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NOT INVULNERABLE: Islamic State's thriving bootleg oil operations may not be unsustainable

By Catholic Online (NEWS CONSORTIUM)
8/25/2014 (3 years ago)
Catholic Online (https://www.catholic.org)

Jihadists' black market trade is hugely inefficient, oil analysts say

Declared by U.S. Defense Secretary Chuck Hagel on Thursday called the group "as sophisticated and well-funded as any group that we've seen" and "beyond just a terrorist group," the Islamic State is using a vast network of stolen petrochemical goods to keep their war machine going. While all this stolen oil from captured areas keeps the organization afloat to the tune of $2 million daily, oil analysts say that these ill-gotten gains may not be sustainable - proving what may be IS' "Achilles heel."

Analysts say ISIS' fledgling petro-state is already running into problems.

Analysts say ISIS' fledgling petro-state is already running into problems.

Highlights

By Catholic Online (NEWS CONSORTIUM)
Catholic Online (https://www.catholic.org)
8/25/2014 (3 years ago)

Published in Middle East

Keywords: Islamic State, bootleg oil market, repression, embargo


LOS ANGELES, CA (Catholic Online) - The Islamic State insurgency has control over swatches of Syria and Iraq and has begun to lay the foundations to become a small petro-state.

Analysts say the fledgling petro-state is already running into problems.

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While the Islamic State and its Sunni allies are known to have dominion over extensive smuggling routes into Jordan, Turkey and Iran, some experts believe they have been turning a blind eye to the group's illicit tankers and makeshift pipelines.

There are also unconfirmed reports of the Islamic State bribing the Syrian regime with oil to avert airstrikes. "We're talking about a regional black market extending from Syria to Iraq, from Jordan to the southern part of Turkey," Luay al-Khatteeb, director of the Iraq Energy Institute says.

U.S. military officials have also begun to suggest that wider intervention in Iraq and perhaps even

U.S. military officials have also begun to suggest that wider intervention in Iraq and perhaps even Syria could be on the horizon.


The Islamic State has coerced employees of oil facilities in Syria and Iraq to keep working, stabilizing oil production to an unprecedented degree for a non-state actor. It's an approach that reflects the Islamic State's immediate need for cash to bankroll ambitious plans of regional expansion.

The Islamic State's black market trade is hugely inefficient. For example, at the extraction stage, the insurgents will never be able to match maximum flow rates without the investment and expertise of private oil companies, who of course won't want to do business with a feared extremist group.

Islamic State oil then needs to be pawned off to middlemen at rates discounted by up to 75 percent, according to some estimates, as a fixed distribution network would be easy pickings for U.S. and Iraqi missiles.

Organized smuggling operations, "capture a lot of the value, offering one price to whoever controls the fields and then caging quite a high mark-up, which will still be well below the local market price," Richard Mallinson, a geopolitical analyst at London-based consultancy Energy Aspects says.

Finding customers, even indirectly, from an armed network reviled for its brutality is not easy, even if it comes with a drastically reduced price tag.

"This really restricts the scale of operations. There's always a market for smuggled oil at that low price, but not one that will simply expand and expand," Mallinson adds.

U.S. military officials have also begun to suggest that wider intervention in Iraq and perhaps even Syria could be on the horizon. Many suspect the caliphate could still be wiped out in its infancy.

There are also further questions about just how long Iraq's Sunnis will continue to tolerate the extremist takeover of their lands.

"Now that Western forces are operating more surveillance on Islamic State terrorists, I'm sure they can better identify where trucks are being filled, what routes they're taking, what borders they're crossing," said Mallinson.

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