions about Syria's oil sector are all focused on the Islamic State (a.k.a. ISIS or ISIL) occupation
of large swaths of eastern Syria and precisely of some oil-producing governorates. At the time of this writing,
clashes between the Islamic State fighters and Kurdish groups are taking place in the Syrian town of Kobani,
which is located along the border with Turkey. Kobani, in Aleppo Governorate, is a strategic point for both
contenders: For the Islamic State it is an oil transit route for smuggling oil to Turkey, while for the Kurds it is the
place where to lay a potential pipeline transporting crude oil from Iraqi Kurdistan.
 Syrian Civil War — Current Military Situation
Source: Wikipedia (Nov. 2014)

Already in late 2013, the Syrian government had lost control of the country's most relevant oil fields. In fact, last
August, the Islamic State was in control of six fields in eastern Syria. Some sources affirm that in the Deir ez-Zour
area, the Islamic State manages wells capable of producing 130,000 barrels per day (bbl/d) of mostly crude oil. In
addition to the Kobani battle, currently, there is also an intense fighting in northeastern Syria, in the Hasakah
Governorate, between the Islamic State and the People's Protection Unitis (Y.P.G.), which is the militant arm of
the Kurdish Democratic Union Party (P.Y.D). Syrian Kurds after the beginning of the civil war exerted their control
over this governorate and the P.Y.D. declared self-governance in late 2013. Exercising its power over also this
northeastern corner of Syria — where there is the Rumailan crude oil field — would mean for the Islamic State to
control nearly all of the country's oil fields as well as the access road to northern Iraq. Presently, government
troops by themselves would be absolutely incapable of retrieving the lost ground in northeastern Syria.

Governorates of Syria — Source: Wikipedia

Oil wells permit the terrorist organization an easy access to economic resources, which are of paramount
importance to continue to wage war in Syria and Iraq. Probably, thanks to oil last June, in Iraq and Syria, the
Islamic State was able to raise as much as $2 million a day. After in September, the United States and some allies
have started conducting airstrikes against the terrorist group in Syria, the Islamic State should now control
between Iraq and Syria approximately 20,000 bbl/d of oil from the 70,000 bbl/d that it managed in August. It is
not clear how much the Islamic State is obtaining from its oil trade. But if it were able to sell 20,000 bbl/d at $20
a barrel on the black market, it would earn half million dollars a day. The price for a refined barrel is in the range
of $50 to $60. Most of the Islamic State production is in Iraq and not in Syria.
The Islamic State does not have the skills required to manage the fields under its occupation — in the oil business
it's "upstream" where the Islamic State has its most complex challenges. It probably produces only half the fields'
regular output and, given its lack of expertise and know-how it risks seriously damaging in a permanent manner
the mature Syrian oil fields, which need qualified personnel because they are in the final part of the production
curve. But, if on the one hand, for the Islamic State tapping the resources is not an easy task, on the other hand,
