The Syrian Oil Sector

Since Bashar al-Assad succeeded his father in the presidency of the Syrian Arabic Republic, his regime has attempted to reform its centrally planned economy so as to, among other things, reduce dependency on the oil sector.  For instance, it sought to increase foreign investment in the service sector by lowering interest rates[1].  Foreign direct investment did increase substantially between 2001 and 2010, from 110,000,000 USD to 1,469,196,863.5 USD[2], but by 2009 the economy was still heavily dependent on oil production and exports.  According to the most recent data, in 2009 Syria’s oil revenue accounted for 25% of GDP, and 35% of government income[3].

Prior to the chaos which began in 2011, Syria was able to garner important investment from China.  The two largest investment ventures made by China were in the Al Furat Petroleum Company (20.3% share) and the Syria Shell Petroleum Development (35% share)[4].  Today, considering the international investment and export embargo Syria faces, Chinese investment in Syria’s oil sector plays a critical role in determining the course of its economy.

Since the first protests of January 26, 2011, conservative estimates have it that 5,400 Syrians have been killed while 70,000 have been displaced[5].  In response to President Asad’s humanitarian crimes and his continued unwillingness to compromise with the United Nations in terms of policy change, the U.S., the European Union and the Arab League have implemented economic sanctions targeting, in particular, the Syrian oil sector.  Not coincidentally, it is on Syrian oil production and exports that the sanctions have been particularly devastating.  On August 17, 2011, President Obama signed Executive Order 13582, prohibiting the importation of Syrian oil[6]. The E.U. followed suite on September 2, targeting government owned oil companies[7].  In December, the E.U. sanctioned additional state owned oil companies as well as Syria’s largest producer, the joint venture company Al Furat Petroleum Corporation (AFPC)[8].  Foreign investors own 50% of AFPC: 29.7% by Shell, and 20.3% by China’s CNPC.  Shell has ceased its share of production in compliance with E.U. sanctions[9]. Whether CNPC will continue production is largely dependent on ongoing political relations with the U.S., the E.U., and Russia.

Compared with U.S. sanctions, those implemented by the E.U. had far more catastrophic consequences for Syrian oil exports and production; in 2010, 99%[10] of Syrian crude oil exports (109,000b/d) went to members of the European Union[11]. Though the regime wants to keep a positive face on things so the populace doesn’t redeposit all its cash in foreign banks, some ministers tell it how it is.  Later on in December, after the E.U. castrated AFPC and Shell complied with the embargo, Syrian Oil Minister Sufian Alao lamented the effects the sanctions have had on the economy: “We have reduced our production by 30 to 35% until we resume exports.” [12]  He also noted that current oil output had fallen to about 260,000 b/d.  Last month, the Syrian Minister of Petroleum estimated that international oil exportation sanctions have depleted government coffers by $2 billion[13].

In 2009, Syria’s oil revenue accounted for 25% of GDP, and 35% of government income[14].  Given that the tourism industry (another major sector of the Syrian economy along with agriculture) is dead, the contribution of oil revenue to GDP and government revenues is even more critical.  Syria must find buyers to compensate for the 99% gap in oil exports left by the E.U. countries.

Before the protests, the rebellion of the Free Syrian Army, the ensuing slaughter of innocents by the regime and the E.U. sanctions, the oil sector was heavily dependent upon foreign investment, particularly that of China National Petroleum Corporation  (CNCP).  Syria’s ‘Arab Spring’ has seen oil exports drop dramatically because of sanctions.  Critically, China retains its portion of Al Furat Petroleum Corporation and Syria Shell Petroleum Development, and is effectively (while Damascus still searchers for new importers) the Assad regime’s life blood.  If China were convinced by the west to join the embargo, the regime would fall more quickly and with less blood spilt.  While it is the case that China follows noninterventionist policies, either way Syria’s fate hangs on that of its oil sector.