Oil has helped fund and fuel the Islamic State in Iraq and Syria, with small amounts coming from fields in northern Iraq and being smuggled across the borders in tanker trucks. A tiny drop in the sea of petroleum globally, the oil tapped by the Islamic State has given it a revenue source most extremist groups lack.
But the oil installations and tanker trucks could be targets for the U.S.-led coalition that hopes to cripple the self-proclaimed caliphate. And the poor quality of crude oil in northern Iraqi fields and the steep cost of smuggling probably limited earnings to $1 million a day over the summer, according to oil industry sources.
Recent counteroffensives, international sanctions and crackdowns on smuggling might have reduced that figure to as little as $250,000 a day, according to Ben Lando, editor in chief of the Iraq Oil Report. So far, the Pentagon says, U.S. airstrikes have not targeted any oil installations or transportation.
“We think there are targets to go after, whether outside financing, oil sales or smuggling. All of it we think we can go after,” said a senior administration official, talking on the condition of anonymity because he was not authorized to speak for the administration.
He added that disrupting the Islamic State trade would be much harder than clamping down on oil sales by Iran, which have been the subject of international sanctions linked to that country’s nuclear program. “There are obvious difficulties. These sales are not through established channels,” the official said.
Since expanding its reach in Iraq, the Islamic State has obtained revenue by imposing tariffs, exacting protection money, robbing banks and raiding government coffers. But oil is a critical factor in its financing and logistics.
The group is producing between 25,000 and 40,000 barrels a day from Syria and Iraq, according to estimates by industry analysts and trading companies familiar with the region. Most of that is being smuggled through Islamic State-controlled territory in Syria or through Kurdish territory to Turkey on trucks that carry nearly 2,000 barrels each. Payoffs at border checkpoints may be easing passage, oil analysts say.
Since Kurdish oil that is trucked to Turkish ports usually sells for about $50 to $55 a barrel, the Islamic State is probably charging smugglers no more than $40 a barrel to compensate for the danger and illegality of selling its oil, said an industry source who spoke on the condition of anonymity to preserve her relationships. Other industry analysts said the Islamic State price could be even lower.
“It’s very hard to stop oil from moving into markets because the margins are very lucrative,” said Edward C. Chow, a senior fellow in energy and national security at the Center for Strategic and International Studies. “So if someone is willing to discount oil, you will always find a way to move it.”
This month, the ambassador for the European Union in Iraq, Jana Hybásková, said at a foreign affairs committee meeting of the European Parliament that several E.U. member states had bought oil from the Islamic State that had crossed Turkish, Iraqi and Iranian borders. Turkey denied the allegation.
The U.N. Security Council in late July reminded countries “that they are required to ensure that their nationals and any persons within their territory not engage in any commercial or financial transactions” with the Islamic State or Jabhat al-Nusra, another extremist group, “notably with respect to oil in Syria and Iraq.”
Turning that crude oil into usable fuel for the Islamic State’s vehicles is another matter. The group needs a steady diet of motor fuel to support its rapid movements across multiple fronts and vast distances. From Iraq’s Baiji refinery, for example, where fighting raged this summer, to the Syrian border is more than 175 miles.
While the Islamic State fighters lost their bid to seize the Baiji refinery, north of Baghdad and west of Kirkuk, they might be using one or two small refineries — known as “teapots” or “tea kettles” — able to process a few thousand barrels a day. Some oil could go through a primitive refining process in which crude is put into large vats and heated, bringing lighter oil similar to diesel to the surface.
The refining infrastructure is particularly important because of the poor quality of the crude oil produced in northern Iraq. The Islamic State seized five oil fields in mid-August and two from the Kurdistan Regional Government in late August, according to the International Energy Agency. Altogether they had a production capacity of about 80,000 barrels a day.
But Kurdish troops recaptured the Ain Zalah and Butmah fields in northwestern Nineveh province. The Islamic State set fire to oil at Ain Zalah as it retreated from Kurdish pesh merga forces. Two other fields under the control of the Islamic State, Qaiyara and Najmah, are so small and the crude of such poor quality that international companies did not bid to develop them when the Iraqi government offered them a few years ago. Qaiyara’s crude is close to bitumen, industry experts said.
The militants “have access to infrastructure, but they have little ability to operate the infrastructure,” Lando said. “Some of the fields, even though they were producing at the time of takeover, can’t be maintained because they don’t have the skills to do it. We think they’re able to use, to some degree, some of the refineries, but it’s a lot less than in June and July.”
The United States has been trying to persuade its allies to clamp down on the Islamic State’s oil exports, but doing so can be challenging along the long, frequently isolated Iraqi border. Kurdish officials have said they are trying to cut off oil sales.
Turkey says it is trying to control illegal trade along its 512-mile border with Syria, where the Islamic State is most established. And there is a lot of legitimate truck traffic across Turkey’s border with Iraq. The Foreign Ministry said an average of 1,700 trucks a day containing Turkish goods used to cross into northern Iraq from Turkey.
But advances by the Islamic State and fighting in northern Iraq have discouraged traders and truck drivers. In June, the Islamic State took 32 Turkish truck drivers hostage for almost a month. As a result, fewer trucks have been crossing into Iraq, the Turkish government said. The Foreign Ministry said last month that Iraqi imports of Turkish goods had plunged 40 percent.
The general staff of the Turkish military said on its Web site Thursday that over the past week it had confiscated 48 barrels of oil and some pipeline components, along with alcohol and cigarettes. “We have shut the border,” a Turkish Foreign Ministry official said on the condition of anonymity, because he was not authorized to speak for the ministry. At the same time, he said, “it is impossible to seal the border completely. There’s always been smuggling there.”
“If the oil is cheaper than the market price, it will always find buyers,” said Roger Diwan, vice president of financial services at IHS Energy.