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Islamic State's advance through Iraq and Syria over the summer saw it build from scratch a formidable portfolio of oil assets, boasting production of some 60,000 barrels per day and refining capacity, at its peak in July, of some 18,000 b/d, PIW estimates. Oil and oil revenues have become vital to supporting the Islamists' expanded borders, so it is no surprise that the US and its allies have sought to disable these operations. Air strikes in Syria and ground gains in Iraq in recent weeks have degraded this makeshift oil empire, particularly in the downstream(PIW Jul.7'14). Air power alone will not defeat Islamic State, but it has dealt the jihadists' oil industry a significant blow. Some 4,000 sorties by US and coalition jets have knocked out more than 50% of the group's refining capacity, which was mainly based in Syria and consisted of about 30-40 mini-refineries that could each process 100-500 b/d, and dozens of smaller units handling 100 b/d or less. Bombs dropped around Deir ez-Zor, a key oil producing region in Syria's east, have also taken out as much as 14,000 b/d of oil production capacity from a dozen wells, PIW is told. Battlefield losses in Iraq deprived Islamic State of its biggest oil prize, the 25,000 b/d Ajeel field, in August, and while it remains in control of several others, its production is down to some 25,000 b/d, half of what it was in July.

The most significant loss for the militant Islamists has been the destruction of their rudimentary refining network in Syria. In addition to significant tax revenues, this helped provide a steady supply of diesel and gasoline for the broad base of people Islamic State now claims to rule and, most significantly, fuel for its fleet of military vehicles. Given that it now has fewer smuggling options, it may need to capture a larger refinery to keep up its very effective lightning offensives. Kurdistan Regional Government (KRG) and Turkish authorities have very belatedly tightened known oil and product smuggling routes, which until mid-July were doing brisk business with Islamic State tankers. Those trucks largely entered KRG territory via Tuz Khurmatu, just south of Kirkuk, and Turkey through Tel Abyad, just north of Islamic State's de facto capital at Raqqa in Syria, and via Reyhanli. With many of its modular refineries destroyed, shortages are already being reported in Aleppo. Islamic State is casing its territory for other options, testing the defenses of the Baiji refinery again in recent weeks. There are other targets in Iraq such as the 30,000 b/d Haditha refinery, in the heart of the group's Sunni territory, which has repelled at least two attacks. Syria's Homs refinery, located in regime-controlled western Syria, could also be a target.

The loss of Iraqi oil assets has hurt the group's long-term upstream outlook, but it has stolen a lot of oil in recent months, which seems certain to have padded out its treasury. During its June offensive in Iraq, the jihadists plundered storage tanks and siphoned off oil from pipelines, netting well over 3 million bbl, Iraqi sources tell PIW. Besides Ajeel, Islamic State has lost several Iraqi fields, leaving it with a portfolio of technically challenging or heavily damaged assets that will limit future revenues. The Syrian fields -- formerly run by Royal Dutch Shell and Total -- have been damaged since the war in Syria started in 2011 by rudimentary extraction methods and can now pump only a fraction of their earlier 100,000 b/d peak. In Iraq, meanwhile, Qayara produces difficult heavy crude. Stolen oil does give Islamic State a short-term buffer -- in August, it stole 700,000 bbl from the IT-2A pumping station northwest of Mosul and siphoned off 1 million-2 million bbl from the Iraq-Turkey pipeline. That followed the more than 2 million bbl it stole from Iraq during its June offensive.

Islamic State's Declining Oil Portfolio
Upstream ('000 b/d) Prewar
May Jun Jul Aug Sep Captured Lost
Al-Furat (Shell) 90 -- -- 20 20 10 Early Jul --
Deir az-Zor (Total) 24 4 4 6 6 2 -- --
Ajeel 28 -- 25 25 -- -- Jun 10 Aug 3
Himrin 6 -- 5 5 5 5 Jun 10-11 --
Ain Zalah* 8 -- -- -- 0 -- Early Aug Aug 27
Safiyah 6 -- -- -- 6 6 Early Aug --
Batmah* 5 -- -- -- 0 -- Early Aug Early Sep
Qayara 5 -- 2 2 2 2 Jun 10 --
Total 172 4 36 58 39 25 -- --

*No production. Source: PIW, Iraqi and Syrian sources

Islamic State Refining Capacity
Syria (b/d) Pre-Sep 24 Current Note
Mayadin 400 0 Bombed Sep 24
Jeribe West 400 0 Bombed Sep 24
Gbeibe 400 0 Bombed Sep 24
Nine Other Units 3,600 0 Bombed Sep 24
Manbij Cluster 2,400 0 Bombed Sep 28
Other Units 10,800 10,800 --
Total 18,000 10,800 --

 Source: Syrian sources, US Department of Defense 

Air Strikes Weaken Islamic State Oil Operations