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Russia stands to gain amid Syria energy crisis

Life in Syria's largest cities, including the capital Damascus, has ground to a near-standstill in recent days, as residents face extreme shortages in fuel and petroleum products.

For the average Syrian living in government-controlled areas -- now encompassing more than two-thirds of the country, and home to the majority of the population -- the crisis is unprecedented.

The tightening of United States and European Union sanctions against the Syrian energy and financial sectors, with the recent wave of stringent American measures against maritime petroleum shipping to Syria, the interruption of the Iranian "credit line" to Damascus, Russian reluctance to export oil to Syria, and a delayed crisis response on the part of the Syrian government have combined to create a perfect storm.

Only Moscow, it seems, may be in the position to step in.

Iranian lifeline interrupted

Syria consumes 4.5 million liters of gasoline, 6 million liters of diesel, and 7,000 tons of fuel oil each day -- a total 136,000 barrels of oil per day (bpd). Syria's annual petroleum products bill exceeds $2.5 billion. The country's oil production, however, is currently just 24,000 barrels bpd, down from 385,000 bpd in 2010.

The government has recaptured vast swaths of territory, including several major urban centers, since late 2016 but has only compounded the energy deficit, as most of the country's oil riches remain under the control of the US-backed Syrian Democratic Forces.

Syria has been forced to import 80% of its daily oil consumption. Up until October, most of the oil came from Iran as part of a "credit line" Tehran extended to Damascus at the start of the conflict. The Syrian government in turn, had to sell petroleum products on the local market at highly subsidized prices. The revenues only covered 25-30% of the Syrian treasury's annual intake.

Iran suspended that credit line on October 15, 2018. One major reason behind the halt in aid to Syria was renewed American sanctions targeting the Iranian economy, especially its oil sector, after US President Donald Trump revoked the Iran nuclear deal in May 2018.

That pressure is set to worsen on May 2, when Washington has said it will end its waiver program for countries reliant on fuel from Iran. As such, the financial resources left at Tehran's disposal are mainly geared towards internal needs.

Some observers, however, see the suspension of Iranian aid as an indication of disagreements between Damascus and Tehran. For instance, the head of the Iranian parliament's national security committee had demanded in March that Damascus settle its debts to Tehran (accumulated over recent years as a result of the credit line). Others have blamed the crisis on Iranian dissatisfaction over the ways that Syria has dispensed with the credit.

It remains to be seen whether the visits of Syrian President Bashar al-Assad to Tehran in late February, and that of Iranian Foreign Minister Javad Zarif to Damascus last week, will lead to a resumption of Iranian credit to Damascus.

Suffocating Western sanctions

Stringent American and European sanctions on Syria's energy sector since 2011, and the country's difficulty in conducting financial transactions have hampered its ability to procure petroleum products. In recent months, the Trump administration went a step further.

On November 20 last year, the United States Treasury's Office of Foreign Assets Control, the United States Department of State, and the US Coast Guard issued a new "advisory" to "alert" individuals and entities across the globe of the repercussions of being involved in petroleum shipments to Syria. These measures extended across the shipping industry, including to insurers, shipping companies, financial institutions, as well as vessel owners, managers, and operators. The advisory was updated on March 25 to include a list detailing the names and serial numbers of ships that had taken part in transporting oil to Syria between 2016 and 2018.

Coupled with the halting of the Iranian credit line, these new American measures have denied the Syrian government an alternative avenue to escape the crisis. In early 2019, faced with the halt of Iranian petroleum shipments, Damascus ended a decades-long government monopoly over the energy sector and allowed Syrian investors to import oil. None, however, were able to arrange any maritime oil shipments into the country because of the new hardline US policy. Overland shipments from Iraq and Jordan remain unavailable due to American pressure, while limited amounts of Lebanese gasoline only began to arrive in Damascus last week.

The Kurdish-led Syrian Democratic Forces, meanwhile, control most of Syria's oil fields in the country's northeast. Alleged oil shipments arranged by local intermediaries from the Kurdish-controlled parts of Syria into government areas have stopped due to American pressure.

