Oil exports into Iraqi Kurdistan give Syrian Kurds a financial lifeline

 

Thousands of barrels of oil per day are flowing from Syria into Iraq's semiautonomous Kurdistan region, in an opaque trade that has served for several years as a financial lifeline for the Kurdish-led government in northern Syria and its military wing, the Syrian Democratic Forces (SDF).

The trade has evolved since it first began in 2014, and many details are still murky, but the exports are currently earning tens of millions of dollars per month, according to an Iraq Oil Report investigation based on interviews with oil officials in Syria, border officials in Iraq, oil and fuel traders, crude buyers in Iraqi Kurdistan, and foreign military officials.

"We have oil and sell it to whoever buys," said a top political leader in the Autonomous Administration of North and Eastern Syria, known colloquially as Rojava. "It is a free market, and everyone can trade whatever they have.... The oil revenue is managed by Autonomous Administration of North and Eastern Syria, and all of it is used to provide services and security for the area."

Rojava has also been importing refined products, providing a key source of fuel to northeast Syria, which is short of refining capacity. These imports have come from Kurdistan region, according to several people involved in the trade, and also from federal Iraq, according to a tribal sheikh in Anbar province who is familiar with the trade and an Iraqi Integrity Commission investigation that charged four employees at the Rabia border crossing with facilitating the smuggling of crude and oil products.

Different officials involved in the trade provided varying accounts of whether the leaders of Kurdistan Regional Government (KRG) are actively facilitating the crude and fuel trading with Rojava or just passively tolerating a set of independent actors who take advantage of permissive borders. When asked about the KRG's involvement in the trade, a spokesperson for the KRG said, "I don't have any information, unfortunately."

It is clear, however, that millions of dollars are at stake for both the Rojava administration and the middlemen involved in the trade, who are rumored to have political connections. According to one oil trader and one refiner of Syrian crude, the Rojava authorities sell oil for as little as $60 per ton (about $9 per barrel), and traders then resell the crude for between $240 to $260 per ton (about $35 per barrel) to refiners in Iraqi Kurdistan, making a handsome profit on the margin.

The crude and fuel trade between Rojava and Iraqi Kurdistan puts the KRG in the middle of a complicated geopolitical standoff. The Turkish government considers the SDF to be an outgrowth of the Kurdistan Workers' Party (PKK), which is itself designated a terrorist organization by both the U.S. and Turkey – even though the SDF has also been a key partner for the U.S. military in its campaign against the self-proclaimed Islamic State (IS) militant group.

The Turkish government is also a key economic partner for the KRG, as it controls the KRG's only crude oil export route. In October 2019, the Turkish military took advantage of a partial U.S. withdrawal from northern Syria to launch an offensive against the SDF.

The U.S. military remains in some oil-rich parts of Kurdish-controlled Syria. "We have the oil; the oil is secure," U.S. President Donald Trump told reporters in November 2019, during a White House meeting with Turkish President Recep Tayyip Erdogan. "We left troops behind only for the oil."

Multiple senior Syrian Kurdish officials, either currently involved in the trade or involved when it was agreed to in 2014, said the Syrian crude comes from the Rumailan and Jabsah fields. Different officials involved in the trade gave contrasting accounts of how much crude crosses into Iraq, and by which routes.

"Right after pushing away ISIS terrorists, we started to repair most of the damage the war caused to the oil facilities," said Sleman Khalaf, Rojava's former minister of energy, who estimated Rumailan and Jabsah can currently produce no more than 120,000 bpd. "Production could be raised if it could be exported. Export routes were always an issue for us."

One of the Syrian Kurdish officials involved in the trade said at least a portion of the crude is transported by a small pipeline – either the "Uday pipeline," named after one of Saddam Hussein's sons, which dates back to an era when Iraq was discreetly exporting oil to Syria to dodge UN sanctions, or another makeshift line.

Other officials said the Syrian exports rely on a large network of enterprising tanker truck owners, who have adapted to various forms of grey-market and black-market trading that have evolved throughout decades of sanctions, war, weak governance, and smuggling in both Iraq and Syria.

A security official at the Feyshkabour border crossing said about 30 tanker trucks come from Syria into KRG territory every day. "The tanker drivers have a special permit," the security official said. "We can't ask them questions. We are allowed only to see their permit paper. If it's valid, they are good to go."

