Weak oil prices, and the prospect of protracted weakness, have pleased motorists but concerned many states. Venezuela may be on the brink of political ruin. Gulf monarchies wonder if their populations’ loyalty is based mainly on legitimate government or generous disbursements. Observers look for signs of unrest in Russia where the economy suffers from both weak oil prices and international sanctions from Putin’s aggressive moves in the Ukraine.
Weak prices will also cause trouble for another state. ISIL controls, and to some extent governs, a large swathe of territory straddling the former countries of Iraq and Syria. The state draws revenue from several sources, however revenue from captured oil fields across ISILstan is one of the largest.
ISIL Oil, Ltd
ISIL has higher costs than other oil-producing states. When ISIL seized territory in 2014 it took over preexisting smuggling networks. Its refinery operations are small-scale, to the say least. They are little more than scores of backyard tanks and tubing that look more like backwoods whisky stills in the South than corporate refineries along the Gulf.
Some product is sold locally under monopolistic conditions and protected by force. Reaching markets across the Turkish border incurs costs from inefficient small trucks and bribes at crossing points. Prices fetched there are below those set for WTI or Brent crude.
The US-led air campaign has begun a rigorous interdiction program. Formerly, oil trucks were off-limits as they were driven by locals outside ISIL’s organization. However, with western public’s frustration over lack of progress in the war, and ire over the Paris attacks of November, the rules of engagement have eased.
Fiscal crunch
States with greatly reduced revenue often borrow money. ISIL, of course, will not do well on world bond markets. A second option is to cut expenditures. Sunni states are doing this and will continue to do so until oil prices rise sufficiently – something analysts don’t see in the offing.
Reports are surfacing that ISIL has cut the salaries of soldiers by about fifty percent. This will have little effect on those who fight out of deeply held religious beliefs. However, many in the rank and file are far less religious than outside images suggest. They, like young men in many armies, serve for adventure and the desire to take part in great events. They want to return home admired and coveted, not emaciated and poorer than when they left.
Pay cuts will encourage many of them to desert, in order to return home or serve in a less zealous but more reliably paid outfits such as the ones supported by the Gulf States, the US, and the Muslim Brotherhood. ISIL will have to allocate personnel to prevent this.
Increased extraction
States in financial difficulty often resort to raising taxes – an option obvious to politicians and taxpayers alike. ISIL has in the last two years changed from a shadowy underground movement to a military state that governs, and taxes, Sunni regions that Damascus and Baghdad have lost control of.
While ISIL has a measure of popular support from people hostile to Shia rule, ISILstan is governed harshly and pitilessly. With oil revenue down hard, taxation will be increased and extraction will be all the more harsh and pitiless. Commerce will suffer more, people will flee in larger numbers. Its tax base shrinking and more hostile, ISIL will be even more vicious.
It will be parenthetically noted that the war in Vietnam led to the depopulation of many rural areas as people fled the fighting for the relative safety of cities. Its tax base shrinking, the Viet Cong had to become more ruthless in tax collection, which led to hostility from locals. This changed the course of the war.
Parallel responses are possible in ISILstan as Sunni tribes may assert themselves and fight ISIL as determinedly as they fought the US in years past.
©2016 Brian M Downing