It has become more expensive for the so-called Islamic State to operate its oil sectors in Iraq and Syria, and prices of fuel and commodities in key Iraqi territories are increasing, as airstrikes have escalated with a focus on the group's oil sector, residents and American officials told Platts.
Much of the details were corroborated by information obtained from the US military's raid of the IS group's Syrian oil minister, Abu Sayyaf, in May, some of which was recently declassified and outlined in briefings to Platts.
"We have all understood and known that the energy sector was going to be very important to ISIL from day one," said Amos Hochstein, the top State Department official focused on energy issues and a point person for the government on targeting IS oil.
"From the early days, different groups prioritized different territory that had energy infrastructure of different kinds, whether pipelines, refineries, oil fields, oil storage facilities," he said. "ISIL perfected that ... if you look at map of territorial control, while they control a relatively small amount of land, they own an outsize percentage of energy infrastructure."
At its peak, from 2014 until the Abu Sayyaf raid, IS oil production was 70,000 b/d and earning $40 million/month, according to the newly declassified data, and production and pricing information independently reported by Platts.
That accounted for no more than 50% of the group's revenue, the rest earned from trafficking in artifacts, taxes and other earnings.
It's highly unlikely that any oil is trafficked outside its borders, considering the high cost and declining global price. Instead, the oil sales are domestic, focused on the IS group's fuel needs -- for military operations and to serve its civilian population.
OPERATIONS IN IRAQ, SYRIA VERY DIFFERENT
To produce enough oil, the IS group vetted and hired like-minded oil workers from outside Iraq and Syria -- estimated at around 1,600, according to a US official who viewed the Abu Sayyaf trove -- to produce from the 200 wells under its control in Syria.
In Iraq, the Qayara oil field and nearby refinery are all that remain. The field produced at best around 5,000 b/d of very heavy crude, according to a second US official, and a worker at the field. The refinery had 4,000 b/d capacity prior to the IS invasion in June 2014.
But accounts from locals in Qayara, Pentagon airstrike reports, and the US officials who spoke to Platts all paint a picture of decimated infrastructure and dead IS oil workers, which has pinched supplies.
Fuel costs have spiked and availability has dwindled over the past few months, residents in Mosul said. Mosul is the IS group's prize city in Iraq.
Coupled with the retaking of the Iraqi town of Sinjar in November, a crucial junction in the supply route from Syria to Mosul, the price of food and other goods in Mosul have also risen while supplies declined.
All of this was calculated, the US officials said, as part of the Operational Tidal Wave II bombing campaign that began in October and was heavily informed by intelligence taken from the Abu Sayyaf raid.
ISLAMIC STATE WORKS AROUND STRIKES, BUT AT A COST
The US bombing campaigns appeared sporadic, which US officials said were intended to provide time to analyze the IS group's response.
Hochstein said this started with targeting refineries, making the fuel more expensive, then hitting trucks, which made drivers more reluctant to carry loads -- or increase the price -- and take other safeguards which made it safer but more expensive.
"But they recovered from that," he said. "Through all kinds of workarounds, they were able to recover the value of the barrel."
Those workarounds further devalued the operation, however, using open pits to store crude they weren't able to process, and transferring the crude to other open pits that burned it in a rudimentary refining process.
The officials wouldn't confirm price points for oil sales found in the Abu Sayyaf data, though local workers and oil traders have said at best it was $10-$20/b.
The IS group didn't make the sales other than from the wellhead, US officials said, but applied taxes throughout the process such as for trucks to cross checkpoints and on fuel from the refineries.
All of this became more difficult as the global oil price decreased, putting downward pressure on the fledgling oil operation.
