Abu Dhabi: Drop in oil prices is not only affecting oil companies but also Daesh, the militant outfit which controls a large territory in Syria and Iraq. Analysts say that oil production as well as the revenues for Daesh have reduced.
“It is our expectation that dropping oil prices do hurt Daesh, but not to the extent of other oil exporters,” said Mark V Stys, Chief Investment Officer at WS Wealth Management, a US-based company.
According to him, the group had little cost in obtaining the oil as they are not a company and did not have to invest in capital on exploration, drilling, infrastructure, and transportation networking.
“They took the oilfields at very low economic cost and virtually all of the revenue they receive came in as net income — at least initially. Lower prices will hurt them over the longer term as they have to maintain and repair the infrastructure and falling prices globally give low cost buyers less risky options,” Stys said.
Daesh has been smuggling oil through Turkey and Kurdistan with the help of brokers. Around 60 per cent of oilfields located in the eastern provinces of Syria and seven oilfields and two refineries in Iraq are under the control of the group.
It is not known to what extent their revenues have reduced but the militant outfit was generating more than $2 million per day in September. “I would expect that they are significantly lower, but haven’t seen any data as to how low. Daesh also controls a large area with cities that need power and so there is an ‘internal’ market as well as an export market,” Stys said. “The internal market is ‘captive’ so they can charge whatever they like given their means of control over the population. As far as exporting, there are always buyers if you go low enough in price.”
Valérie Marcel, Associate Fellow at Chatham House, an independent policy institute based in London, said the outfit is producing a fraction of the crude they produced last summer. “What they produce they most probably try to refine in full, rather than smuggle to Turkey or elsewhere,” she said. “What they need most are refined products, to meet the needs of their war machine, but also the six or so million people living in the areas they control.” She added that the earnings, however, are unlikely to be affected due to fall in oil prices.
Oil prices have dropped significantly over the last few months due to oversupply and weak demand. The price of Brent crude was around $63 on Thursday.
The US has recently stepped up air strikes on oil installations to stop the revenue flow of Daesh. The administration feels that the strikes were successful in cutting back the production.
