Reducing the Islamic State terrorist organization’s access to oil revenue in areas it controls will require more than sustained bombing campaigns or more combat troops, experts told the US Senate Energy and Natural Resources Committee. Broad actions probably will not work when there is still so little reliable information about what’s happening in Syria and elsewhere, they said at a Dec. 10 hearing.
The situation is complicated further by ISIS operating largely on a cash basis, making it difficult to impose sanctions, the witnesses said. Financial pressure could be applied on entities and governments in adjacent countries that do business with the group, they said.
“Facts on the ground are hard to come by in that part of the world,” observed Peter Harrell, an adjunct senior fellow at the Center for a New American Security. “There are signs that taking trucks out is making people who thought they could make a quick buck reconsider their strategy.”
In an effort to reduce ISIS revenues, said Keith Crane, Rand Corp. senior economist, “the US has been targeting oil infrastructure, including loading and other facilities in oil fields it controls, and tanker trucks hauling oil from these fields to buyers.” He said, “To discourage truckers from hauling crude oil or refined oil products, the US has dropped leaflets to inform drivers that their vehicles will be targets.”
Targeting trucks is a good tactic, Crane said. “New heavy trucks cost more than $100,000. Even used trucks cost tens of thousands of dollars,” he said, adding, “For any trucking business in Syria, the loss of a heavy truck would inflict a substantial financial blow.”
Repeated losses eventually would force the company out of business, Crane said. “Thus, destroying heavy trucks transporting crude oil or refined products should lead to a decline in the number of trucks available and hence revenue for ISIS,” he said.
Harrell said, “Among the buyers of ISIS oil, the Assad regime is front and center. Beyond that, it’s pretty clear that most of the oil smuggling has been going into Turkey and the Kurdish autonomous region of Iraq. Getting adjacent states to seize and destroy vehicles which are being used, instead of simply turning them back, would make a big difference. Taking steps against people who are buying [the oil] also would be effective.”
When one committee member expressed concern that Iran would use some of its new oil revenue to finance terrorist activities in other countries once sanctions there are lifted, another witness said this appears unlikely.
“If Iran comes out of isolation, it won’t depend as much on its oil exports as before,” said Sara Vakhshouri, president of SVG Energy International and a nonresident senior fellow at the Atlantic Council’s Global Energy Center. “The emphasis will be on processing more oil and gas domestically and turning it into higher-value products.”
National Iranian Oil Co. also can be expected to place a greater emphasis on developing the country’s huge gas resources, Vakhshouri said. This could have a strong export impact not only as gas but also as electricity generated from gas for sales to Iraq, Pakistan, and other nearby nations, she said, adding that Iran’s location also could make it a significant energy transit point.
Crane said, “Iran has a much more diverse economy than a country like Qatar. Entities like the Revolutionary Guard have crept into new parts of the economy and become monopolies. Still, there are groups there which believe it’s more beneficial to engage economically with other parts of the world.”
Harrell said that sanctions against the IRG, which expanded its role as the country’s economy shrank under trade embargoes, will remain in place.
Indirect global benefit
Some Republican committee members noted that said removing the US ban on exporting domestically produced crude could be an effective means to offset global market impacts as Iran resumes its overseas sales of crude and other forms of energy.
“By removing the US export ban, it would allow producers in this country to not get such a big discount compared to global prices,” responded a fourth witness, Jamie Webster, a senior director at IHS where he leads the global oil markets team. “It essentially is a policy discount, but you probably wouldn’t see a whole lot of barrels leave this country. It’s important because it would allow us to increase US production in a safer place, which would improve global oil security.”
Webster said a large—and still growing—stockpile of crude and products along with Iran’s looming return to global markets has created an erroneous impression that prices will remain low for some time. IHS Country Risk raw data show that terrorist attacks on upstream and downstream oil infrastructure have risen 5% since 2012, while total terrorist attacks have increased 25% through November 2015, Webster testified.
“These numbers may make it appear that energy infrastructure is not a key priority for terrorists, but the outsized impact a successful attack could have on energy security is a concern,” Webster said. “For now, successful attacks are largely concentrated in just a few countries—more than 90% have occurred in 10 countries each year—though those countries have shifted over the last several years.”
Webster said among the top 10 sustaining the most attacks since the start of the Arab Spring in 2010, Iraq, Nigeria, and Egypt are of particular concern because of their important crude supply or oil transit roles.
Committee Democrats chided Republicans for allowing the nomination of Adam J. Szubin to be US Treasury Undersecretary for Terrorism and Financial Intelligence to languish for 8 months without holding a confirmation hearing. Harrell said while Szubin now is acting undersecretary there, his authority in that capacity is limited.
“He would, once confirmed, be an enormously effective leader in taking down ISIS’s operation,” Harrell said. “When you’re looking at what Treasury could do, having its entire team in place, including this undersecretary, would be worthwhile.”
Contact Nick Snow at firstname.lastname@example.org.