April 23, 2014

TSG IntelBrief: Blood Oil: Terrorists & Energy Resources of Fragile States

• From the enduring civil war in Syria to Libya’s fragility, the control over a country’s energy resources and infrastructure translates to revenue, power, and often prestige. There is an emerging trend in fragile states across the world for non-state actors to establish control over natural resources

• The motivations of the actors involved in seeking to control energy resources are multi-dimensional. They include those that hope to strengthen their diplomatic hand in negotiations with the central government, terrorist organizations seeking to supplement their finances, and a regional entity possibly plotting for future independence

• For corporate organizations engaged in fragile states and frontier markets, the rising conflict around energy resources presents a further set of risks that require careful planning and mitigation.



Energy resources are modest in Syria and will likely not play a decisive role in determining the outcome of the current conflict. However, many of the country’s natural resources are no longer under the Assad government’s control. Syria’s main oil fields are in the Euphrates Valley in al-Hasakah province is the northeast of the country, where opposition forces and violent extremist elements have increasingly fought for the control of the oil fields.

These battles have intensified following the split between The Islamic State in Iraq and Greater Syria (ISIS) and the official Qaeda affiliate in the Levant, Jabhat al-Nusra. In February, ISIS fought with Jabhat al-Nusra and Ahrar al-Sham for the control of oil fields in the town of al-Shadadi in al-Hasaka province. Similar battles over resources have stretched over several months in the Dayr al-Zur governorate. Following an ISIS victory in a battle against al-Nusra in February, several news outlets reported that the group released a statement accusing ISIS of stealing “approximately $5 million worth of oil.” For terrorist groups that gain control of oil fields, the money can be used to finance new operations in Syria, Iraq, and elsewhere.


South Sudan

In South Sudan, the devastating political-turned-ethnic conflict that began in December 2013 has killed thousands and forced over a million to flee their homes. The fighting, which pits President Salva Kiir’s military against rebel troops, persists despite a cessation of violence agreement signed in mid-January. One of the most conflict-afflicted towns in South Sudan is Malakal, the capital of Upper Nile State, and the gateway to many oil fields. The town has changed hands from government to rebel-control on a number of occasions since the conflict began. Both sides realize that controlling the oil fields is integral to running the country.  

During a recent interview with The New York Times, Riek Machar, the former vice president and leader of the rebel fighters, said he would direct his fighters to attack South Sudan’s oil fields. His rationale was that South Sudan’s government used money generated from oil sales to purchase weapons and sustain the conflict. On April 14, rebel forces launched attacks in the northern part of oil-producing Unity State. The following day, rebel forces recaptured Bentiu and demanded oil companies stop their operations and evacuate staff within a week. Within the last few days, it has been reported that rebels killed over 200 civilians, specifically targeted by ethnicity and nationality. Violence has caused oil production in South Sudan to fall by more than 20% from levels prior to the start of the violence. 

South Sudan’s oil fields are also seemingly influencing regional geopolitics. Shortly after the conflict broke out, the governments of Juba and Khartoum put on a rare show of unity, prompting Khartoum to call for an expedient end to the conflict. However, as the violence shows no sign of abating, several prominent analysts have speculated that Khartoum may tacitly switch sides to support the rebels because they fear that if the conflict continues, the oil flow to Sudan will be disrupted. By supporting the rebels, they hope to have more control over the oil fields on the border between Sudan and South Sudan.  



In Libya, meanwhile, the government is grappling with a different set of security risks. This includes powerful militias and an escalating terrorism threat. The government has struggled to contain these issues, which have created an unstable security environment and damaged its foreign investment prospects. Rebel groups are increasingly targeting the country’s oil fields in an attempt to undermine the government and further their political objectives.

Last summer, Ibrahim Jathran, a former anti-regime fighter, led separatists to take control of four of Libya’s largest oil facilities. The separatists’ aim was to strong-arm the government into granting more sovereignty and oil revenues to Cyrenaica, an eastern region that has been angling for greater autonomy and representation since the advent of Libya’s post-Qadhafi order. The Libyan military was unable to regain control over the rebel-held facilities and, on March 17, Morning Glory, a 37,000-ton oil tanker holding state oil seized by separatist rebels, was intercepted by US Navy Seals off the coast of Cyprus. The tanker had previously evaded Libya’s Navy as it left port and was headed for an unknown destination to profit off the stolen oil. The episode undermined the Libyan government so greatly that it led to the resignation of Prime Minister Ali Zeidan. In mid-April, the government reached a deal with Jathran to reopen two of the four ports, after paying the separatists an undisclosed amount of money.

Similarly, in other locations within Libya, protesters and rebels have followed a similar set of tactics to shutdown oil fields in an attempt to fulfill their political aspirations. This includes the large al-Sharara oilfield in the west of the country. The government’s initial deal with Jathran appears to have lent hope to other rebel groups for similar offers.



In Iraqi Kurdistan, the Kurdistan Regional Government (KRG) has become increasingly influential in the world’s energy market. Over recent years, KRG has established a closer relationship with Turkey, which in part reflects Ankara’s effort to boost its energy supplies. This partnership has encouraged KRG to build a direct oil pipeline to Turkey. The regional government has also signed contracts with dozens of oil companies to produce oil. In sum, KRG has increasingly sought to establish an independent oil policy separate from Iraq’s central government in Baghdad. Some analysts suggest this is the first step in KRG’s ultimate bid for full independence.

KRG’s actions, however, have damaged its relations with Baghdad. Iraq's constitution stipulates that oil revenues must go through Baghdad before allocating 17% of total revenues to KRG. The tension over KRG’s new pipeline to Turkey and its recent actions has led Iraq to retaliate, including cutting off the Kurdish region’s revenues for several months. The Iraqi government also warned it might seek to withhold oil revenues. The geopolitical dispute over oil looks set to rumble on.  



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