“Heating oil has become the talk of the town. Gas stations are complaining, bus drivers are grieving, and citizens stand in bewilderment before winter’s gate, not knowing to whom they should direct their complaints and unsure of when their heating oil rations will be distributed,” wrote a columnist in the state-owned local daily al-Orouba on September 18, before launching into a tirade against the malpractices of Syria’s burgeoning black oil market and urging the government to accept that “the surgeon's scalpel is painful, but it cures.”
Since August and September, both pro-opposition and pro-government media in Syria have complained about oil shortages, gas lines, and—most of all—the exorbitant prices charged by corrupt officials and traders. While the eyes of the world are glued to the U.S.-led intervention against the al-Qaeda offshoot known as the Islamic State, millions of Syrians suffer from a much more mundane but far more serious problem: they fear that they won’t be able to cook their food or keep the cold out of their homes this winter.
In its September 30 session, the Syrian parliament—a rubber stamp body run by the presidency—voted to raise the price of heating oil from 60 to 80 Syrian pounds and the price of gasoline from 120 to 140 Syrian pounds. (A liter of gasoline cost 40 Syrian pounds in early 2011.) The decision was implemented on October 2 by the Ministry of Internal Trade, which also intensified its crackdown against the black-market trading of fuel and changed the law to allow for oil imports by private industries. At that point, even the Syrian pro-regime daily al-Watan had acknowledged that gas stations were shutting down in Damascus and that drivers were going on strike—and the government’s failure to cope with the crisis was out in the open.
Electricity Production Failing
The main drivers of the price spike are the onset of winter and, more fundamentally, the failings of the national power supply infrastructure. Syria’s electric grid was never very reliable, but after years of war, blackouts are routine even in government-held areas. Some rebel-ruled towns remain plugged in to the government grid, but in large swathes of opposition-held Syria there is little or no electricity due to regime bombings, government-ordered cuts, and the rebels’ failure to manage local infrastructure. This has forced Syrian families to invest in diesel-powered generators, thereby increasing the demand for oil.
With industries now also dependent on diesel generators, the oil product price increase has had severe knock-on effects across the economy, and surging transport costs add to the price of food and other necessities. “Prices are skyrocketing,” a man in the rebel-controlled Shaar neighborhood in Aleppo recently told the online news site Al-Monitor. “I now need 30,000 Syrian pounds ($185.75) per month to feed my four children, while my salary does not exceed 40,000 Syrian pounds ($247).”
And now, as winter draws near, the millions of oil-fuelled stoves used for home heating by ordinary Syrian families are all going into action at once, putting further pressure on the market.
Economic Links Across the Political Divide
Syria used to be an oil exporting country, but production was already dwindling in the mid-00s, while internal demand rose, well before the uprising of 2011. Since then, the pipelines running from oil fields in the northeastern Deir ez-Zor and Hasakah provinces to refineries in Homs and Baniyas have been blown up or fallen into disrepair, while the fields themselves have been captured by armed groups, including the Kurdish People’s Protection Units (YPG) and the Islamic State.
Across Syria, a war economy has emerged where regime loyalists, rebel groups, conflict entrepreneurs, unscrupulous middlemen, and ordinary civilians are all trading and smuggling resources across the battle lines. While the country disintegrates, economic innovation thrives. Rebel groups have long been running oil fields on their own and local entrepreneurs have set up more or less advanced micro-refineries to compensate for the loss of access to Syria’s main refinery installations in government-held Homs and Baniyas. In addition, trade now flows unhindered across the former border between Iraq and Syria, and the Islamic State was recently reported to have opened a petrol station in Mosul where it sells gasoline from oil fields in eastern Syria.
Disruptions at one end of this vast unregulated market will quickly be felt on the other end. Since mid-September, the U.S.-led air campaign against the Islamic State has focused particularly on destroying the cash-generating energy infrastructure controlled by the jihadis. Targets of the U.S. airstrikes have included numerous makeshift refineries in northern and eastern Syria, as well as the large CONOCO gas plant in Deir ez-Zor, which—exemplifying the tangled economic relations of the Syrian civil war—supplies both rebel held areas in Deir ez-Zor and a regime-controlled power station south of Homs.
“Oil production has significantly decreased due to the targeting of wells and refineries by the alliance, not to mention that the workers, who fear for their lives, stopped working to extract, filter and transfer oil,” says Nizar, a small-time fuel merchant who recently traveled from Aleppo to the Islamic State-controlled Deir ez-Zor region to stock up on supplies, in an interview with Al-Monitor. And the result is inevitable: “Diesel prices have significantly increased as a result of high demand and the inability to meet the needs of the market.”
But Nizar’s explanation is not the only one. Syria’s fuel prices began to rise several weeks before the first U.S. strikes—and even if the U.S. attacks contribute to the problem, there are other and more fundamental reasons behind the shortages.
Disruptions in the Oil Tanker Traffic
As previously described on Syria in Crisis by David Butter, a Middle East energy analyst and associate fellow at Chatham House, the government has been able to compensate for these losses only thanks to a generous Iranian credit line and crude oil imports from Iraq, Iran, and other sympathetic oil-producers. For example, in nine months in 2013, 17 million barrels of crude were sent from oil fields in Iraq and Iran to the Syrian regime-controlled refinery in Baniyas—all financed with Iranian letters of credit.
The output from the Baniyas refinery vastly outdoes anything that the Islamic State, YPG, or other non-state actors may produce in eastern Syria, but recently, the refinery hasn’t received its oil deliveries according to plan. Even the government acknowledges this, with Prime Minister Wael Nader al-Halqi claiming that the fuel crisis is due to a disruption in the tanker traffic. According to a report in al-Watan, Halqi stated that one oil tanker headed for Syria broke down due to mechanical failure, while another was attacked by pirates in the Red Sea. However, the prime minister assured Syrians that “four oil tankers will be arriving from friendly states to Syria starting on September 29” and that the government will soon address the problems with local electricity production.
Since the conflict began in early 2011, the value of the Syrian pound has dropped from trading at 47 pounds to a dollar to today’s 157 pounds per dollar, and the economy is in very bad shape. There may be many other reasons than piracy for why Syrian harbors aren’t receiving their oil cargo on schedule, including outstanding payments. But regardless of the cause, Butter—the energy expert—says Halqi is probably correct in pointing to tanker disruptions as a root cause of the fuel crisis, rather than the U.S. airstrikes.
“I don't think the hit on refineries in the east would have had a big impact, and I suspect the talk about Baniyas may be credible,” he tells me by e-mail. “There hasn't been much evidence of the Iranian line of credit being extended, and there could well be a hitch in this supply line.”
“The Government Has Run Out of Money”
A well-connected Syrian businessman confirms this picture, telling me that the government had been “bringing in vessels from Belarus and Iran. For whatever reason, those have been delayed or they have stopped.”
In the Aleppo region, the situation is allegedly so bad that Province Governor Mohammed Wahid Akkad himself has to sign off on state deliveries to any factory that demands oil products at the official price. Accusations of corruption and political favoritism abound.
“This has led to a black market which trades at 200 Syrian pounds per liter,” explains the businessman, who keeps a close eye on the financial situation in Aleppo. “The government’s response was to allow private merchants to import oil products directly. While this will take time to reach stations and distributions channels, one would suspect that even when it does, the prices will be near 200 pounds if not higher.”
“In a nutshell, I think the government has run out of money to subsidize oil products at the current level. We always thought the government would last economically for three or four years. Well, we’re here.”