Turkey, Russia, Iraq And Syria: The Black Market Oil Trade That's Fueling ISIS And Dividing The Terrorist Group's Opponents

BEIRUT-- Oil has long been the dark, viscous gold fueling the Islamic State group’s vicious insurgency. As the group known as ISIS has captured broad swaths of Iraq and Syria, it has financed the purchase of arms and recruits in large part by seizing fertile oil fields, harvesting revenues reaching $2 million a day, according to American officials.

This lucrative expansion has unfolded despite a formidable coalition of international powers officially committed to halting the trade. The constellation of interests that has enabled ISIS to evade the pressure and sell its oil has come under renewed scrutiny in recent weeks, amid recriminations over the downing of a Russian fighter jet by Turkish forces near the Turkish-Syrian border.

Since Turkey shot down the Russian warplane on Nov. 24, the two countries have accused one another of capturing some of the spoils of the ISIS oil trade while failing to follow through on their pledges to eliminate the militants.

Russia has accused Ankara of shooting down its aircraft to protect Turkish oil interests inside Syria: In Russia’s accounts, the Turkish government has allowed ISIS to sell oil inside Turkey because relatives of Turkish President Recep Tayyip Erdogan are directly involved in the trade. Turkey has denied such accounts while accusing Russia of profiting from ISIS’ oil sales.

Whatever the merits of these dueling claims, experts say the accusations highlight a decisive gap between official goals and the messy reality on the ground: The international effort to starve ISIS by denying it access to oil markets has been undermined by the hunger for profit among officials who share proximity to the high-value commerce, and who are aided by ordinary people trying to eke out an existence in a conflict zone.

“Everybody on the ground is profiting from this business, beyond the real interests of great powers and diplomacy,” Lorenzo Trombetta, a Beirut-based academic and journalist, told International Business Times. “All the authorities: Syrian, Kurdish [and] Turkish, are closing more than one eye in front of this [trade].”

Experts and U.S. Treasury officials agree that a significant portion of ISIS’ oil is being sold in Turkey, with the majority sold to middlemen acting on behalf of Turkish businessmen.

“We know it’s happening but the details are deliberately opaque,” said Jonathan Schanzer, vice president of research at the Foundation for Defense of Democracies. “When oil is being bought on the Turkish border it’s highly unlikely that it will be sold anywhere else but Turkey. There are indications that oil is smuggled in movable containers and sold to state interests.”

For participants, trading in black market oil far outweighs the risks. Buyers can secure oil at half the official market price. ISIS sells roughly 100,000 barrels of oil a day from its territory in Iraq and Syria for an average cost of $20 a barrel, former CIA Director Mike Morell said last month. The price tends to increase by a few dollars when there is a battle, according to Samuel Laurent’s book “L’Etat Islamique,” but prices remain between 50 and 60 percent lower than market value.

The 550-mile border between Syria and Turkey has acted as a revolving door for foreign fighters on their way to join militant groups such as ISIS and as a hub for terrorist organizations engaged in illicit trading. Porous borders have made Turkey a leading destination for ISIS’ oil coming from Iraq and Syria. The group is selling up to $2 million worth of oil in one day, according to a congressional testimony in April as part of the Task Force to Investigate Terrorist Financing Committee on Financial Services.

In September, the U.S. sanctioned several top ISIS leaders involved with the militant group’s finances for oil and gas smuggling. Among them were at least three individuals with connections to Turkey or the Turkish border region with Syria: Tarad Mohammad Aljarba, a senior ISIS logistics official operating on the border region between Syria and Turkey; Morad Laaboudi, a Turkey-based ISIS facilitator who deals with both smuggling operations and the transfer of foreign fighters over the border; and Mu'tassim Yahya 'Ali al-Rumaysh, a former al Qaeda official accused of procuring funds to transfer Yemeni ISIS fighters to Syria through Turkey.

Last month, the U.S. treasury imposed sanctions on several individuals acting on behalf of Syrian President Bashar Assad and Russia to facilitate the purchase of ISIS oil.

