The Syrian Oil: Time for New Approach?

US - Russian Struggle Opens Opportunity for 'War lords'

US forces conduct training with the "Syrian Democratic Forces" in Hasaka countryside on September 7 (EPA)
US forces conduct training with the "Syrian Democratic Forces" in Hasaka countryside on September 7 (EPA)
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The Syrian Oil: Time for New Approach?

US forces conduct training with the "Syrian Democratic Forces" in Hasaka countryside on September 7 (EPA)
US forces conduct training with the "Syrian Democratic Forces" in Hasaka countryside on September 7 (EPA)

With the war in Syria now in its twelfth year and with the US-Russian conflict still ongoing to control the oil sector and its potential, local belligerents and regional opponents have found in oil a rare point of consensus to cooperate and pick clean the country’s wealth and revenues.

Oil production from fields and facilities mainly located in north-eastern Syria was about 400,000 barrels per day prior to the conflict. After the eruption of the conflict in 2011, various warring forces, including opposition factions and ISIS, successively seized control of much of this invaluable oil wealth. Western sanctions placed on the oil sector have caused foreign oil companies to leave the country.

The Syrian Democratic Forces (SDF), a US-backed coalition, currently controls one-quarter of Syria’s territory, including the area east of the Euphrates. This means that the SDF now dominates 90 percent of the oil and over 50 percent of the gas fields, as well as the infrastructure owned by foreign companies, according to legitimate contracts signed with the Damascus government, including Gulfsands Petroleum, Total, and Shell. Oil wells and facilities were cordoned off and “protected” by the US-led coalition forces and SDF.

On the other hand, Damascus announced that the oil sector’s losses since the beginning of the crisis amounted to USD 91.5 billion. Oil Minister Bassam Tohme revealed that the daily oil production is 89,000 barrels, mainly in Kurdish-controlled areas. Tohme describes this oil as being “stolen” from the Syrian people.

International Conflict

After the Russian military intervention in late 2015, Damascus signed contracts with Russian companies to invest in the oil and gas sectors in Syria and its territorial waters. It also contracted with Evro Polis, the Yevgeny Prigozhin-linked company financing Wagner mercenaries, to protect oil and gas facilities and liberate them from ISIS in exchange for 25 percent of their proceeds. This included Evro Polis taking control of Suncor’s large Ebla gas development near Palmyra – an operation that led to many casualties.

This agreement was the cover under which the Wagner paramilitary group operated. Wagner was estimated to have as many as 2,500 men in Syria in 2018. They participated in the fighting in Syria or took part in training and preparation camps in Russia. Some of them have been relocated to Libya and now to Ukraine.

In reality, the agreement between Evro Polis and Damascus only covered areas under Damascus control. In early 2018, Wagner mercenaries launched an assault on the Conoco gas plant in the eastern Euphrates, a position of the SDF, but they were hammered by US artillery and airstrikes that killed about 200 mercenaries.

In late 2019, former US President Donald Trump made a shock announcement that American troops would withdraw from the area around Syria’s border with Turkiye, east of the Euphrates, giving Turkiye the green light to invade northern Syria and putting the SDF, Washington’s allies, under new pressure. On October 6, 2019, Republican Senator Lindsey Graham, together with some US and European officials, persuaded President Trump to keep 900 members of the US military there to protect the oil. Trump later said that "a small number of soldiers will remain in the areas that contain oil," stressing that "we have ensured the security and protection of oil."

In July 2020, Washington announced that SDF Commander Mazloum Abdi informed the Trump administration of the signing of an agreement with the American company Delta Crescent Energy to invest in oil after obtaining a waiver from the Treasury Department from the sanctions placed on Syria. Then-Secretary of State Mike Pompeo said the deal was intended to "modernize oil.”

