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Implications of the Oil Deal for the Kurds in Syria

The Kurds have entered a complicated game following the oil agreement between American company Delta Crescent Energy and the Syrian Democratic Forces (SDF) to modernize the oil fields and increase production in north-east Syria.

The complexity lies in the fact that the Americans have firmly resolved to prevent the supply of oil to the Syrian regime due to the Caesar Act, but the SDF needs an outlet to rapidly sell oil in nearby markets. This puts the SDF in a state of disarray at both national and regional levels, as any operation to export oil to regime areas will be subject to sanctions for directly contributing to military operations.

The Autonomous Administration of North and East Syria (NES) has resorted to several proactive measures in preparation for the sanctions, including a decision issued on June 6 to prohibit delivery of wheat crops to regime areas. This decision seemed to be issued at the request of the US to throttle the regime and tighten the embargo, as well as to preserve wheat reserves for fear of the worsening economic crisis in the region.

The administration also took a number of steps to distance itself from any form of rapprochement to the regime, such as replacing the Syrian government’s educational curriculum in the areas around al-Hasakah by a curriculum specific to Autonomous Administration areas.

High-ranking political leaders in the Democratic Union Party, the nerve center of the Autonomous Administration, also requested American exceptions to keep their areas from falling into the sanctions trap, basing their request on the support they gave in fighting ISIS. The US issued an exemption from the State Department and the Department of the Treasury to conclude an agreement between the SDF and Delta Crescent Energy, which would increase oil production by approximately 60,000 barrels per day, providing a daily income of US$3million.

This production can be achieved through two mobile oil refineries from the company, without needing to build large permanent oil refineries. This suggests the agreement is temporary, but will increase the Autonomous Administration’s budget, which according to a former Autonomous Administration employee, is currently about US$2.5billion mostly from oil and gas revenues but also from strategic crops such as wheat.

This agreement appears to support the financial independence of the Autonomous Administration, as stated by US President Donald Trump on October 22, 2019 after the Turkish military operation in northeastern Syria: ‘Maybe we'll get one of our big oil companies to go in’ – this would pump money to the Kurds.

But the nature of the agreement does leave a loophole as it was concluded with the company as an investor and not with the American administration. Because the SDF has no international status legally speaking, the agreement is not a political recognition of the Autonomous Administration as some see it but resembles a de facto agreement only.

So, from the perspective of the Syrian regime, the SDF has no legal status to sign an agreement with any foreign entity. According to the Syrian constitution, the executive branch alone has the authority to sign such an agreement, after which it is sent to the People’s Council of Syria for ratification. In reality, the Syrian Ministry of Foreign Affairs has condemned this oil agreement, but parliament is not aware of most of the agreements the regime enters into with Russia or Iran, and really is a council in name only, following the policy and directives of the Syrian regime.

While this deal economically stimulates the north-east of Syria, it faces several obstacles such as Turkish opposition and possible tension in the region’s relationships with both Russia and the Syrian regime, which in turn may punish the Autonomous Administration regions with measures such as stopping intra-regional trade or cutting off electricity. This explains the SDF’s repeated attempts to take control of the electricity company in al-Hasakah to avoid being at the mercy of the Syrian regime.

The SDF is trying to alleviate tension by winning Russia to its side through developing economic relations with it. Abdul Hamid al-Mahbash, co-president of the Autonomous Administration of North and East Syria, said the administration is studying requests from Russian and American companies for investing in various service areas in the region, thereby opening the region to wider Russian investment.

If the regime takes punitive economic measures, the Autonomous Administration may rely more on Iraqi Kurdistan to import the products it needs while marketing oil to the region itself. This raises the cost as well as increases dependence on the region at the level of export and trade, putting north-east Syria under the domination of the region as a whole, both economically and politically. It is also not clear how money will be received in exchange for oil exports, as the Autonomous Administration does not have a banking system through which oil revenues can be received.

In conclusion, this oil agreement has no political or legal status. It is a de facto agreement with a military dimension as it was brokered between the US company and Mazloum Abdi, commander-in-chief of the SDF, not the Autonomous Administration, the civil service entity in the region.

The agreement is also full of complications and ambiguity regarding the results and size of the revenues and their repercussions on north-east Syria. No-one appears to have examined the text of the agreement, and it arrives during a state of political inertia in Syria with a lack of stability in the forces at work on the ground.

In reality, it appears this agreement is not practically linked to eliminating the effects of the Caesar Act, but rather aims simply to increase oil production and strengthen economic division within Syria. But revenues from production, and how they are disbursed, still leaves the Autonomous Administration at the mercy both of the Caesar Act and an uncertain political situation with Damascus and Russia.