1. ISIS Losing Oil Revenue
According to Iraqi news reports, ISIS has lost a significant amount of the oil revenue it used to count on. Before losing control of oil fields near the city of Tikrit, it is believed that ISIS used to bring in somewhere around $20 million in oil revenue a month. Nearly 80 ISIS oil tank trucks were also destroyed in U.S. airstrikes targeting ISIS’s oil smuggling network. The Syrian Army and Kurdish forces have also made some gains in capturing key points along important oil pipelines that had fallen under ISIS control. The current strategy to cut ISIS off from its oil revenue seems to be having some impact – at least in Iraq. In Libya, however, ISIS continues to expand and threaten oil resources there. At the end of 2014, ISIS reportedly controlled enough oil fields to produce as much as 75,000 barrels per day. Since then, the amount has been reduced, as has ISIS’s oil transport system, but how much is unclear.
2. Will Oil Guarantee Kurdistan’s Future Independence?
The Kurdish people do not have an independent country, but there is much talk of that possibility arising out of the mess of the current regional destabilization. The successful future of any potential independent Kurdistan would depend, in large part, on its access to oil. In June 2014, just as ISIS seized control of Tikrit and nearby areas of Syria, the Kurdistan Regional Government (KRG) moved in to take control of key oil resources from the Iraqi government in northern Iraq (specifically the city of Kirkuk and its surrounding oil fields). Although Baghdad demanded the Kurds return the oil and the city to central Iraqi control, the Kurds refused, and continued to hold the city against encroaching ISIS forces. Recently, the Kurds seem to have gained the upper hand in this fight. Controlling these oil resources would provide a potential independent Kurdistan with a major oil industry. Reports indicate that the area the Kurds currently or may eventually control could potentially contain 50 billion barrels of proven oil, 80 billion barrels of unproven oil, and 8-10 trillion cubic tons of Natural Gas. When the future of post-ISIS Iraq is decided, the KRG will have a stronger hold on the region because of its own military presence and opportunity from the native oil resources. As it stands now, the Kurds have significantly increased the territory and resources they need for independence. If they maintain control, they may declare an independent Kurdistan in an oil rich country.
3. Natural Gas Brings Egypt and Israel Together
Meanwhile, development of offshore natural gas resources is heating up in the Mediterranean, with Egypt and Israel cooperating to turn the area into a natural gas powerhouse. Egypt recently secured a significant investment from Italy’s ENI (MI:ENI) to increase production in its offshore Zohr natural gas field. Energy companies, after significant domestic legal delays in Israel, are finally pursuing development of Israel’s offshore Leviathan gas field. The nearby Tamar field has been producing since 2013, and new reports expect Tamar to produce over 1 billion cubic feet of natural gas a day when it reaches peak production in 2017. It should eventually also produce over 1,000 barrels of condensate a day. Leviathan will likely come online in 2019 and, at peak production, produce 2.1 billion cubic feet per day. Leviathan will significantly alter Israel’s precarious fuel situation by providing enough gas to cover Israeli electricity demand with a surplus to export natural gas to Egypt.
Israel and Egypt were even able to resurrect a stalled $10 billion deal between Egypt and Noble Energy (NYSE:NBL) (which owns a 40% stake in Leviathan). Egypt had threatened to cancel the deal when an international court ordered the country to pay a $1.73 billion fine to Israel for unilaterally cancelling its natural gas exports to Israel in 2012. In May, however, Israel conceded to accept half that amount in exchange for reviving Noble’s natural gas deal with Egypt.
4. After Attempted Coup, Turkey and Russia Move Forward on Pipeline
Before Turkey shot down a Russian military plane near Syria in November 2015, the two countries had been deeply involved in negotiations to build a new gas pipeline (called the TurkStream) to provide Russian natural gas to Europe. This pipeline would run underneath the Black Sea and through Turkey before terminating in Ipsala, a town on Turkey’s border with Greece. The TurkStream is an important part of Russia’s strategy to keep its European customers from switching to other sources of natural gas. Since the failed coup attempt last month in Turkey, Erdogan has reached out to mend fences with Russia. The TurkStream pipeline is playing a major role in these talks. If the negotiations are successful, the pipeline could be completed as soon as 2019, further solidifying European dependence on Russian energy.