Desperate measures

Even at the height of the war, and despite the reduction of government subsidies and intermittent shortages, gasoline remained widely available and was seldom rationed.

Diesel, on the other hand, which is necessary for industry, cheap transportation and, most importantly, household heating during the wintertime, has been rationed since at least 2015. Each Syrian family gets 400 liters of government subsidized diesel at 185 Syrian pounds (about 30 US cents) per liter each winter, while black-market rates are more than double that amount. The current crisis has also affected the availability of diesel on the black market.

In mid-February, the government introduced a gas station "Smart Card", meant to fix consumption at 450 liters of gasoline per month per automobile.

But it was only in mid-April, six months after the last Iranian shipment made it to the country, that extreme gasoline rationing was introduced and public sector consumption ordered to be cut in half.

Today, and for the foreseeable future, Syrian vehicles can only purchase 20 liters every five days, while taxis are allowed 20 liters every two days at a subsidized price of 225 Syrian pounds (40 US cents) per liter. Such quantities are, to say the least, very insufficient. Long queues at petrol stations and near-empty streets have become a part of daily life in Syria.

Last week, the government resorted to selling gasoline imported from Lebanon at 600 Syrian pounds ($1.06) per liter. This hardly helped solve the crisis.

The energy crisis has also led to renewed power outages. In 2018, the Syrian government was able to restore full electrical coverage after recapturing the majority of Syria's natural gas fields in the deserts around Palmyra the year before. But a number of Syria's power plants still run on fuel oil rather than natural gas. So the recent shortages have led to decreases in electricity production.

When consumption of electricity in an unusually cold March spiked, with many Syrians reliant on electric space heaters, rationing was resumed with electricity available in Damascus for only 12 hours a day. As the weather got warmer in April, the rate was raised to 16 hours a day.

Russia steps in

Russia seemed noticeably absent from the current crisis, at least until recently, despite having established a strong position in the Syrian energy sector in the past two years.

In February 2018, Russia and Syria signed a multi-year roadmap for cooperation in the energy sector. The Syrian government, in turn, invited Lukoil, Gazprom Neft, and other Russian companies to restore the country's energy infrastructure and to develop its offshore natural gas sources.

The following month, Russian energy company Stroytransgaz was given a 50-year contract to invest in the Palmyra phosphate deposits. The mine has a reserve of 105 million tons and could produce 2.2 tons annually, while Syria's overall reserves are estimated at 1.8 billion tons. The Russian company would get 70% of extracted phosphate and the remaining 30% will go to the Syrian government.

In October 2018, a week before Iranian oil shipments stopped, the Syrian minister for oil and mineral resources, Ali Ghanem, flew to Moscow for yet another meeting with his Russian counterpart Alexander Novak in order to solidify the partnership between the two countries in the energy sector. Ghanem stressed that Syria's energy sector was dependent on Moscow's technical and financial capabilities. On the whole, however, economic talks between Syria and Russia seem to have stalled over the course of 2018. This might be changing soon.

On April 20, Assad met Russia's Deputy Prime Minister Yury Borisov in Damascus, and their discussions focused on overcoming "obstacles" resulting from the American and European sanctions imposed on both countries, in addition to cooperation in the energy and trade sectors. Assad received Putin's Syria envoy, Alexander Lavrentiev, as well as Deputy Foreign Minister Sergei Vershinin, and several Russian defense ministry officials the day before.

On the back of the two visits, Borisov said that Syria is expected in the coming week to ink an agreement to rent out the Syrian port of Tartus to Russia for a period of 49 years. Moscow already has a naval base adjacent to the port of Tartus, which has been linked to the port of Sevastopol in the Russian-occupied Crimean peninsula since last summer. Shipments of Russian wheat have been arriving in Syria through this shipping line, despite US-EU sanctions imposed on both sides.

Are oil shipments from Russia to Tartus next? They might have already started.

A few hours after Borisov's statement, Syria announced the relaunch of the Banias oil refinery, just north of Tartus, without specifying the source of the oil it had received.

[Source: By Fadi Esber, Asia Times, Bankok, 24Apr19]

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small logoThis document has been published on 11Jun19 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.