What will happen to Syrian oil after Assad?

A smaller, poorer version of its loathsome Baathist cousin in Iraq next door, the Assad regime was sustained by petroleum. On the eve of the revolution in 2010, oil accounted for a fifth of Syria’s GDP, half of its exports and more than half of state revenue. The war has devastated the sector, but reviving it is key to the success of the new government.

Total oil production stood at about 400,000 barrels per day just before the war, down from its peak of more than 600,000 bpd in 2002. It then collapsed during the fighting, with recent estimates of latest output ranging from 40,000 to 80,000 bpd.

Oil comes from two main areas: the Kurdish-dominated north-east near Hasakah, and the Arab-populated east along the Euphrates to the Iraqi border, around Deir Ezzor. A cluster of small oilfields lies south of the former Isis capital of Raqqa. Further south, stretching to the famed historic city of Tadmor (Palmyra), are most of Syria’s gas resources.

The north-east fields, yielding mostly heavy, high-sulphur crude, were operated by the state-owned Syrian Petroleum Company (SPC), other than one area held by UK-based Gulfsands Petroleum.

Shell and TotalEnergies produced light, better-quality oil in the Deir Ezzor area. These fields were occupied by Isis, which earned up to $2 million per day from them, before the US heavily bombed them in 2015. The fields were already mature and required expert management.

The gasfields supply fuel to power plants in the west of the country. They were fought over by Isis and at times recaptured by the Assad regime with Russian assistance. Gas production has held up better than oil, but still fell from 8.4 billion cubic metres in 2010, about a fifth of the UAE’s level, to just 3 billion cubic metres last year.

During the conflict, oil was either sold to the Assad regime through murky middlemen, smuggled across the Turkish border, refined in primitive and polluting local centres, or transported for refining in the Kurdistan Region of Iraq.

Still, Assad-held Syria needed to import about 80 per cent of its needs. Its two refineries, in Baniyas and Homs, have suffered damage and years of neglect.

Since 2014, virtually all of this came from Iran, averaging 50,000 to 80,000 barrels per day in recent years, on easy credit terms. That flow will presumably now cease. As Mr Al Assad fled, an Iranian tanker on its way to the country also turned back. There is about a month of fuel remaining, as winter sets in.

The new government set up by the former rebels immediately instructed SPC to resume operations. But to import more fuel, it needs two things: money, and a suspension of international sanctions. Supporters such as Qatar and Turkey may be willing to provide the money, or at least fuel on discounted or deferred payment.

The Caesar Act sanctions imposed by the US in 2020 are particularly restrictive. The act expires on 20 December, and seemed set for renewal, but that may now be rethought.

Otherwise, removing American sanctions is a complicated legal process taking many years, as Iraq and Libya have discovered. The US will be cautious because of the background of Hayat Tahrir Al Sham, the leading component of the anti-Assad coalition, in Al Qaeda and the insurgency against the occupation of Iraq. But waivers would at least help the new government deliver an immediate economic and humanitarian improvement.

The newly-appointed minister of economy, Basil Abdul Aziz from Aleppo, will probably be the main person responsible for the sector at first. Promisingly, he has a degree in energy engineering, and reportedly favours a free-market approach and integration with the global economy.

Reviving gas production would improve electricity supply, the first step to putting the Syrian economy back on its feet. Bringing back oil output and the refineries would meet local fuel needs and some government revenue. But, as in Iraq, that will require some tricky negotiations with the autonomous Kurdish administration. The Kurdish forces have withdrawn from Deir Ezzor, so at least this key area may come back under the sway of Damascus.

Technically speaking, there is plenty of potential to repair the existing centres and boost output, particularly from the north-east. Exploration with modern technology could locate smaller and deeper fields. The Syrian offshore looks promising for oil, contrasting with the gas found further south in Israel and Cyprus, but has never been seriously explored.

But who will carry out this refurbishment? The three biggest international operators, Shell, TotalEnergies and Suncor of Canada, have suspended their operations since 2011. They may not be keen to return to the political, security and environmental morass, for quite modest amounts of production.

Gulfsands is keen to come back, understandably since Syria is its only significant asset, held jointly with China’s Sinochem. Regionally-focussed independent companies, such as those active in Iraq, may also take a look. It would be tricky terrain for Gulf national oil companies but, with a good partner, there may be political attractions for them in helping in reconstruction.

Syria also has promise as a transit state. The long-idle oil pipeline from Iraq could be rehabilitated, giving Baghdad an alternative to its shuttered route through Turkey, and the proposed pipeline to Aqaba in Jordan.

In 2022, an agreement was signed to transit Egyptian gas through Jordan and Syria to Lebanon to ease its electricity crisis. That never went into operation, given Beirut’s government chaos and the sanctions problem. It remains a possibility, though practically, the molecules would come from Israel, a tricky political proposition.

Finally, oil and gas should be used for the benefit of all the Syrian people, not for repression or the enrichment of a ruling clique. Direct payments of oil earnings to citizens might help avoid corruption, squabbles over regional allocations, and demands for wasteful subsidies. But all of these promising plans need constructive international assistance, security, and a coherent government, for which the next few weeks are crucial.