Erdogan’s Son Accused

The claims surrounding Turkish involvement in ISIS’ oil trade have focused on Erdogan’s son, Bilal Erdogan. The 34-year-old is one of three equal partners in the BMZ group, a major Turkish oil and marine shipping company, which the Syrian government has accused of buying ISIS’ oil.

Syrian Information Minister Omran al-Zoub reportedly alleged Friday that ISIS’ oil fields in Syria and Bilal Erdogan’s company share a direct link: “[ISIS’] oil [in Syria] is delivered to a company that belongs to the son of Recep Erdogan,” he said. “This is why Turkey became anxious when Russia began delivering airstrikes against the IS infrastructure and destroyed more than 500 trucks with oil already.” Al-Zouab’s claims have not been substantiated.

Erdogan has vowed to resign from his post as president if evidence supporting Syrian and Russian allegations is found. Turkey and, by implication, the BMZ group buys oil only from “known sources,” Erdogan said.

The oil and shipping company has two separate oil wharfs: one in Beirut, Lebanon, and the other at the state-run oil and gas terminal in Ceyhan, a city in southeastern Turkey that is a major transportation hub for oil and gas flowing between the Middle East, Central Asia and Russia. Ceyhan is home to two oil pipelines: one from Azerbaijan and the other from Iraqi Kurdistan.

The BMZ group also owns the Malta-based Oil Transportation & Shipping Services Co Ltd. In September, BMZ purchased two oil tankers and registered them under the Maltese company the following month, according to Turkish newspaper Today’s Zaman.

The last three oil tankers that BMZ purchased came from the Palmali Shipping and Transportation Agency, an Istanbul-based ship management company that also offers chartered services. Palmali and the Oil Transportation & Shipping Services companies are registered with the International Maritime Organization under the same address in Istanbul.

Illicit Trade In Ceyhan

Ceyhan is home to several charter companies like Palmali, which ship oil and gas through alternate routes than the two pipelines that run through the Turkish terminal. A major Middle Eastern charter route used to go from Baniyas, Syria, to Laveras, France, but this route closed when the Syrian conflict broke out in 2011. The route was then changed so that chartered ships would leave from the port of Ceyhan instead, according to the Baltic Exchange, a chartered shipping monitoring portal.

A Greenwich University report investigating whether smuggled crude oil was leaving the port of Ceyhan found that from July 2014 -- when ISIS seized a major oil field in Syria -- until February 2015, there were three spikes in the Ceyhan-Levaras route that “do not match the trends featured by the rest of the Middle East trade-routes.”

“It seems that whenever the Islamic State is fighting in the vicinity of an area hosting oil assets…exports from Ceyhan promptly spike,” said the report.

The route saw a major spike for roughly 10 days in July 2014 when ISIS seized one of the largest government-run oil fields in al-Omar. Another spike was recorded for a month at the end of October 2014, when ISIS was engaged in major battles around oil and gas fields in Syria’s Homs province.

“There are strong hints to an illicit supply chain that ships ISIS crude from Ceyhan,” the authors wrote, but the study was inconclusive about whether this was a direct result of new gains in ISIS’ territory. Other factors such as the fall in oil prices and an influx of crude oil to Ceyhan from Iraqi Kurdistan could also have affected the trend.

ISIS Oil Operations

ISIS has two main oil operations: the first in Deir Ezzor, in Syria’s Homs province, where production is around 34,000 to 40,000 barrels a day, according to local sources, and the second in Mosul, the capital of Iraq’s Ninawa province.

Coalition airstrikes have reduced the oil and gas trade that was a major source of ISIS’ revenue. The militant group gets the greater part of its income from taxation and confiscation in the territory it controls. Even a year ago, before airstrikes were as extensive as they are now, in Deir Ezzor, the profits from oil and gas sales were only 27.7 percent of the total revenue in the province from December 2014 through January 2015. The total revenue from oil that month was nearly $2 million, according to an internal ISIS document, recently obtained by Aymen al-Tamimi, a research fellow at the Middle East Forum. The document surfaced last week and presents one of the only calculations by ISIS of its revenue from Deir Ezzor.

These figures, says Tamimi, if they are representative of ISIS’ best oil holdings in Syria, call into question the total figure of $3 million a day earned by ISIS in oil sales, which was widely touted in the media in summer 2014.” It is more realistic that ISIS’ daily income from oil is about 10 percent of the previous estimate, or about $300,000, Tamimi added.

