What are the implications of the declaration by the United States and Europe that they will boycott Syrian oil, especially in light of the country's limited output, and most importantly, in light of the failure of the majority of similar resolutions in the past? On August 18, President Barack Obama stated that the United States would ban the import of Syrian oil, although the U.S. has not imported crude oil from Syria since early 2009, while it has brought in around 10 thousand barrels per day only of Syrian fuel oil this year. The resolution also banned any American citizen or company from dealing in Syrian oil, partaking in the development of the oil sector in the country, or dealing with Syrian petroleum companies, as punishment for Damascus for its crackdown on anti-regime protesters. Since Syria's oil exports go mainly to European countries, it was also expected that the EU countries would pursue a similar course of action. According to the information available from Brussels, the EU governments most likely intend to impose an embargo on Syrian oil in the first week of September. However, it seems that there are disputes within the EU regarding this issue, especially one involving Britain: A senior official in the Foreign and Commonwealth Office said that an oil embargo would hurt the Syrian people more than it would hurt the regime (as happened in the case of the Iraqi oil embargo in the nineties). But it is also clear that there are other reasons putting off the European decision, including the fact that a gradual restoration of Libyan exports is being closely anticipated, as there are concerns that a simultaneous shortage of output by both Libya and Syria would fuel speculation and push prices to higher levels than their current ones (especially as Syrian oil exports include two types of crude oil- the heavy grade Suwayda and another light grade type which has similar characteristics to the Libyan oil). The refinery maintenance season in autumn in Europe is also being anticipated, when refinery demand for crude oil would fall (It should be noted here however, that Syrian oil exports are limited, and amount to about 150 thousand barrels per day). The oil embargo leaves a multilevel impact on the economy in Damascus. The first will be long-term and will negatively affect the growth of the oil industry when international oil companies avoid operating in Syria. But such measures in fact do not put rapid pressure on the regime, because their results may not appear quickly. However, Syria is indeed exposed to this kind of pressure because the country is in dire need to discover new oil fields and improve its production capacity. For example, Syrian oil output has fallen from about 600 thousand barrels per day in 1995 to about 380 thousand barrels per day. And should the European embargo be implemented, the two largest foreign companies operating in Syria, Royal Dutch Shell and the French group Total, would be forced to withdraw and suspend their operations there. The embargo may also very well abort the tender that Syria will post this year for international companies to come and engage in exploration and drilling in the Mediterranean, in parallel with similar efforts in neighboring countries. Such hurdles would delay the development of the Syrian oil industry, and reduce its size, and would also further contract the quantity of locally available oil products. This would engender domestic pressures manifesting themselves as a decline in the oil products supplied to local consumers; this is while bearing in mind that oil accounts for about 70 percent of energy usage in Syria. However, in order to follow in the footsteps of other Middle Eastern countries that underwent an oil embargo (e.g. Iraq, Iran, Syria), the latter can somewhat collaborate with Russian, Chinese or Asian entities. And in addition to these repercussions, we find that the interests of some officials in the regime have been affected by the embargo. Indeed, the Gulf Sands Petroleum Company, which is listed on the London Stock Exchange, declared that it has severed its ties with Rami Makhlouf, who owns the Al-Mashrek Global Invest, which in turn has a 5.75 percent stake in the petroleum company. Gulf Sands was thus forced to issue a statement severing its ties with Makhlouf after its shares tumbled in the stock market. The second type of boycott would involve an embargo on oil exports, which namely involves Europe. It is clear that such an embargo would cause a significant source of revenue for the Syrian government to shrink. However, previous experience shows that it is possible to overcome a total embargo by making sales through Russian or Asian companies, or exporting to Asian markets instead of Europe. What really happens in these cases is that small companies are dealt with instead, either fake companies, or ‘brokerage' companies. In this scenario, the clients or friends of the regime benefit from this opportunity (they are carefully chosen by the regime to benefit from their contacts and influence in their own countries to get the biggest possible support, through them, in these critical times). Of course, Syria suffers a double loss in this scenario. First, its traditional customers would flee to other exporting countries. And second, Syria would lose millions of dollars as a result of the discount given to the companies which take risks to market the banned oil, especially as these are often motivated by quick and high profits. Third of all, Syria imports petroleum products, especially gasoil (diesel) and liquefied petroleum gas (LPG) through European companies such as Shell, Total, the Hungarian group MOL and the Italian group ENI. These companies would stop supplying these products, and some have suspended such exports to Syria already. Subsequently, Damascus would have to secure these two products using its own methods, especially as it subsidizes diesel prices. In this case, it is quite possible that Damascus would resort to smuggling these products through neighboring countries. Since the price of diesel in neighboring countries is extremely high (Turkey, Lebanon, and Jordan), it is not likely that diesel would be smuggled through these countries, which means that the choice would fall on Iraq. Baghdad both imports and subsidizes diesel, making it suitable for smuggling to neighboring countries, especially Syria, as the border between the two countries is rather porous. There is no doubt that an oil embargo would negatively impact the citizens themselves, and both the domestic economy and the growth of the Syrian oil industry, albeit in varying degrees and over different periods of time. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
