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Syria seeks cutback in oil production because of E.U. embargo

By Javier Blas,

Syria has told foreign oil companies to cut production as a backlog of crude fills its storage capacity because the government has been unable to bypass an embargo on exports imposed by the European Union.

Syria has sought to sell its oil to nations outside the E.U., which before the ban bought about 95 percent of the country’s crude exports. However, industry executives and oil traders said that since the ban, the country has been unable to attract buyers despite offering discounts.

The failure has forced foreign oil companies to pump crude originally earmarked for export into storage, leading to a backlog.

Gulfsands Petroleum, a London-listed company that operates in Syria, has cut its production by about 40 percent at the request of authorities in Damascus. The company is now pumping about 14,500 barrels a day, compared with about 24,000 in August.

Industry executives said other international oil ­companies operating in Syria, which include Royal Dutch Shell, Total of France, and the state-owned China National Petroleum Corp. and Oil and Natural Gas Corp. of India, also have recently been given orders to cut back.

Although the oil companies hope the cuts are temporary and will end when Syria finds nations willing to take its crude, others see the drop lasting as long as the E.U. embargo remains.

Brussels imposed the oil ban in response to a crackdown by the regime of President Bashar al-Assad on pro-democracy activists in which more than 2,700 people have died in six months.

Syria produced about 370,000 barrels a day of low-quality crude oil last month, according to the International Energy Agency, the Western countries’ oil watchdog. Syria last year exported about 150,000 barrels a day, with the rest consumed domestically. Germany and Italy accounted for roughly two-thirds of Syria’s oil exports.

Imad Moustapha, Syria’s ambassador to Washington, said in a recent interview with the Financial Times that the country would have no problem finding markets for its oil.

“It’s not that we are approaching people, it’s the other way around. We are being approached,” he said.

However, not a single cargo of Syrian crude has left the nation’s main export oil ports this month, according to shipping data.

Oil traders said the effect of the E.U. ban on Syrian oil was wider than expected because international banks refused to open letters of credits — a common instrument used in trading — with Syrian entities.

Shell directed questions about production in Syria to the Damascus-based al-Furat Petroleum Co., which could not be reached. Al-Furat is a joint venture of Syria’s state-owned General Petroleum Corp., which controls a 50 percent stake, Shell Oil and CNPC. Total did not respond to calls and e-mails seeking comment.

The production losses compound the fine balance of supply and demand in the Mediterranean and European region, home of four of the world’s 10 largest oil-importing nations: Germany, France, Spain and Italy.

However, the shortfall is not nearly as big as that created by the civil war in Libya, which produced 1.6 million barrels a day of high-quality, low-sulphur crude before the start of the revolution.

— Financial Times

Blas reported from Barcelona.

© The Washington Post Company