Syria's Oil and Gas Industry - A Sector Profile

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Syria's oil and gas industry is the largest contributor to Syria's economic wealth, government revenues and foreign currency receipts. Two years after the beginning of the uprising this sector has been significantly affected by the turmoil gripping the country. In this 40-page document The Syria Report provides an overview of the industry's downstream and upstream sectors, a historical background, a list of the international companies operating in the market prior to the uprising, a profile of the various regional oil and gas transport and transit schemes, an estimate of the costs of the damages inflicted, a highlight on the key challenges that will impact reconstruction. The report is a must read to grasp the challenges confronting Syria's largest business sector.

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Below is the executive summary, the table of contents and the list of figures.

 

Executive Summary

Syria’s oil reserves are small relative to the reserves of some of its neighbors, but the oil and gas sector is a crucial contributor to Syria’s government revenue and foreign exchange earnings. In 2010, the sector contributed about 35% of export earnings and 20% of government revenue. Proved oil reserves were estimated at 2.5 billion barrels in 2013, located mostly in the east and northeast. Crude oil production peaked at 610,000 bpd in 1995 and has since been on the decline, falling to around 380,000 bpd prior to the conflict. Natural gas reserves are estimated at 241 billion cubic meters, located primarily in central Syria.

In international terms, Syria plays a small role as an oil producer but has strong potential as an energy transit hub. Syria has pipeline connections to Egypt, Jordan, Lebanon, and Iraq; additional pipeline projects have been stalled due to the conflict. Analysts have argued that regional competition over access to pipeline routes and international energy markets has been a factor shaping foreign involvement in the Syrian conflict.

In early 2011, there were about two dozen international companies operating in Syria. State-owned and private companies from China, India, and Russia had a strong presence in the sector. A number of smaller companies from Europe were also active in the market. International interest in exploration in Syria had been relatively strong prior to the conflict, and offshore blocks were thought to offer particularly good potential after recent discoveries of large gas reserves off the coasts of Syria’s neighbors.

Since 2011, the oil and gas sector has been impacted by violence and sanctions. Energy infrastructure has been damaged, wells have been set on fire, and oil and gas has been plundered and smuggled out of the country. Infrastructure projects have been put on hold due to insecurity, and many international oil companies have suspended operations due to either insecurity or the requirements of sanctions. Since sanctions were imposed by the EU, which previously purchased around 90% of Syria’s crude exports, the government has struggled to export its petroleum. Imports of refined products have also been affected indirectly due to sanctions on oil transport, tanker insurance, and the banking sector. Syria’s allies have provided some assistance with importing petroleum products, but petroleum shortages and resulting power cuts have been common. The prices of petroleum products in the local market have also risen on a nominal basis as strained resources have forced the government to reduce its subsidies on petroleum products.

By mid-2013, much of Syria’s oil-rich territory has fallen out of the hands of the regime. In the northeast, the oil fields are generally held by the Kurdish PYD; in the eastern region near Deir-ez-Zor, the fields are controlled by various Islamist and tribal militias. In the spring of 2013, in a context of divided control of oil fields by competing rebel groups, the EU altered its sanctions to allow petroleum exports by the opposition. Analysts and groups within Syria have argued that this move prompted a surge in violent conflict as rebels were incentivized to compete for control over oil resources.

When the political situation in Syria stabilizes, the oil and gas sector will offer a much-needed source of government revenue and foreign exchange. But the sector will need to be managed carefully. The division of oil revenue across regions will require careful thought, particularly if the post-conflict government is highly decentralized. Decisions regarding control over oil fields and the allocation of oil revenue will need to be made with participation from the populations of Syria’s oil-rich areas. If these historically marginalized groups do not see their interests sufficiently represented, they may be unlikely to cooperate with the future government.

The oil and gas sector has the potential to play a crucial role in financing Syria’s reconstruction, but conflict over oil resources could slow the return to stability if the sector is poorly managed from a political standpoint. The rehabilitation of the sector will involve not only economic and technical considerations, but will require careful attention to political issues and will need to involve affected groups in the relevant decision-making processes.

Table of contents (PDF)

List of figures (PDF)