the organization has been quite successful in tapping the smuggling network in order to sell its oil. Oil exchanges
are done in cash through middlemen with no real bank traceability. Airstrikes are also targeting many Chinese-
and Turkish-makeshift refineries (each is able to process around 200 bbl/d of crude oil), which are the tools
permitting the jihadis to wage their war. Reports say that the group is selling crude oil and petroleum products
(gasoline, diesel fuel and propane) to black market dealers in Syria, Iraq, Turkey and Jordan. Some of the dealers
are then reselling petroleum products and crude oil also to the Syrian government.
Oil resources are showing that the terrorist organizations in Syria are not able to run like "real states" wide
expanses of territory where several million people live. The economic model of these terrorist organizations,
based on looting crude oil and economic resources, is not sustainable in the long run. If terrorist organizations
act like countries they have to provide basic government services, which cost money and require a careful
management. Absent a viable economic model, these organizations may become only a sort of failed state (like
Somalia).
One final economic consideration about the Islamic State: In no viable and realistic way can the trade of crude oil
as wells as refined products on a large scale be based on truck exports. In fact, Syria before the war used three
main pipelines in order to move oil from eastern Syria to western Syria where there are the largest cities, the
refineries and the export terminals. Moving crude oil and refined products via trucks means that the business is
not sound and has a scarce sustainability in the long run.
Because of the conflict, Syria is in short supply of heating oil and fuel oil for its citizens. At the start of 2013 Iran
opened a $3 billion credit with the Central Bank of Syria to cover oil supplies (crude oil and refined products) —
this was a part of an overall $7 billion credit. According to Reuters, between February and October 2013, 17
million barrels of crude were shipped to the Baniyas Refinery through tankers from Iran and Iraq via the Sumed
Pipeline (Egypt). In 2012, both Iraq and Iran had already agreed to ship fuel oil and liquefied petroleum gas
(L.P.G.) to Syria.
In specific, since the beginning of the coalition’s airstrikes on Sept. 23, oil prices have skyrocketed in Syria. The
airstrikes against the energy installations are having an impact on the Islamic State but at the same time they
have an impact on the Syrian population, which in the last weeks has seen important increases in the price of
many primary goods (energy and food). And at the beginning of October, the Syrian government decided to
increase the price of oil products (33 percent increase for gas oil and 17 percent increase for gasoline) and to
permit the private sector to import various oil derivatives, which the private sector may then resell only to
industrial concerns — in practice after many decades state monopoly was over. These two decisions make
economic sense because currently neither the Islamic State nor Iran are really able to provide the quantities of
energy (both oil and gas) necessary to run a country like Syria — it seems that the government is buying vessels
also from other countries. And at the same time, the government is not anymore able to subsidize oil products as
it has been doing until recently.

