Two years ago, three Americans — a former diplomat, a former special operative and an energy executive — walked across a flooded bridge into north-east Syria to talk about oil, a murky business in a complicated neighbourhood.
While western oil majors have long been involved in pumping crude from the Middle East, including neighbouring Iraq, this unknown outfit’s mission was different — to explore, refine and export oil from a corner of war-torn Syria controlled by a US-backed Kurdish-dominated militia.
“Companies like Exxon and Chevron don’t do this kind of thing,” said James Cain, one of the three founders of oil company, Delta Crescent Energy. “It’s too pioneering; too adventuresome . . . some might say too risky,” the former US ambassador to Denmark told the Financial Times.
Despite the willingness of the region’s Kurdish-led administration to do business with the American company, which has a rare US sanctions waiver allowing it to engage in the Syrian oil trade, DCE faces huge hurdles.
The north-east has an extremely delicate relationship with both Washington and the regime in Damascus. Kurdish-dominated local militias provided on the ground muscle for the coalition-supported battle against extremists Isis. The region remains at risk of attack from either Turkey or the jihadis, in part kept at bay by 900 US soldiers. President Bashar al-Assad’s regime claims the oilfields as its own and the Kurds do not have legal title to the oil. Given the hazardous context, DCE’s venture “looks a bit of a stunt,” said David Butter, associate fellow at Chatham House.
After decades of harsh treatment by Syria’s ruling regime, the Kurds used the anti-regime uprising that started in 2011 to carve out and govern about a third of Syrian territory, which includes most of Syria’s oil reserves. With output currently estimated at just 30,000 barrels a day, these are “pretty measly assets,” said Mr Butter.
But the oil is prized by smugglers, who transport the crude within Syria and to northern Iraq, and Damascus, which has awarded development contracts for this oil to Russian companies as a reward for its military ally Moscow. The Kurdish administration does not allow either the Russians or the regime direct access to the fields.
James Reece, ex-Delta Force and one of DCE’s founders, knew the Kurdish leadership — the Syrian Democratic Forces — through the security company he founded, TigerSwan. Aware of opportunities to develop Kurdish-controlled oilfields, Mr Reece enlisted Mr Cain, a corporate lawyer, and John Dorrier, former director of small London-listed oil company Gulfsands, which managed fields in north-east Syria before sanctions halted business in 2011. They set up DCE, whose contract covers an area bigger than that run by Gulfsands, Mr Cain said.
In April last year, the US Treasury granted a rare licence allowing DCE to sidestep US sanctions on Syria’s oil sector. Mr Cain, a Republican, and Mr Dorrier have both donated to Republican candidates. DCE denies using political influence to secure the licence. US officials endorsed the project “because we support trying to get the economy of north-east Syria up and running,” said Joel Rayburn, US special envoy to Syria.
Former US president Donald Trump threatened twice to pull American soldiers out of the north-east, but reversed his decision after a backlash in Washington and has previously said troops are still there “only for the oil”. Yet some of the oil from the region is smuggled to the US-sanctioned Assad regime.
Jessica L McNulty, Pentagon spokesperson, said that the Department of Defense had not been tasked with protecting “DCE or any other private company . . . seeking to develop oil resources in north-east Syria”.
Even with the US’s approval, DCE will be operating in a murky market. Crude from the north east is currently processed in thousands of hazardous makeshift refineries or trucked westwards to a refinery in Homs, one of two controlled by the regime. Sold cut-price on the black market, it earned up to $3m a day in revenues for the SDF before the 2020s oil price crash, according to the DoD.
Geographically remote, the SDF has “no other choices” but to sell to regime brokers or shadowy traders from northern Iraq, said Abdullah Al-Ghadawi, a journalist originally from north-east Syria. The US turns a blind eye, according to a person briefed on the US’s approach in Syria, who said the “US would prefer oil was marketed elsewhere but has never objected strongly”.
“All Syrians have the right to the resources of north-east Syria,” said Berivan Khalid, co-chair of the Kurdish authorities of sales to the regime. “[We] give them as much as possible.”
Although DCE said it wants to broker oil sales in the global oil market, “it is not in the US’s gift to unilaterally give the SDF good legal title to crude independently exported from Syrian territory,” said Patrick Osgood, senior analyst at Control Risks Middle East, a security firm. The regime said that the sale of oil by DCE without its permission would amount to robbery.
Mr Cain argued traders should take comfort from the fact that Treasury “has indicated, in granting our licence, that our project is consistent with American foreign policy”.
But first, restoring “full production will cost in the hundreds of millions of dollars,” said Mr Cain. “We will of course need additional investment.” DCE said only the three founders have so far invested and it has no other owners. While the scheme may appear risky, even hare-brained, Mr Cain said it is worth trying, to help the SDF: they “have fought beside us to defeat Isis . . . they deserve a better life”.
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January 24, 2021 at 12:00PM
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American entrepreneurs wade into murky Syrian oil business - Financial Times
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