The Russian President, Vladimir Putin, has suggested that the decision by Turkey to shoot down a Russian military aircraft a week ago was “dictated by the desire to protect the oil supply lines to Turkish territory”.
His remarks at a news conference on Monday implied that the Turkish government was not only complicit in the smuggling of oil produced in areas of Syria controlled by Islamic State (IS), but also so heavily committed to this trade that it was willing to provoke an international crisis to protect it. It is doubtful whether Putin genuinely believes his accusation.
However, by raising the issue of the possible dealings between Turkish government agencies and IS, he has the chance to gain propaganda points in his tussle with Turkish President Recep Tayyip Erdogan, and in some way legitimise recent Russian attacks on targets in parts of Syria that are held by non-IS rebel forces backed by Turkey.
These attacks included the destruction of a large bakery built by the Turkish IHH Humanitarian Relief Foundation, according to agency officials.
-Murky deals-
The Syrian conflict has given rise to an extensive war economy in which murky deals are struck between a host of partners, including groups that are fighting each other on the battlefield.
Smuggling of oil and petroleum products from Syria into Turkey has been going on for decades, as traders and security officials cashed in on the difference in prices created by the heavy subsidies in Syria.
With the descent into civil war the trade has evolved, and in 2014 IS took over much of the crude production and refining business along the Euphrates river valley.
This represented about one-third of Syria’s pre-conflict oil capacity, with most of the remainder under Kurdish control.
There are many steps before oil produced under IS control reaches an end-user.
It is highly likely that Turkish business people, customs officials and intelligence agents are among the people implicated, but the scale of the entire trade is tiny compared with Turkey’s own energy economy (in which Russia plays a dominant role), and most of the participants are within Syria.
-Profits collapse-
In mid-2015, oil fields under IS control produced between 30,000 and 40,000 barrels per day, according to widely reported estimates.
The supply chain entailed IS selling crude to traders, who transported it to small refineries set up in IS-controlled areas.
The petrol and diesel produced in these refineries was then sold across Syria and Iraq, with any surplus smuggled across the border, mainly to Turkey.
The quality of the products was poor, but many buyers, particularly those in rebel-controlled areas, had little other option, and typically paid a heavy premium over international prices.
IS profited from the well-head sales, as well as from taxes along the supply chain.
The profitability of the Syrian illicit oil trade was hit by the collapse in world oil prices in October 2014.
Oil bought at the well-head for $20-25 per barrel in mid-2014 could end up in Turkey being sold at below the world market price of over $100/barrel, yielding healthy profits to everyone involved.
For a trader to make a profit selling bad quality Syrian products in Turkey now the well-head price would have to be much lower, and this would not necessarily make commercial sense for IS.
Since mid-October 2015, the IS oil business has been hit hard as US and French jets have started to attack well-head facilities and tanker trucks for the first time, and Kurdish and local Arab rebels have seized an oil field from IS in southern Hassakeh province.
-Economic dependence-
Turkey relies almost entirely on imports for its total oil consumption of about 720,000 barrels per day. A large chunk of those imports come from Russia.
In 2014 Russia also supplied 27bn cubic metres of natural gas to Turkey, representing 56% of its total consumption.
Russia was Turkey’s largest source of imports, supplying goods worth $25.3bn, or more than 10% of Turkey’s total imports.
In this context, if oil was a consideration for the Turkish authorities in its decision to shoot down a Russian jet, it would have had good reason to hold fire.
