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Europe’s refiners brace for loss of Syrian crude

US sanctions against Syria – specifically targeting the oil sector – may have serious implications for European refiners, although crude prices are, in the short-term, unlikely to be affected

As the Syrian uprising enters its fifth bloody month, US President Barack Obama yesterday unveiled a series of wide-ranging sanctions against Bashar al-Assad’s regime. In Europe, officials from the UK, France, Portugal and Germany echoed US calls for Assad to step down, adding that a decision would soon be made on drafting sanctions for EU consideration.

The US measures bar the purchase of all Syrian-sourced petroleum and petroleum products by US entities. According to US officials, the country imports a scant 6,000 barrels a day (b/d) from Syria. Far more serious for Syria would be EU sanctions. While most of Syria’s 380,000 b/d output is used domestically, it exports around 150,000 b/d to OECD nations, with Germany, Italy and France taking almost all last year’s exports. The bulk of Syria's crude exports comprise heavy Souedie crude; just 23% of the total is sweet, easily traded Syrian Light blend.

According to Barclays Capital (BarCap) figures, the country derives about a quarter of its revenue from the energy sector, and this loss of income, while unlikely to cripple the regime, would hurt.

Earlier this year, Ausama Monajed, of the National Initiative for Change, told Petroleum Economist a boycott of oil exports would deprive the government of up to $8 million a day in earnings. “That revenue goes straight to the prime minister’s office making it easy to direct it to military and security operations,” he added.

Growing regional pressure

The US and EU moves follow growing regional pressure on Assad. Last week, in a rare public rebuke, Saudi Arabia’s King Abdullah withdrew the kingdom’s ambassador to Damascus and warned Assad he must “stop the killing machine”. The king said time was running out for the government to enact reforms, adding: “Either it chooses wisdom on its own, or will be pulled down into the depths of turmoil and loss.” The Saudi statement was the first public condemnation of Syria from a Gulf Co-operation Council member. Kuwait and Bahrain have also withdrawn their ambassadors.

Turkey, meanwhile, which has strong economic links to Syria, has opened its borders to refugees and has allowed Syrian opposition figures to meet on its territory. Foreign minister Ahmet Davutoglu issued what he called a final warning to Syria to halt military operations against civilians, saying if the bloodshed did not stop “there will be nothing left to say about the steps that would be taken”.

The crude market has not yet reacted to the sanctions, with Brent hovering at around $106 a barrel in morning trade. Thorbjørn Bak Jensen, an oil market risk analyst with Global Risk Management, said: “On a normal day, this would have some impact, but this isn’t a normal day. There are fears there’ll be a new recession, so the market isn’t focused on the Middle East.” He added: “Of course 150,000 b/d will be missed, but it’s more a demand issue than a supply issue.”

BarCap analyst Amrita Sen expects the real impact of the US sanctions decision will be felt in Europe’s refining sector, a factor she sees as key to Europe’s apparent reluctance to impose sanctions of its own. “European refineries are already grappling with the loss of light Libyan crude,” she said. “Any loss in crude volumes can significantly jeopardise European refinery operations.”

Foreign companies active in Syria’s upstream are reviewing the sanctions regime, its legal ramifications and its potential impact on operations. Total, which last year produced 39,000 barrels of oil equivalent a day in the country, said it would comply “with all laws that are applicable to the company”. Neither Gulfsands Petroleum nor Shell were immediately available for comment. 

Additional reporting by Kwok W Wan

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