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Syria: Drilling for oil while Hama burns

Maintaining the status quo in Syria’s oil industry is not an option while the Assad regime uses this critical resource to suppress protest

AS PROTESTERS die every day and the international community considers further measures to isolate the regime of President Bashar al-Assad, it is business as usual in Syria’s oil industry and for its international operators.

All the normal corporate cogs have remained in motion the last few months – press releases, option calls, reverse take-overs and so on.

Within the last month, London-listed Gulfsands Petroleum has announced the discovery of new oil reservoirs and increased production; while Calgary-based Kulczyk Oil Ventures began drilling on an exploration block about half an hour’s drive from the city of Hama – where Syrian army tanks occupy the middle of the city and more than 100 protesters are reported killed in the past 10 days.

Oil-industry executives tend to maintain a variety of positions in circumstances such as these. Some strain to believe they are not part of the picture and throw up their hands. Many, perhaps most, maintain that business is separate from politics and cite their primary obligations to their shareholders. A few even seek to glamorise their plays, presenting themselves as investors in true fundamentals, with a stomach for high risk.

The real high-risk, high-reward long game

But there is a different kind of blood-on-the-streets investing to be done, which is to stand on the right side of history, in solidarity with the protesters of Homs and Hama and reap the reward later of a new, grateful government and a relationship of trust that could normally take decades to build. That is the real high-risk, high-reward long game.

In Libya, Eni, the oldest and most committed international oil company in the country, has cut its ties with the regime of Muammar Qadhafi, at considerable risk to its capital-investment profile, and is working with the rebel government. When the old tyrant goes, it will stand in pole position in a competitive market place for having stood with the National Transitional Council when it counted.

Syria is not a big oil exporter, but oil is critical to its political economy. Formally, oil revenues account for a third of the state budget, but for the Assads, it’s a magical slush fund – unrestricted income compared with other revenue streams filtered and strained through more regular workings of government. Local industry experts suspect a lot of fiddling of the books and off-budget shipments.

The UN, the EU, the US and are preparing and implementing sanctions on the country’s oil industry, at the request of Syrian opposition leaders and with the broad support of the protesters, who are well aware that such action would cause some hardship for themselves. Such sanctions could be highly effective at targeting the regime’s ability to fund and mobilise the repression.

Preserved for Syria’s new day

But there is also general agreement that the upstream industry should be left untouched, preserved for Syria’s new day. The idea is to cut the Assads off, but keep everything in place so that the oil and revenue taps can be turned back on again as soon as they are gone.

Those involved say oil companies have privately raised issues of contractual obligation. This is classic short-term thinking. Oil firms are not disclosing, even to diplomats, the terms of force majeure and stabilisation in their contracts, forcing public policymakers to take their word that these will not cover commercial losses. And even if there were some degree of loss, industry leaders that can only conceive of clinging onto the status quo until the last possible moment could be in for a rude awakening.

Colleagues in the Syrian protest movement want dialogue with the oil majors operating in the country, but have so far failed to obtain access. Their next move will be towards some very public diplomacy. Look forward to slogans and demands on banners raised amid the burning tyres and careering tanks of Hama.

Images will be uploaded from mobile phones, picked up by every mainstream broadcaster for prime-time viewing, singling out individual companies by name and asking them to wash the blood off their hands. When that happens, where will the shareholders real interest lie?

Johnny West is founder of OpenOil, a consultancy that advises the UN on the public-policy implications of the oil industry in the Middle East, and seeks market solutions to resource-curse issues. He has published on energy for Reuters, the EITI, Transparency International, Iraq Oil Report and the Center for Global Development. His book Karama! Travels Through the Arab Spring, just published in the UK by Quercus, includes a chapter from Benghazi on Libya's oil industry in the hands of the rebels.

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