CHAPTER II — The Syrian Oil Sector: An Overview

1) Organization of the Sector — The oil and gas sector is under the control of the Ministry of Oil and Gas.
National Law No. 7 of 1953 established that petroleum resources found in the subsoil and off the Syrian
continental shelf belong to the Syrian state. Later, in 1964, Syria passed Decree 133/22, which limited licenses for
exploration and investment to the Syrian government. Petroleum operations within the Syrian territory are
authorized according to a form of production sharing agreement (P.S.A.), which is granted by the government to
the contractor and the Syrian Petroleum Company (S.P.C.), the state-owned oil company established in 1974. The
majority of the country's P.S.A.s are equally split between the S.P.C. and its partners. In general, Syrian P.S.A.s
last up to 25 years and permit the government to retain a certain percentage of the oil produced as royalties.

2) Reserves, Production and Exports — Historically Syria has never been a major player on world oil markets. But
at the same time, until the recent discoveries of natural gas in the eastern Mediterranean, Syria has been the
only real energy producer in that part of the Middle East that encompasses Lebanon, Palestine, Jordan, Syria and
Israel as well.
According to the Oil & Gas Journal, Syria's proved reserves should be 2.5 billion of barrels as of 2010 — among
neighboring countries only Iraq (and the Kurdistan Regional Government, the K.R.G.) owns a larger amount of oil
reserves.
Before the commencement of the hostilities between the government and the opposition forces, production
amounted on average to 400,000 bbl/d. At the world level Syria was ranked 33rd for crude oil production, i.e., in
2011, 0.4 percent of the world's total production. Already this percentage slid to 0.25 percent the following year.
This reduction was primarily due to two factors: the civil war and the sanctions imposed by the United States
(U.S.) and the European Union (E.U). In February 2014, the Energy Information Administration (E.I.A.) estimated
that the overall Syrian crude and condensates production was 25,000 bbl/d, i.e., one-tenth of the pre-war
production. This number included also the production from the areas under the control of the factions opposing
the government.
On a world scale, Syria's production was not very relevant, but still in 2009 the government derived
approximately 20 percent to 30 percent of its revenues from oil. Before the civil war, Syria collected from oil
around $4 billion per year. Maximum production (610,000 bbl/d) was recorded almost twenty years ago in 1995.
Since then, because of lack of technological development, depleted reserves and petroleum product subsidies
(according to the Middle East Economic Survey, Syria spent $3 billion in subsidies in 2010), Syria started to
import petroleum products. And, already before the civil war, between 2001 and 2011, crude oil production
shrank by 41.2 percent. When between 2006 and 2011, Syria tried to hold four licensing rounds (two onshore
and two offshore) the results were quite disappointing. Only in December 2013, the Syrian government signed a
contract for oil and gas exploration that might be of some importance. The counterpart was the Russian
company SoyuzNefteGaz and the contract was related to survey and exploration for oil and gas in the continental
shelf belonging to Syria from the southern shores of Tartus to the city of Baniyas. The whole area is
approximately 845 square miles.
By now, many international oil companies (I.O.C.s, among them France's Total, which produced on average
39,000 bbl/d in 2010 and Anglo-Dutch Shell, which produced within the joint venture Al Furat Petroleum
Company (A.F.P.C.) 100,000 bbl/d as of May 2011) and national oil companies (N.O.C.s) have ceased their
operations in the country. At present, Western companies are legally prohibited from working in the country.
Before the start of the hostilities, Syria used to export over 150,000 bbl/d of crude oil, whose 99 percent went to
Europe (Turkey included). The main European buyers were Germany, Italy and France, which, after the
introduction of the sanctions against the regime of President Assad, stopped buying Syrian crude. In the end, in
2012, the country became a net importer of oil. Its exports are now zero, at least through official channels.
3) Location of the Oil Fields — Syrian oil exploration began in 1933 during the French Mandate thanks to the Iraqi
Petroleum Company (I.P.C.), but it was not until the 1950s that oil was discovered in the eastern part of Syria
around Souedieh in the Hasakah Province. The oil sector took off only in 1968 when the production of
the Karatchok oil field was connected through a 663-kilometer pipeline to the port city of Tartus on the
Mediterranean Sea. A second area of production was then discovered in the 1980s in the Euphrates Valley, from
the city of Deir ez-Zour to the border with Iraq. Syria did not begin exporting oil until the mid-1980s. All of the
country's exports are marketed by Sytrol, which is the state oil marketing firm (it normally sells oil under 12-
month contracts).
The most important oil fields* are:
 Omar Field (Deir ez-Zour Governorate) — 75,000 bbl/d.
 Thayyem Field (Deir ez-Zour Governorate).
 Karatchuk Field (Hasakah Governorate).
 Jbessa Field (Hasakah Governorate).
 Rumailan Field (Hasakah Governorate) —400,000 bbl/d.
 Souedieh Field (Hasakah Governorate) — 100,000 bbl/d.

* Some production data are missing so there are no clear data about the pre-war production of all of these crude
oil fields.
4) Types of Syrian Oil — Syrian oil fields produce two different grades of crude oil:
 Souedieh Grade (a.k.a. Syrian Heavy) with 22 API grade to 24 API grade and 3.9 percent of sulfur
content.
 Syrian Light with 38 API grade and 0.68 percent of sulfur content.

