ISIS Is Making Less On Oil Than Feared - But They're Still Wrecking Iraq's Biggest Industry

iraq oil police

REUTERS/ Essam Al-Sudan

A member from the oil police force stands guard at Zubair oilfield in Basra, southeast of Baghdad June 18, 2014.

The Islamic State has taken over several oil-producing areas in Iraq and Syria, raising fears that the group could leverage its hydrocarbon wealth to the point of economic self-sufficiency. A Washington Post article today complicates that picture: ISIS is indeed producing between 25,000 and 40,000 barrels of oil a day, less than East Timor and Cameroon but about as much as Poland, Germany, or New Zealand. However, its oil is of poor quality, and ISIS is likely having trouble transporting it.

According to the report by Steven Mufson, ISIS is only capable of moving its oil by truck, suggesting that the group hasn't mastered the use of northern Iraq's oil pipeline system. And the smugglers who move the oil into Turkey and points west are only willing to pay around $40 per barrel of oil - $10-$15 less than Kurdish oil sells for in Turkish ports and $55 lower than the global price.
Some experts have estimated that ISIS brings in up to $3 million in revenue each day. But Ben Lando of Iraq Oil Report told the Post that ISIS's daily revenue might actually be as low as $250,000 a day.
iraq oil map


And this is before the downstream recipients of illicit ISIS oil have been identified and sanctioned - once companies are threatened with legal consequences for even unknowingly using oil from ISIS-held areas, smuggling premiums will increase, and ISIS's bottom line will take a hit.

Above all, the oil isn't that potent anyway. As Mufson writes, the Islamic State's Iraqi fields "are so small and the crude of such poor quality that international companies did not bid to develop them when the Iraqi government offered them a few years ago."

Still A Huge Problem

Even if oil isn't as much of an economic driver as feared, ISIS's possession of some of the northern fields could ramify in ways beyond the group's bottom line.

As former US counter-terror official Juan Zarate explained to Business Insider, ISIS is deeply embedded in the local economy in ways that reach far beyond oil, and that make the group less vulnerable to outside attempts at pressuring it. And just as importantly, ISIS, which nearly seized a refinery outside of Baghdad in June, is interrupting the one industry that makes Iraq viable not just as an economy, but as a political unit as well.

As a single, unified country, Iraq has the fifth-largest proven oil reserves in the world. In 2010, in a time when Iraq's oil industry hadn't fully recovered from the chaos that followed the 2003 US-led invasion of the country, Iraq still ran a trade surplus based solely on its oil exports:

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United States Agency for International Development

And the country's oil economy only stood to grow. In 2012, the International Energy Agency predicted a nearly 500% increase in Iraqi oil revenue by 2020, and concluded that revenue would double during that period even in a worst-case scenario:

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United States Agency for International Development

ISIS's oil profits might not be as astronomical as feared - but its ability to disrupt Iraq's leading industry denies the country of much of its economic potential while degrading vital infrastructure. In August, production dipped even in Iraq's relatively-tranquil south; production targets are being revised downward and exports have lagged in a country that's fragile enough to begin with.

For all of its problems, Iraq at least had a major industry to build around at the beginning of this decade, and revenues that could potentially pave over the country's sectarian differences and provide the economic and financial basis for a functioning, federated political system. Now, even that fleeting source of optimism is in danger.