By Benjamin Weinthal, ,
Published May 07, 2015
In the months since Syrian president Bashar Assad first began gunning down democratic protesters in March, the United Nations reports that the death toll has reached over 2,200, and the number grows every day.
This week, the 27 members of the European Union followed the the United States’ lead in imposing sanctions on Syria, banning imports of Syrian crude oil and petroleum products in an effort to pressure Assad to step down or stop the killing.
But The Wall Street Journal reports that loopholes in the legislation will allow European energy companies to continue oil operations in Syria. In short, the EU will embargo direct imports of Syrian crude oil, but permit European energy companies to continue producing and developing Syrian gas and oil.
If the EU were to impose real energy sanctions on Assad, their impact on his political future could be tremendous.
The Financial Times estimates that Europe consumes almost 95 percent of Syria’s oil exports, and oil revenues amount to roughly 25 percent of Syria’s government funds. All of this means that if Europe were to implement serious energy sanctions on Syria, it could jolt an already wobbly regime.
The British-Dutch energy company Royal Dutch Shell and the French energy giant Total are two of the most active European companies in Syria. Hungarian energy firm MOL also produces significant amounts of Syrian oil.
A recent analysis by Barclays Capital reports that in 2010, Syria experienced its first oil export growth since 2001, noting that “the potential loss of Shell, Totaland MOL remain high and could be a severe blow to Syrian oil production.”
Shell’s 32 percent stake in Syria’s Al-Furat oil consortium gives it especially great influence on Assad. If Shell were to sever its contracts, and Total were to do the same -- ceasing exploration in the oil fields of the Euphrates and Syria’s central region -- Syria would be deprived of substantial western investment capital.
The International Institute of Finance predicts that Syria’s economy, already limping along under existing sanctions, will contract by 3 percent this year.
The Financial Times reported last week that the Dutch government had pushed for the new EU sanctions granting companies a “limited” window of time to exit their contracts with Syria. However, the contracts apply only to exports of Syrian crude oil, not its extraction, leaving companies free to develop and produce Syrian oil that sustains Assad's regime.
The Obama administration is uniquely positioned to induce Shell and Total to leave Syria by threatening to deny them access to U.S. markets. The U.S. Treasury department set an important precedent in this regard in 2010, prompting Shell and Total to beat a hasty retreat from their oil operations in Iran.
For energy sanctions to be most effective in pressuring Assad, the U.S. and its European allies will want to persuade Chinese, Russian, and Indian energy companies to suspend their operations in Syria, at least until the violence comes to an end -- an implicit, if not explicit, commitment to a post-Assad government.
This is admittedly a tall order, as the Chinese, Russians and Indians care less about the democratic aspirations of the Syrian people than do Americans and Europeans. On the other hand, none of them are particularly invested in Syria, either. At approximately $107 billion, adjusting for purchasing power parity, Syria’s entire annual GDP amounts to about three months of Wal-Mart’s revenues.
China, Russia, India and Germany all abstained from the UN vote to impose a no-fly-zone to protect Libyan civilians from Muammar Qaddafi’s attacks. Surely they worry about their access to Libyan oil under a post-Qaddafi regime. But Syria’s oil production capacity pales in comparison to Libya’s, and the U.S. and its allies could perhaps allay these countries’ fears by helping to broker internationally accepted agreements for its future energy contracts.
Whether or not China, Russia and India could be brought along for the ride, it would take time for their companies to replace Shell and Total -- time Assad may not have.
If the EU were to add a mechanism in its sanctions legislation to penalize foreign energy companies operating in Syria, just as the U.S. has -- and enforce existing laws on foreign companies that violate sanctions -- it could push the Assad regime to the breaking point.
After an ongoing military campaign to uncertain ends in Libya, Washington and most European capitals understandably have no appetite for conflict in Damascus. But that doesn’t mean we’re without leverage. Assad has pressure points, and all we have to do is squeeze them.
Benjamin Weinthal is a fellow at the Foundation for Defense of Democracies.