Prior to the 1980s Syria had produced only heavy grade oil. Then light oil was discovered in the area of Deir ez-
Zour in eastern Syria. These discoveries attracted international interest and some consortiums were formed —
among them the Al Furat Petroleum Company (A.F.P.C.), which is a joint venture between the S.P.C., Royal Dutch
Shell, the Chinese National Petroleum Company (C.N.P.C.) and India's Oil and Natural Gas Corporation (O.N.G.C.).
Syrian Light, which is light and sweet, has similar characteristics to Libyan oil.
In 2011, heavy oil accounted for approximately 60 percent of the Syrian crude oil production. Syrian Light was
mainly used by local refineries in order to manufacture products for the internal market. Indeed, Souedieh grade
is not easy to process and according to a report by the Syrian National Council not many refineries in the world
are able to refine it. In practice, the refining process is technically challenging and expensive. The majority of
these skilled refineries are in the U.S. and in the E.U., although, as of 2011, China was upgrading some of its
refineries in order to process heavy crudes as the one produced in Syria. Many times, a limited number of
markets available to import and refine a specific type of crude oil mean that, in order to find alternative
purchasers, that crude oil has to be offered at a discounted price. The E.U. boycott of Syrian oil is having an
impact in reducing Syrian revenues because Europe with its refineries was one of the most important purchasers
— in 2011 Europe imported 3.6 billion dollars' worth of oil from Syria.
Syrian oil fields are mature and, as such, already before the civil war they underwent enhanced oil recovery
(E.O.R.) techniques that use primarily natural gas. The industry did not have many expected new discoveries in
the years to come. As of 2010, according to the government, Syria should have also 50 billion tons of shale oil
reserves, but its development has now been postponed.
5) Pipelines — Syria does not have any "working" international oil pipeline passing through its territory. The third
chapter will provide some information regarding the two international pipelines that in the past decades had
transported oil across Syria. Neither is working today.
Instead, Syria has four main internal pipelines:
 A 25,000-bbl/d pipeline from S.P.C.'s northeastern fields to the Tartus Terminal. The pipeline has
also a connection to the refinery in Homs.
 A refined-products 500,000-tons/year pipeline system linking the refinery in Homs to Damascus,
Aleppo and Latakia.
 A 100,000-bbl/d spur line from the Thayyem Field and other fields to the T-2 pumping station,
which is on the old Iraq Petroleum Company (I.P.C.) Pipeline, a.k.a. as the Kirkuk-Baniyas Pipeline —
see Chapter III for more information about this old pipeline. The T-2 pumping station is now controlled
by the Islamic State.
 A spur line from the Ashara and El-Ward fields to the T-2 pumping station.

6) Refineries — The country's two state-owned refineries, the one in Homs and the one in Baniyas, are operating
at reduced capacity for lack of oil to refine. Combined, the two refineries are able to process 240,000 bbl/d
(133,000 bbl/d in Baniyas and 107,000 bbl/d in Homs), but also when they were working at full capacity they met
only 75 percent of Syria's pre-war demand of refined products. Because of damages to the infrastructure, it
seems that currently the two plants are working at 50 percent of their nameplate capacity — in particular, the
one in Homs is experiencing more difficulties because of its inland location. The result is a lack of some refined
products for the Syrian population, which, as a consequence, is experiencing an increase in the prices of the few
available petroleum products. Naturally, all of the plans related to the construction of additional refineries have
been delayed or cancelled — among them there was the construction by C.N.P.C. of an oil refinery near Deir ez-
Zour capable of handling 70,000 bbl/d to 100,000 bbl/d.
7) Export Terminals — The two most important export terminals are:
 Baniyas, which can accommodate Aframax tankers up to 120,000 deadweight tons and has a
storage capacity of 437,000 tons in 19 tanks.
 Tartus, which can accommodate up to very large crude carrier (V.L.C.C.) of 210,000 deadweight
tons. A pipeline connects this terminal to Baniyas.

There is also a small terminal in Latakia.

CHAPTER III — Will Syria Be an Oil Transportation Hub in the Future?

Introduction — One initial preliminary consideration: Syria no longer is a Middle Eastern transportation corridor.
The country had lost this role in the 1920s and, only in the past five years before the civil war, it had started to
emerge again as a railroad and road transportation hub with Turkey, Jordan and Iraq. The civil war has now
completely canceled these small improvements. The map and the slide below show the importance of Syria as a
crossroads for international trade.
Syria at the Crossroads by Rich Clabaugh/Staff
Source: The Christian Science Monitor
1) The Twentieth Century — For the majority of the twentieth century, Syria's aspiration to be become an energy
hub toward the Mediterranean Sea and Europe were nullified by Middle Eastern politics. And in the past sixty
years, despite many difficulties, Syria has been a partial transport hub only from the 1950s to 1982 (be it clear in
a non continuous manner) thanks to the Kirkuk-Baniyas Pipeline, which used to transport oil from Iraq and the
Trans-Arabian Pipeline (Tapline), which used to transport oil from Saudi Arabia. The slides below provide
additional details about these two pipelines.
Kirkuk-Baniyas Pipeline — Source: Wikipedia
 Trans-Arabian Pipeline — Source: Saudi Aramco Expats

