Needless to say, the world’s attention is now concentrated on the activities of ISIS and the prescriptions for defeating (as opposed to containing) them. Their finances are a major part of this. The Western powers have had some success curtailing hostile groups by attacking their financial flows, restricting movements of cash from ideological supporters and/or members of an ethnic diaspora. However, ISIS has proved more resilient, partly because of its territorial control but also because as much as half of its money is thought to come from petroleum production.
The U.S., in the grand tradition of Confederate General Jones’ 1863 attack on the Burning Springs oil field, attempted to cut the groups’ oil income by bombing first, the large Baiji refinery which they had captured and, recently, scores of tanker trucks in Syria carrying off petroleum for sale. For anybody who watched video of the oil well fires in Kuwait in early 1991 or any number of Hollywood movies where petroleum explodes at the drop of a handkerchief (especially Arnold Schwarzenegger’s handkerchief), it must seem puzzling that ISIS’ oil sales have been hard to interrupt. Indeed, the oil price drop of the past year probably hurt them more than anything. (Yes, fracking fights terrorism!)
The perception that an oil installation can easily be sent up in flames is correct, but few realize that they can be repaired fairly easily. (Think World War II: We blow up the railroads in the day, the Germans repair them at night.) The primary component in a refinery is steel: a simple refinery is nothing more than a large pot for cooking and then condensing the oil. The quality of the product is going to be inferior, but for those trapped in ISIS held territory complaining to a consumer products safety board is not an option.
Oil wells are also not attractive targets. The important parts are underground: the drillpipe that leads to the deposit. In areas like Syria, where most of the equipment is old, the most sophisticated parts are essentially pumps. In a war zone, field operators are unconcerned about doing sophisticated work like seismic monitoring to optimize production; in most fields, oil will rise to the surface and merely needs to be gathered. And while the U.S. industry has some amazing pump technology, the basic concept has been known for millennia: you wouldn’t have 20 guys with buckets hauling oil in Texas, but stranger things are done in isolated areas.
The trucks are a slightly different story, as a tanker truck is a much more efficient way to haul oil than oil cans in a private car. But again, in ISIS-controlled areas, the money to be made from doing so is probably sufficient incentive to ensure the fuel gets sold, albeit for less profit to ISIS, which has to eat the higher transportation costs.
Aside from the fact that the area has a long tradition of smuggling, under the Hussein regime in Iraq, economic sanctions restricted the commercial sale of oil into the world market, creating large scale smuggling of crude and products in the region now controlled by ISIS. Again, not an efficient system, but with some of the world’s lowest cost oil production, the Iraqi government could afford to lose a significant fraction of the price to smuggling (and the associated bribes).
This means that ISIS found a large-scale (perhaps 200 tbd), albeit mostly dormant, network that was capable of smuggling oil to either wholesalers and pipeline connections, mingling it with the legitimate oil stream, or to small-scale refiners who would supply local customers with products. The huge fleet of tanker trucks recently attacked by the US is basically a leftover from the days of Saddam Hussein and is highly decentralized and thus difficult to target. And basic of its simplicity, most aspects are easy to repair or replace. Cutting the oil revenues of ISIS will thus be a challenging proposition, although their costs can be increased significantly so as to lower their revenue.
However, the organization does have other sources of income, as well-described by Bloomberg, so reducing their oil revenue by half would mean at most a loss of 25%, based on current estimates. Since they have prospered in part by seizing the properties of others, rather like the Romans, Napoleon, and many others, preventing the expansion of their territory should be effective. And the Allies could always take a notion from John D. Rockefeller, and flood the area with cheap gasoline to drive out the competition.