This information makes it clear that targeting ISIS’ oil facilities and cracking down on oil smuggling on the Turkish border will diminish the group’s fortune but “certainly won’t break the bank,” Schanzer said. “Depriving them of territory is how to ultimately bankrupt them.”

Links With Turkmen

Iraq presents other challenges for squeezing ISIS revenues. According to Matthew Levitt, an analyst at the Washington Institute, ISIS has monopolized a wide network of smuggling routes and underground pipelines that were built under former Iraqi President Saddam Hussein, employing several of the same logistical tactics as the former leader. Ninawa remains the main hub for cross-border smuggling operations and both Hussein’s regime and ISIS have relied on the local Turkmen population (also known as Turkoman) -- the third largest ethnic minority in Iraq -- to run the smuggling networks, according to Kyle W. Orton, an independent Middle East analyst.

Several members of ISIS’ top leadership have Turkmen origins and “the Turkomans form an important part of Islamic State’s financial structure,” Orton said.

Fadel al-Hiyali, better known as Abu Muslim al-Turkmani, an Iraqi Turkoman from Tal Afar, was reportedly ISIS’ Iraqi governor and military leader. Likewise, the group’s Syrian governor and former minister of finance, Abu Ali al-Anbari, was a Turkoman from Mosul. Both men, now believed dead, were implicated in ISIS’ oil trade.

The Turkmen factor is another possible connection with Turkey. Late this summer, Turkey announced that it would train roughly 5,000 men from the Syrian Turkmen Brigades and form the United Turkmen Army to fight in predominately ISIS-held areas of Syria.

But while those troops would be battling ISIS, they may also be doing business with them. When asked if the Turkmen brigades trade oil with ISIS, a journalist in Aleppo told IBT: “Do you think they can afford not to? If someone sells you oil at half the price, you’re going to buy it. It’s just business.”

Accusations of trading in ISIS’ oil have also been levelled against Iraqi Kurds since last year, when the Guardian reported that ISIS sold oil to Kurdish traders at a major discount, which was then sold to Turkish and Iranian traders. But Iraq’s Kurdistan Regional Government (KRG) has denied the allegations, put forth by Russia, that implicated Iraqi Kurds in the ISIS oil trade.

In an interview with Turkish newspaper Daily Sabah, KRG spokesman Safin Dzayi said his government was “saddened” by Russia’s claims, and added that the oil flowing from Kurdistan to Turkey was not from ISIS, who the Iraqi Kurds are actively fighting, but from local Kurdish oil fields.

"Russia's explanations are based on wrong sources. We strongly reject Russian accusations," he said.

The Smuggling Process

ISIS employs mostly former government oil and gas technicians to operate its refineries in Syria. In addition to its major refineries, the militant group also relies on “artisanal” processing plants that can produce only about a thousand barrels per day, but are, according to “L’Etat Islamique,” less expensive to rebuild if destroyed in U.S-led coalition airstrikes.

Once the oil is ready for export, local ISIS emirs employ civilians to smuggle the product to customers within Syria and on the border with Turkey using “tanker trucks, vans, jerry cans carried by mules, makeshift pipes, and even rafts when crossing rivers,” Levitt wrote in a testimony submitted to the House Committee on Financial Services.

Reports suggest ISIS pays Syrians desperate for work to conduct the smuggling, and that the transactions usually take place in U.S. dollars. “Greenbacks are like Kalashnikovs [in Iraq and Syria],” Schanzer told IBT.

The smugglers don’t identify themselves as supporters of ISIS and are considered civilian targets, which makes it much more difficult for the coalition, or Russia, to strike them. But after last month’s brutal Paris attacks claimed by ISIS, Russia and France have stepped up airstrikes on the group’s main oil production centers. Smuggling is now more dangerous than ever but experts don’t believe the strikes will completely halt ISIS’ oil trade.

“During this period, if they [civilians] can avoid driving these trucks they will,” Trombetta said. “They know if they wait two weeks, it will be back to normal. But they need to live. It doesn't matter for whom they work now, they have to go on.”