Until the increase of oil prices in the 1970s, Syria earned more from the transportation fees of these two
international pipelines that crossed its territory, than from its limited internal oil production. Then in 1972, Syria
and Iraq started to quarrel with reference to the tariffs applicable to the transportation of Iraqi oil via the Kirkuk-
Baniyas Pipeline. In the end, Iraq decided to build the Strategic Pipeline linking Kirkuk to southern Iraq and the
crude oil that before flowed north now was directed south. Similarly, in 1980 Iraq and Turkey bypassed Syria
when they built the Kirkuk-Ceyhan Pipeline, Iraq's largest oil pipeline, in order to export crude oil from Iraq's
northern oil fields.
During the Cold War years, diplomatic relations for Syria were quite complex because of the country's alignment
with the Soviet Union, the attacks against Israel and its support of anti-Western terrorist groups. In specific, the
political proximity to the Soviet Union was a real issue for Saudi Arabia and the other Persian Gulf countries.
Things did not improve during the Lebanese Civil War. After the end of the Cold War, Syria was still entangled in
Lebanon and continued not to be seen as a reliable partner by possible investors.
2) The Projects of the New Century — In 2009, President Assad announced the "Four Seas Strategy", which
consisted in transforming Syria in an oil hub for regional transportation between the Persian Gulf, the Black Sea,
the Caspian Sea and the Mediterranean Sea. It was a grandiose and far-fetched strategy, but realistically it was
impossible to achieve especially because it relied on Turkey's support. And, the relationships between Ankara
and Damascus in the last years have deteriorated consistently. Currently, Turkey requires President Assad to step
down from power.
At the end of July 2010, the Syrian government signed a memorandum of understanding (M.O.U.) with Iraq in
relation to the construction of two oil pipelines for transporting oil from Iraq's Kirkuk Field. The signature of this
memorandum, which included a section related to the construction of a gas pipeline from the Akkas Field in Iraq,
was then followed in July 2011 by the announcement of another gas deal between the two countries. Syria and
Iraq discussed these possible developments in the energy field thanks to the improved relationships between the
two countries after 2005 when Shia-dominated governments started to hold on power in Iraq. Previously, the
relationships between the countries had been very difficult. This was especially true after the Iranian Revolution
in 1979, when Syria became one of Iran's most important allies and Saddam Hussein's Iraq was Iran's sworn
enemy.
3) Syria's Main Issues — One important caveat: Because of the current civil war it is almost impossible to think of
specific pipelines passing across Syria.
And, before any energy projects involving Syria may be discussed the country has to solve three main issues:
 First, to maintain its current borders and not to be split among competing groups. The second
possibility would be a disaster because there would not be any possibility of transporting crude oil
through a divided territory. This is exactly what is occurring in Iraq where the Kirkuk-Ceyhan Pipeline
has not been transporting oil through the Iraqi section since March 2014. The reason is simple: The
pipeline runs across territory occupied by the Islamic State, which damaged the infrastructure.
 Second, all of the security issues must be solved. Again Iraq is a good example of a country that
seemed pacified but that in reality had a lot of simmering tensions. Today, Iraq is in complete turmoil
and the very existence of the country is not sure 100 percent. The result of this civil war in Iraq is that
the country is able to extract oil only from the southern fields (the K.R.G. is apart) and then to export it
 via the Basra terminal. The reason is quite simple: political stability and more security in the area. Syria
needs to learn the Iraqi lesson.
 Third, the type of Syria that will emerge from the civil war will tell us a lot about the possible
future agreements with neighboring countries. The current deep split between countries aligned with
Iran on one side and countries aligned with Saudi Arabia on the other side won't abase soon.
According to who will be the winner in Syria, there will probably be different investment agreements,
which not necessarily will follow sound economic foundations. This was the rule in the past and will
probably be in the future. In other words, it will be the relationships between Syria (it's not clear what
Syria will become), Iraq (it's not clear what Iraq will become), Turkey and Iran that will decide the
route of the pipelines in the area.

