With Turkey sitting on the doorstep of the Syrian civil war and their recent involvement with the downing of a Russian fighter, it is important to have a better understanding of the commercial relationship between one of the key players in Syria and how it raises money to fund its operations.
A paper by George Kiourktsoglou and Dr. Alec Coutroubis looks at suspicious trends in illicit oil trade through an examination of spikes in tanker charter rates from ports on the Mediterranean that could be used by ISIS to export their crude and compares it to ISIS operations over the period from the late spring of 2014 when ISIS began to take over oil fields in Syria. By early 2015, ISIS controlled approximately 60 percent of Syria's oil assets and seven of Iraq's oil producing assets. Before the conflict, Syria's production capability stood between 385,000 and 400,000 BOPD, however, according to the Brookings Institute, ISIS is only producing around 50,000 BOPD. In addition, ISIS controls about 80,000 BOPD of oil producing assets located in Iraq which were producing about 20,000 BOPD last year.
Here is a map showing Syria's oil and natural gas infrastructure:
ISIS controls Syria's oil infrastructure that is located in the eastern part of the country, adjacent to the border region shared with Iraq. These fields were originally assets owned by the Al-Furat Petroleum Company, an affiliate of Royal Dutch Shell.
The authors of the study note that ISIS has set up a network of middlemen in neighbouring countries that can be used to trade crude for much-needed cash. The oil is lightly refined on site (if it is refined at all) and the oil is trucked to its export point in convoys of up to 30 trucks. A large tanker truck carrying 30,000 litres of crude can make a profit of up to $4000 for one trip to port lasting a few days.
Here is a map from the study showing the string of smuggled crude oil trading hubs that have been set up by ISIS along European route E90:
The authors then looked at all potential oil loading terminals that fall within or close to the region that ISIS controls and looked at the charter rates for tankers from the period falling after July 2014. This led the authors to focus on the port at Ceyhan located in Turkey. For those of you who aren't aware, Ceyhan is located in southeastern Turkey on the far northeastern coast of the Mediterranean Sea as you can see on this screen capture from Google Earth:
It is a major oil port facility, operational since 2006, that serves as the hub for the transportation of Middle East, Central Asian and Russia oil and natural gas (i.e Caspian Sea hydrocarbons that have been transported through the Baku-Tbilisi-Ceyhan pipeline). It is also located at the end of a 600 mile long pipeline that connects the oil fields located in the Kurdistan region of Iraq (Kirkuk-Ceyhan pipeline) to the outside world. The terminal is operated by a Turkish state company, Botas International Limited. It has a very large oil terminal that is quite visible on this screen capture from Google Earth which shows the massive tank farm and several tankers either loading or unloading:
Each of the seven crude oil storage tanks can hold one million barrels of oil. The facility itself is capable of handling more than 1 million barrels of oil daily.
Here is a photo of the Ceyhan Terminal from BP Azerbaijan:
The main export jetty is 2.6 kilometres long and has two berths that can simultaneously load two tankers of up to 300,000 deadweight tonnes each.
As I noted earlier, the Ceyhan Terminal can handle more than 1 million BOPD. With ISIS trading less than 45,000 BOPD, it would be very difficult to detect whether ISIS was using the Ceyhan facility to handle its crude using a normal stock accounting method. However, the authors believe that by using the charter rates for tankers loading at Ceyhan, they can use sudden spikes in charge rates from the terminal that can only be explained by ISIS-sourced crude when these spikes are compared to ISIS activities over the same time periods. A regression analysis of charter rates from Ceyhan starting in July 2014 shows the following spikes:
The first spike in July 2014 coincides with the fall of Syria's largest oil field, Al-Omar, to ISIS. The second spike in October - November 2014 takes place at the same time that the Syrian Army was fighting ISIS over control of the Jhar and Mahr gas fields in Homs and the third spike in January - February 2014 occurred when there was a sustained U.S.-led campaign of airstrikes that pounded ISIS strongholds around the town of Hawija, east of oil-rich Kirkuk.
While the authors of the paper wish to make it clear that there may have been no collusion between ISIS, oil smugglers and Turkish authorities, their research strongly suggests that there is an illicit supply chain that ships ISIS crude through the Ceyhan Terminal. Their analysis shows that, whenever the Islamic State is fighting in the vicinity of an oil producing area, exports from Ceyhan spike. This could be attributed to ISIS' need for additional cash to supply its troops with ammunition and other materiel needed. In any case, what is particularly interesting is, that despite being located in a war zone, ISIS has been able to fund its operations by selling a very bulky asset and that it is selling this asset through Turkey, part of the NATO compact. That said, it did take the United States nearly 14 months to finally destroy 116 ISIS' oil trucks in Syria, cutting off at least some of the group's funding.