The situation embarrassed the US Department of Defense which issued conflicting statements. It initially stated that "Syrian oil is for the Syrian people and we remain committed to the unity and territorial integrity of Syria.” It further emphasized that “the US government does not own, control, or manage the oil resources in Syria. The populations in areas liberated from ISIS make their own decisions on local governance.” Former US Defense Secretary Mark Esper announced that "we are now taking measures to strengthen our position in Deir el-Zour to deny ISIS access to the oil fields.” The Pentagon confirmed sending troops and armored vehicles to protect oil fields.

The US-Russian conflict is still ongoing. An opposition leader said that high-ranking Russian officers had repeatedly informed the SDF leaders to allow Russian companies that signed contracts with Damascus to work in the oil fields east of the Euphrates, but the Kurdish officials responded that this required the approval of the US allies that co-control the oil fields.

A stand-off has ensued, with undesirable consequences.

Illegal but all Too Comfortable

The ongoing Russian-US conflict has been aggravated as a result of the war in Ukraine and the stagnation of the military situation in Syria, especially with the absence of a prospect for a political solution while economic and humanitarian needs of the Syrian people escalate. This means that oil has emerged as a factor of tacit cooperation between illegitimate Syrian and foreign belligerents to share the revenues of about 89,000 barrels per day.

According to expert estimates, the Autonomous Administration of North and East Syria (AANES) receives around USD 16 per barrel and a further USD 15 goes to the Syrian government. The remaining amount, which could amount up to USD 50 per barrel, is ‘lost’ and ends up in the hands of these war profiteers. The AANES uses part of the production locally, while the mediators and the war profiteers transport another part to government areas (constituting two-thirds of Syria’s territory) for refining or keeping. It is well reported that oil is also smuggled into Iraqi Kurdistan, either for local use or for smuggling into Turkiye. Oil is sold at very low prices and the fields and surrounding environment now suffer considerable damage.

Officials talk about networks operating in the shadows to smuggle oil and its derivatives between the east of the Euphrates, controlled by the SDF whose linchpin is the Kurdish People's Protection Units (YPG), and the Euphrates Shield areas or other enclaves controlled by the Syrian opposition factions and the Turkish army. It is noteworthy that the military forces in these two regions are involved in daily fighting, strikes, and raids, and exchange accusations of disloyalty, treason, and terrorism.

The same applies to the path crossed by oil tanks from the eastern Euphrates to oil refineries in the areas controlled by the Syrian government. The latter accuses the dominant forces in the east of the country of being traitors and agents of the American occupation. In the same vein, an informed source said that officials in the Kurdistan Workers' Party (PKK) advised leaders of the SDF to coordinate with Damascus regarding the sale of oil internally and regionally.

The cooperation between the belligerents extends beyond the borders. Reports indicate that oil is smuggled into Iraqi Kurdistan and some Turkish regions, with the involvement of mediators and individuals close to the decision-makers there, although political and military differences are ongoing between the decision-makers in Qamishli and Erbil. In this regard, an informed Western official said, "most likely, the decision-makers in these areas are not in a hurry to reach a political solution that would impede the flow of money into their pockets. It is most likely that the war profiteers in the local areas of influence and the neighboring countries do not want the war to end.”

An Alternative Approach -

When President Joe Biden assumed office, his administration announced sanction exemptions that allowed some targeted investments, (although this excluded the oil industry), in Eastern Euphrates. However, it decided not to extend the sanction waiver granted to Delta Crescent Energy for many reasons, mainly the objection of foreign companies holding sovereignty rights in the oil fields. For instance, Gulfsands Petroleum (“Gulfsands”) signed a contract with Damascus in 2003 to invest in and develop Block 26 east of the Euphrates. According to its 2021 annual report, unauthorized production from Block 26 since early 2017 has reached about 20,000 barrels per day, meaning that around 35 million barrels have been produced from the block since then.