Syrian crude has found strong demand in Iraqi Kurdistan's "topping plants," which are rudimentary refineries composed of small units capable of processing hundreds of barrels per day and generating relatively low-quality fuels. While the KRG has made efforts to regulate topping plants, many have appeared to close down only to reopen when supply and demand dynamics create overwhelming economic incentives.

"The Syrian crude coming across the border is known as 'Mahmoudiya crude' in the market," said one topping plant owner. Demand for it has increased since October 2017, according to several participants in the trade. That's when the Iraqi federal government launched a military operation to reclaim Kirkuk province, including the Bai Hassan field and the Avana Dome formation of the Kirkuk field, which had been accounting for about half of KRG-controlled oil production. Back when the KRG was getting so much oil from Kirkuk, "crude used to flow into the local [refining] market from" other fields in Iraqi Kurdistan, the topping plant owner said: "Khurmala, Taq Taq, Ain Zalah and Tawke fields." But when the KRG lost control of Bai Hassan and Avana, it diverted production at those other fields from the local market to exports.

"After the Iraqi security forces regained control over the [Kirkuk] oilfields, the Syrian crude kept our business alive," the topping plant owner said. "The local market does not receive crude from Khurmala, Taq Taq or Tawke," said a local crude and fuel trader. "The KRG pumps all the crude from these oilfields to the export pipeline. What is available for the [topping plant] market right now is Mahmoudiya crude."

The process to buy it is relatively straightforward, according to the topping plant owner and the local trader. Sellers and buyers meet at an informal marketplace for fuel trading, referred to simply as a "boursa," where they agree on volumes and price. The buyer then deposits payment in a bank account or money exchange account. "You pay for the crude before it's even delivered," said the topping plant owner. "You don't get to ask questions such as who brings it and from where it's coming. When the time comes, your crude arrives at your doorstep."

Different officials offered varying estimates of the size of the overall trade, which has fluctuated over the years. One senior Syrian Kurdish official involved in the trade says it's "about 45,000 barrels per day [bpd]." A senior foreign military official estimated an export rate of between 25,000 bpd and 35,000 bpd. An oil trader in Kurdistan said one boursa alone sees between 7,000 bpd and 11,000 bpd.

"It's impossible to estimate how many barrels of crude are coming in from Syria on a daily basis because the imports are going down behind the curtains," said the topping plant owner. Porous federal borders Smaller volumes of crude and fuel have also been crossing the Iraq-Syria border in Ninewa and Anbar provinces, which are under federal Iraqi control. That trade has attracted some scrutiny from the Integrity Commission in Baghdad, which announced on Feb. 13 that four employees of the Rabia border crossing had been convicted of smuggling crude oil and refined products. "They facilitated the smuggling... by manipulating permit papers," the commission said in a statement. "The guilty parties helped to smuggle 1,500 tankers."

It remains unclear whether any Syrian crude is entering federal Iraq, or whether it's just Iraqi refined products that are being trucked into Rojava. Abdul Rahim al-Shammari, a member of Iraqi Parliament from Ninewa province, said both crude and fuel were flowing from Iraq into Syria.

The smuggling has been something of an open secret for more than two years, including at the al-Qaim border crossing, according to a tribal sheikh in western Anbar province, who has direct knowledge of some elements of the trade. He spoke on the condition of anonymity because the beneficiaries of the smuggling allegedly include powerful paramilitary groups that do not want their role to be exposed. "No one can lift a finger" to stop the smuggling, the sheikh said. "Not the security forces or the provincial council."

Smuggling routes have recently changed, the sheikh said, in response to two developments: American air strikes along the border, and the appointment of Maj. Gen. Nassir al-Ghannam as head of Anbar Operations Command, which coordinates Iraqi security forces in the province. While about 100 to 150 tanker trucks used to pass through official border crossings each month, the sheikh said, they are now forced to use more secretive routes.

It remains unclear where in federal Iraq the crude and fuel might be coming from. Iraq Oil Report attempted to contact officials at various refineries that are rumored to be sources of fuel for the trade, but they declined to be interviewed. "The oil smuggling operations... make money for influential people," the Anbar sheikh said. "Many fear for their lives and cannot talk about it."