So, under the current circumstances only general considerations may be thought of with regard to Syria's
possible future role as a transportation hub for oil.
4) The Oil Transported Across Syria Will Arrive from Iraq — From an economic point of view it seems plausible
that the oil that will transit through Syria will primarily arrive from northern Iraq (and/or from Kurdish areas in
Syria and/or in Iraq according to the future political developments). Shipping crude oil from southern Iraq or the
Persian Gulf via pipeline to Syria and/or Turkey may be based on political reasons or on the necessity of
diversifying exports routes — a couple of years ago many experts were talking of bypassing Hormuz in case of an
Iranian blockade of the strait — but from an economic standpoint it could be expensive. Moreover, oil from
southern Iraq is very close to the port city of Basra, which is home to all of the six Iraqi ports, including the
country's unique deep-water port. And Basra terminals are currently able to export 2.4 million bbl/d, which right
now is practically the whole Iraqi oil exported.
When in 2013, Ankara and Baghdad discussed the possibility of connecting Basra to Ceyhan via pipeline —
current events in Iraq have completely ruled out this project — the idea was to build only a new pipeline
between Basra and Kirkuk and then to pass oil to the Kirkuk-Ceyhan Pipeline, which despite, a capacity of 1.6
million bbl/d, transported only 400,000 bbl/d. In other words, the idea was to ship via the Kirkuk-Ceyhan Pipeline
around 700,000 bbl/d — the Kirkuk-Ceyhan Pipeline consists of two twin pipelines, but at that time only one leg
was operational, while since March 2014 the pipeline has been completely out of service from Kirkuk to the
border with Turkey. This project wanted to reconstruct the Iraqi oil system of the end of the 1970s, which was
based on the Kirkuk-Ceyhan Pipeline and the Strategic Pipeline. The latter, which is now not operational and
severely damaged, was a north-south system, consisting of a reversible 1.4 million bbl/d pipeline. Through the
Strategic Pipeline, Iraq could export Kirkuk crude from Basra and southern Rumaila crudes from Turkey.
The idea of constructing a new pipeline between Basra and Kirkuk might have been correctly motivated. In fact,
once a pipeline has been laid, like the Kirkuk-Ceyhan Pipeline, it has to be used. With pipelines, idle capacity
means economic losses. But, the complete construction and the use of a new pipeline from southern Iraq or
other Persian Gulf countries to Syria and/or Turkey are very expensive tasks, especially in light of the proximity of
Persian Gulf countries to the sea. In general, crude oil is cheaper to transport by tanker than by pipeline. The two
slides below provide additional details about transporting oil via pipelines and tankers.
5) Syria's Four Complex Options — The final customer for the oil transiting through Syria or its neighboring
countries is primarily Europe (E.U.-28), whose first supplier in 2012 was Russia with 33.7 percent of the E.U.
crude imports. Saudi Arabia was the third supplier with 8.8 percent and Iraq the seventh with 4.1 percent
(Eurostat data). Data show that Middle Eastern crude oil exports first and foremost go to Asia. According to the
Energy Information Administration (E.I.A.), in the year 2011 an average of 14 tankers per day passed out of the
Persian Gulf through the Strait of Hormuz. These tankers carried 17 million barrels, whose 85 percent was plying
to Asian markets. Last year, China overtook the U.S. as the world's largest oil importer and Japan, India and South
Korea are all in the first five positions in this ranking. In the Middle East, only Iraq has a higher percentage of
exports toward Europe (20 percent) - geography tells us something. All these data mean that with a European
economy dormant it won't be easy to find additional markets for crude oil shipped to Turkey or Syria via new
pipelines.

