Key Points
- Revenues from oil and gas are crucial, albeit of reduced importance, in funding the Islamic State's operations, particularly if the group is to function as a quasi-state entity; to promote this perception, the group must supply basic utilities to the population at least within the uncontested territory it controls.
- IHS Conflict Monitor data show that provision of electricity, even in key cities under Islamic State control, is unreliable despite the group's hold on key oil and gas facilities in eastern Syria.
- The most important factor of the Islamic State's control over oil and gas assets is the leverage this gives it over its rivals, including the Syrian government.
EVENT
The Islamic State's control of key energy assets in Syria gives it considerable strategic leverage over the Syrian government. This short special report summarises selected findings from a recent edition of IHS's Conflict Monitor, which analyses approximately 1,000 manually geocoded indicator events for Iraq and Syria every week.
The Islamic State's capture of key gas assets in eastern Syria affords it leverage over the government of Bashar al-Assad. The group is able to either shut off gas supplies to power plants in western Syria, or allow supplies to continue in return for payment or for the government to agree to delay major offensive operations against them.
Syria's energy infrastructure is set up so that major gas fields in the east of the country, especially between Homs and Palmyra (Tadmur), supply power plants in the west. The 20 May capture of Palmyra gave the Islamic State control over some of Syria's most important gas fields, along with a plant for processing raw gas into dry natural gas for use in power stations. The Islamic State is also within striking range of three more plants between Palmyra and Homs - Ebla, Jihar, and Palmyra (South Middle Area Gas Project) - that are likely to be strategic priorities.
Palmyra is also a crucial junction of gas pipelines and its capture further reduces the supply of gas to the government. Its loss leaves the government reliant on supplies of gas from Egypt via the Arab Gas Pipeline, supplies that are increasingly under threat from rebel gains in southern Syria around Dara. The Islamic State can therefore sell the government gas in exchange for concessions or in barter for commodities that the Islamic State's 'caliphate' lacks, notably government-supplied electricity. There have been widespread reports in local and international media in 2014 and 2015 that the Islamic State has been selling oil and gas to the Syrian government, although both sides continue to deny the allegations.
Electricity shortages
Unlike most of Syria, the caliphate's de facto capital, Raqqa, is primarily supplied by three hydroelectric dams on the Euphrates River - the Ba'ath, Tabqa, and Tishrin dams - that have been under Islamic State control since 2014. Despite their considerable strategic importance, production at the dams has dropped and Raqqa frequently receives as little as two to four hours of power a day. These shortages are likely to be exacerbated as a shortage of spare parts reduces the output at the dams.
In Iraq, the Islamic State stronghold of Mosul has also traditionally relied on hydropower for electricity. However, although the Islamic State seized the Mosul Dam in July 2014, it was forced out by Kurdish Peshmerga forces and the Iraqi army, backed by US airstrikes in August 2014. Shut off from the Iraqi power grid, Iraqi cities held by the Islamic State largely depend on small private generators running on diesel or petrol to provide electricity. However, the group has failed to secure significant energy assets in Iraq, with Kurdish Peshmerga forces backed by coalition airstrikes securing the largest oil and gas fields around Kirkuk. This has resulted in fuel price increases in Mosul, ensuring that many residents cannot afford to use these generators.
Price disparities
The Islamic State has failed to capture major refineries in Iraq and Syria, and those that it does hold have been targeted by coalition airstrikes, causing shortages and price rises throughout the caliphate. In October 2014, the cost of petrol in Mosul was IQD1,000 (USD0.87) per litre, but residents reported to Kurdish media outlet Rudaw that this rose to IQD2,000 (USD1.74) per litre before supplies of Syrian petrol reached the city in December 2014, driving prices down to IQD1,400 (USD1.22). This is comparable to the cost of petrol in Deir al-Zour at the time, SYP220 per litre (USD1.19).
Although petrol prices in Mosul spiked at around IQD2,000 (USD1.74) per litre in October before falling to near parity with Islamic State areas in Syria, prices in Islamic State-held Fallujah rose considerably more and reached IQD3,500 (USD3.04) per litre in December 2014. This is because fuel has to be transported through government-held territory to reach Fallujah, whereas further north the caliphate's territory extends unbroken from the group's limited refining capacity in eastern Syria to Mosul. Disparities in pricing do not appear to currently be a concern to the Islamic State's leadership as there have been no noticeable attempts to impose price controls over petrol within the group's territory. This is indicative of the extent of the threat the Islamic State faces from a host of rivals including the Iraqi and Syrian governments, the Syrian Kurdish Yekîneyên Parastina Gel (YPG), and coalition airstrikes.
Lucrative opportunities
The impact of these shortages is not restricted to Islamic State territories. The creation of a lucrative black market for smugglers has driven up prices elsewhere in northern Iraq and forced authorities to impose restrictions.
For instance, the cost of gas cylinders in Mosul reached IQD100,000 (USD86.85) by September 2014, whereas in nearby Kirkuk, the cost was IQD60,000 (USD52.11). The resultant smuggling of gas cylinders prompted the authorities to ban residents from taking gas canisters out of the city.
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