Meanwhile, London-based Gulfsands is calling for a "win-win" humanitarian initiative that would enable it and other international oil companies to regain control of their assets. Rather than flow to the sanctioned entities and other unauthorized intermediaries , the Gulfsands initiative would see revenues from oil sales transferred to a UN-controlled fund. John Bell, the managing director of Gulfsands, said a new approach was needed to alleviate the enormous suffering in Syria. He added, "Syria needs billions of dollars that can only be generated with oil and gas,” and described the plans as "a gain for the Kurds, Damascus, and the Syrian people." He also posited that a share of oil proceeds would go to a UN-controlled humanitarian account whose payments are fully in line with the international sanctions placed on Syria.

That might seem simple, but analysts have linked the initiative with the Oil-for-Food program enforced in Iraq before the US invasion in 2003. Bell acknowledges that lessons need to be learned from that ill-fated program as he proposes the initiative to the international stakeholders. This is a particularly timely initiative as discussions continue regarding the extension of providing international aid across borders, including the amendment to include the financing of early recovery projects and other humanitarian and health affairs.



Borderless Europe Fights Brain Drain as Talent Heads North

Eszter Czovek, 45, packs up her house as she moves to Austria, in Budapest, Hungary, October 28, 2024. REUTERS/Bernadett Szabo
Eszter Czovek, 45, packs up her house as she moves to Austria, in Budapest, Hungary, October 28, 2024. REUTERS/Bernadett Szabo
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Borderless Europe Fights Brain Drain as Talent Heads North

Eszter Czovek, 45, packs up her house as she moves to Austria, in Budapest, Hungary, October 28, 2024. REUTERS/Bernadett Szabo
Eszter Czovek, 45, packs up her house as she moves to Austria, in Budapest, Hungary, October 28, 2024. REUTERS/Bernadett Szabo

