Ariel Ahram argues that the oil and water resources ISIS has captured are forcing it to behave more like a state and less like an insurgency:
Oil and water, unlike diamonds or drugs, contribute to the coherence to the Islamic State and the discipline of its governance. While both the United States and (even more significantly) Iran have dispatched military advisers to Iraq, full-blown outside intervention is difficult to imagine. Other forms of non-violent interventions, such as placing sanctions or embargoing IS’s oil production, are unlikely to be effective. Alternatively, coming to agreements on the disposition and distribution of water and oil resources could form the basis for some modes of negotiation. IS has already cooperated with the Assad regime in the distribution of electricity. While arrangements for sharing water and oil will not bridge the profound ethno-sectarian and ideological gap separating IS from the KRG, Iraq, Syria and the myriad of other belligerents, it could provide a basis for conflict management that mitigate the worst violence and spares civilians further harm.
In the meantime, ISIS’s control over Iraq’s central oil fields is becoming a major revenue stream for the jihadist operation. Steve LeVine highlights its million-dollar-a-day oil smuggling business:
According to an investigation by Iraq Oil Report (paywall), ISIL rapidly captured one and possibly two oilfields south of Kirkuk soon after storming Iraq a month ago. The fields, in the Hamrin mountains, produce relatively small volumes—just 16,000-20,000 barrels a day. But that earns a tidy income even at the knock-down local black market rate of about $55 a barrel, according to the report.
The description of ISIL’s smuggling route into Kurdistan continues the narrative of a ruthlessly managed, financially savvy rebel group that has emerged over the last year first in Syria and now Iraq. That includes control over Syria’s oilfields—on July 3, ISIL captured al-Omar, the country’s largest oilfield—plus some $420 million in Iraqi dinars snatched up in the June capture of Mosul. In all, ISIL may have a cache of some $1.3 billion. If you look at the capture of Iraqi territory as a business expansion, the prudent thing for ISIL to do is to establish new lines of revenue to support its added expenses. This is what the Hamrin mountain oil-smuggling network looks like.
Overall, however, Douglas Ollivant stresses that much less of Iraq’s oil is at risk in this conflict than many assume:
The bulk of Iraq’s oil production, now at about three million barrels per day, occurs in the far south of the country, in and around Basra province. A few smaller but still significant fields in the far northeast of Iraqi Kurdistan contribute another few hundred thousand barrels a day. Neither of these regions are anywhere near the current fighting. Further, each is buffered—by the mountains that rise in the KRG to the northeast, and by hundreds of kilometers of almost exclusively Shia Iraqi geography in the south. The Baiji refinery, a facility that has become a battleground in recent weeks, is focused exclusively on internal oil refinement and distribution and is not a part of Iraq’s export infrastructure. So Iraq is still on a path to be producing four million barrels a day by the end of this calendar year, or shortly thereafter.
The fighting will doubtless slow the further expansion of Iraq’s oil production. Baghdad’s inability to process hydrocarbon contracts, combined with increased security and insurance costs for international oil companies means, that we should now be less optimistic about predictions that Iraq will be producing 6 million barrels a day by the end of the decade. But the idea that Sunni jihadists will be overrunning Iraq’s southern oil fields is extremely far fetched.