In general, four are the possible options for Syria:

  To be a transit country toward Turkey (final destination) — At the time of this writing, the
utilization of this route is completely interlocked to a regime change in Syria. Given the current tense
relationships between Syria and Turkey, Ankara would not accept a deal with Syria unless President
Assad steps down and a Sunni-oriented Syria emerges.
 To be a transit country toward Lebanon (final destination) bypassing Turkey — This is a strange
route. First of all, if oil is shipped to Lebanon it has to pass across Syria. And if oil transits to Syria what
is the reason not to export it through the Syrian ports, which have been exporting oil for the last thirty
years?
 To be the destination country bypassing both Turkey and Lebanon — Many factors play a role in
the implementation of this route, which Turkey does not favor. But, if in both Syria and Iraq the
incumbent governments could recover their legitimacy with reference to respectively the whole Syrian
territory and the whole Iraqi territory this option could be implemented. If, instead in both Syria and
Iraq gained power two Sunni-led coalitions it would still be possible to be implement this option, but in
reality it would be more difficult in light of Turkey's opposition.
 To be excluded by pipelines that will arrive in Turkey — If chaos continues in Syria this will be a
very probable option. It already happened twice in the past when the Kirkuk-Baniyas Pipeline and the
Trans-Arabian Pipeline were shut down. Investors (private and public as well) want stability. Lacking
this, there won't be any investment.

After the 2003 invasion of Iraq, the Pentagon studied the possibility of utilizing the oil route Mosul (Iraq)-Haifa
(Israel). In fact, between 1935 and 1948 a pipeline run from Mosul to Haifa, which at that time belonged to the
British Mandate of Palestine. After the creation of the state of Israel, Iraq shut down the pipeline. This project —
let's call it the fifth option, Syria excluded by pipelines that will arrive to Israel — under the current circumstances
is absolutely not doable.
The "Four Seas Strategy" is not a viable option because at least two of its pillars, the Black Sea and the Caspian
Sea, are not achievable by Syria. A simple look at the map well clarifies that the only real country that could play
a four-sea strategy is Turkey. Geography matters and it's difficult to understand why crude from the Black Sea
and the Caspian Sea should travel to Syria's ports and not to Turkey's in order to reach Europe.
Moreover, in this game of pipelines, Turkey, as well as Syria, wants to be a transportation hub for oil and gas.
And Turkey may eventually accept Syria only as a transit country, but not as the final destination of pipelines that
bypass Turkey. It's quite understandable why Ankara is against the possibility of reopening the Kirkuk-Baiynas
Pipeline, which would challenge the Kirkuk-Ceyhan Pipeline, notwithstanding that the latter is currently not
working from Kirkuk to the Turkish border, but only from the border between the K.R.G. and Turkey where it
receives Kurdish oil via the Iraqi Kurdistan Pipeline.
6) The Last Factor: Syrian Kurds — Another factor that will play an important role with reference to the future
development of Syria's oil sector is the emergence of an area under Kurdish control in Syria's northeastern
corner, which is the territory where most of Syria's oil reserves are located. As it was explained in the first
chapter, it's thanks to the Syrian Kurds' resistance that Hasakah Governorate with its oil riches has not fallen yet
under the Islamic State.
 Syrian Kurdistan — Source: Wikipedia

The events of the last three years have shown that Iraqi Kurds want to manage their oil and gas resources
independently of Baghdad — some members of the K.R.G. political establishment plainly speak of independence
for Iraqi Kurdistan. It's quite probable that something similar will happen also in the "Syrian Kurdistan". If Syrian
Kurds are able to repel the Islamic State attack, at least they will request a slice of the oil pie, no matter what the
Syria's political system will be. For instance, Syrian Kurds could offer Iraqi Kurdistan a direct route (Rojava Route),
for its oil exports. In practice, the K.R.G. could have a second route in addition to the one to Ceyhan.
It is too early to understand whether there will be a new actor in the Syrian-Iraqi oil chessboard in addition to the
K.R.G. For the time being, apart from fighting the Islamic State, Syrian Kurds are correctly maintaining a neutral
position between President Assad and the Syrian National Council (S.N.C.). In specific, the P.Y.D., which is linked
to Turkey's Kurdistan's Workers Party (P.K.K.) considers the S.N.C as a pure marionette from Ankara. If the recent
vicissitudes of the K.R.G are any guide, Syrian Kurds will progressively assert themselves as an element in the
Syrian equation. In other words, this means that they will look for more autonomy. And, for them, oil will be an
important tool as it has been with the K.R.G.