Until recently aerospace engineer Pedro Monteiro figured he'd join many of his peers moving from Portugal to its richer European neighbors in the quest for a better-paid job once he completes his master's degree in Lisbon.
But tax breaks proposed by Portugal's government for young workers - up to a temporary 100% income tax exemption in some cases - plus help with housing are making him think twice.
"Previous governments left young people behind," said Monteiro, 23, who is studying engineering and industrial management at the Higher Technical Institute in the Portuguese capital. "The country needs us and we want to stay but we need to see signs from the government that they are implementing policies that will help."
Monteiro cites in particular the cost of buying or renting a home amid a housing crisis aggravated by the arrival of wealthy foreigners lured by easy residency rights and tax breaks, Reuters said.
He is doubtful the government's new measures will be enough.
"Some of my friends are now working abroad and earn substantially more money... and have better career development opportunities," he said. "I'm a little bit skeptical concerning my job opportunities here in Portugal."
Portugal is the latest country in Europe to seek to tackle a brain drain holding back its economy. Tax breaks for young workers in the budget currently going through parliament will take effect next year and could benefit as many as 400,000 young people at an annual cost of 525 million euros.
Talent flight to wealthier countries of the north is a problem Portugal shares with several others in southern and central Europe, as workers take advantage of freedom of movement rules within the trade bloc. Countries including Italy have tried other schemes to counter the flight, with mixed results.
By exacerbating regional labor shortages and depriving poorer countries of tax revenues, it is yet another hurdle for the EU as it tries to improve its ebbing economic growth while addressing population decline and lagging labor productivity.
Donald Trump's victory in US elections this month raises the stakes, with the risk of across-the-board trade tariffs on European exports of at least 10% - a move that economists say could turn Europe's anaemic growth into outright recession.
About 2.3 million people born in Portugal, or 23% of its population, currently live abroad, according to Portugal's Emigration Observatory. That includes 850,000 Portuguese nationals aged 15-39, or about 30% of young Portuguese and 12.6% of its working-age population.
More concerning still is that about 40% of 50,000 people who graduate from universities or technical colleges emigrate each year, according to a study by Business Roundtable Portugal and Deloitte based on official statistics, costing Portugal billions of euros in lost income tax revenue and social security contributions.
DEMOGRAPHIC HELL
"This is not a country for young people," said Pedro Ginjeira do Nascimento, executive director of Business Roundtable Portugal, which represents 43 of the largest companies in the nation of 10 million people. "Portugal is experiencing a true demographic hell because the country is unable to create conditions to retain and attract young talent."
Internal migration within the EU is partly driven by the disparity in wages between its member states. Some economic migrants also say they are looking for better benefits such as pensions and healthcare and less rigid, hierarchichal structures that give more responsibility to those in junior roles.
Concerns are mounting over the long-term viability of Europe's economic model with its rapidly ageing population and failure to win substantial shares of high-growth markets of the future, from tech to renewable energy.
Presenting a raft of reform proposals aimed at boosting local innovation and investment, former European Central Bank chief Mario Draghi said in September the region faced a "slow agony" of decline if it did not compete more effectively.
Eszter Czovek, 45, and her husband are moving from Hungary to Austria, where workers earn an average 40.9 euros ($29.95) per hour compared to 12.8 euros per hour in Hungary, the largest wage gap between neighboring countries in the EU.
The number of Hungarians living in Austria increased to 107,264 by the beginning of 2024 from just 14,151 when Hungary joined the EU.
Czovek's husband, who works in construction, was offered a job in Austria, while she has worked in media and accounting at various multinationals. She cited better pay, pensions, work conditions and healthcare as motives for moving. She also mentioned her concern over the political situation in Hungary, which she fears might join Britain in leaving the EU.
"There was a change of regime here in 1989 and 30 years later we are still waiting for the miracle that will see us catch up with Austria," Czovek said of the revolution over three decades ago that ended communist rule in Hungary.
Since Brexit, the Netherlands has replaced Britain as a preferred destination for Portuguese talent while Germany and Scandinavian countries are also popular.
Many Europeans still head to the United States in search of better jobs - about 4.7 million were living there in 2022, according to the Washington-based Migration Policy Institute, which nonetheless notes a long-term decline since the 1960s.
In 2023, 4,892 Portuguese emigrated to the Netherlands, surpassing Britain for the first time, which in 2019 received 24,500 Portuguese.
At home, they face the eighth-highest tax burden in the Organization for Economic Co-operation and Development (OECD) even as house prices rose 186% and rents by 94% since 2015, according to property specialists Confidencial Imobiliario.
A single person in Portugal without children earned an average of 16,943 euros after tax in 2023 compared to 45,429 euros in the Netherlands, according to Eurostat.
Portugal will offer under 35s earning up to 28,000 euros a year a 100% tax exemption during their first year of work, gradually reducing the benefit to a 25% deduction between the eighth and tenth years.
Young people would also be exempted from transaction taxes and stamp duty when buying their first home as well as access to loans guaranteed by the state and rent subsidies.
"We are designing a solid package that tries to solve the main reasons why the young leave," Cabinet Minister Antonio Leitao Amaro said in an interview with Reuters.
'THINGS WON'T CHANGE'
Leitao Amaro said he did not know for sure if the tax breaks would work but that his government, which came into office in April, had to try something new.
"If we don't act ambitiously, things won't change and Portugal will continue down this path," he said.
The Italian government has already found that tax breaks used as incentives are costly and open to fraud.
In January, Italy abruptly curtailed its own scheme that was costing 1.3 billion euros in lost tax revenue, even as it lured tech workers such as Alessandra Mariani back home.
Before 2024, returners were offered a 70% tax break for five years, extendable for another five years in certain circumstances. Now, it plans to offer a slimmed-down scheme targeting specific skills after it attracted only 1,200 teachers or researchers - areas where Italy has a particular shortage.
Mariani said the incentives were key to persuading her to return to Milan in 2021 by allowing her to maintain the same standard of living she enjoyed in London.
"Had the opportunity been the same without the scheme, I would not have done it at all," said Mariani, now working at the Italian arm of the same large tech company.
With her tax breaks poised to be phased out by 2026 unless she buys a house or has a child, Mariani faces a drop in salary and she said she's once again eyeing the exit door.