(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000302840001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: January 12, 2017
• Document Release Date: March 7, 2011
• Sequence Number: 1
• Publication Date: July 24, 1986
• Content Type: MEMO

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SUBJECT: Syria: Driving Toward Oil Self-Sufficiency
NESAM #86-20119
DISTRIBUTION:
EXTERNAL:
1 - Ms. April Glaspie - State/NEA/ARN
1 - Mr. Aaron Miller - State/Policy Planning
1 - Mr. George Harris - State/INR/NESA
1 - Lt. Col. Fred Hof - OSD/ISA/NESA
1 - D IA/JS I
1 - Mr. Dennis Ross, NSC
1 - Mr. Byron Jackson, Commerce
1 - Mr. Doug Mulholland, Treasury
INTERNAL: DATE
25X1
Fr LC
1 - DIR/DCI/DDCI Exec Staff
1 - DDI DOC NOS
1 - ADDI
1 - NIO/NESA OCR j
1 - C/PES
1 - PDB Staff P&PD
1 - NID Staff
6 - CPAS/IMD/CB
1 - D/OGI
1 - C/OGI/SRD
1 - D/NESA
1 - DD/NESA
1 - C/NESA/PPS
2 - NESA/PPS (1 cy to analyst for sourcing)
1 - C/NESA/SO
1 - C/NES/IA
1 - C/NESA/PG
1 - C/NESA/AI
3 - NESA/AI/L
DDI/NESA/AI/L
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Central Intelligence Agency
W shingyon.QC.20505
DIRECTORATE OF INTELLIGENCE
24 July 1986
Syria: Driving Toward Oil Self-Sufficiency
Summary
Syria is expected to begin pumping 50,000-60,000
barrels per day (b/d) at its new Thayyem field in
eastern Syria in September when a new pipeline is
completed. Development of the field is under the
direction of a foreign firm, Pecten, which has promised
President Assad it will produce 100,000 b/d by 1988.
Syria intends to use its new oil domestically,
initially reducing its dependence on imported oil by
about 40 percent. It is not likely to achieve
petroleum self-sufficiency without significant new
The new oil will only marginally strengthen Syria's
economy, but Damascus will be less dependent on Iran
for concessional oil shipments. Although Syria will
still seek extensive support from all sides, Assad will
have somewhat more latitude in his relations with Iran
and Arab financial donors. In addition, potential
economic benefits from as reconciliation with Iraq will
diminish as oil import needs are reduced.
. A stronger domestic oil industry will not nearly
overcome Syria's profound economic problems, which
result from years of misdirected Ba'thist policies and
burdensome military spending. Sluggish export trade
will ensure .yria continues t: rur'.a current account
deficit and suffer chronic fo.ieigr exchange shortages.
Despite an invigorated energy sector, the Syrian
This memorandum was prepared by the Levant 25X1
Branch, Arab-Israeli Division, Office of Near Eastern and South
Asian Analysis. Information as of 24 July 1986 was used in its 25X1
preparation. Questions and comments should be addressed to
~NESA M#86-20119
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economy will remain basically weak and persistent
downward pressures will likely add to Assad's problems.
The Role of Oil
Oil is central to Syria's economic health. Crude oil and
products account for over 60 percent of Syrian exports. Syria,
however, is a net importer of oil. According to the US Embassy
in Damascus, the Syrian oil trade deficit was about $200 million
in 1984 and probably larger in 1985, due to the high value of
crude imports and declining volume of crude exports. Syria also
exports 20,000 b/d of refined products, primarily low value fuel
Syrian refineries are designed to operate on a blend of
domestic heavy crude and imported light crude, but operate more
efficiently on straight imported light. Declining production of
heavy crude from the older northeast fields--combined with
erratic imports--makes Syria more vulnerable to external supply
Exports are depressed due to lower prices and stagnant
production. Revenues from oil exports fell from over $1.3
billion in 1980 to about $800 million in 1985. The official
price for Syrian crude was steady through 1985 but fell
dramatically in February after Damascus reluctantly introduced
"netback" pricing, which ties the crude sales price to the value
of refined product. If the increase in Thayyem production is
unexpectedly delayed until 1987, we estimate this year's exports
of
d
cru
e could provide less than $400 million.
The fall in exports for 1986 has been aggravated by the
disruption in Iranian deliveries.
a~4?ca wh )i le k exports
declined by at least 20,000 b/d--or $180 million--as the Syrians
diverted export oil to domestic refineries to compensate for
Iranian shortfalls. Supplies remain erratic this year, and may
have further reduced Syrian exports below last year's 100,000 b/d
level.
Imports of crude oil and products represent a growing share
of Damascus' hard currency imports. Falling oil prices and
market disruption have a twofold effect on Syrian imports:
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--Syria's primary supplier, Iran, suffers declining
export income. As a result, Tehran has pressed
Damascus for prompt payment and often suspended
deliveries.
--According to press reports, periodic cutoffs this
year have forced biweekly purchases of 50,000 b/d of
light crude on the Mediterranean spot market.
Syria probably pays for only a fraction of its oil deliveries
from Iran, but must pay cash for spot market purchases. To
compensate for Iranian shortfalls, Syria has turned to other
sources. First quarter 1986 deliveries from Libya were about 2.5
million barrels--15 percent of import needs. These spot market
purchases have almost exhausted Syrian foreign exchange reserves
and likely impressed on Assad his growing economic isolation.
Syrian crude oil production has been stagnant for years,
after peaking in 1976 at 200,000 b/d. Although it has granted
several exploration and drilling concessions to foreign firms
since 1974, these firms have failed to exploit successfully any
major new fields--until Pecten's recent discoveries. The Syrian
Petroleum Company (SPC) has relied on outmoded equipment and
technical support, mostly Soviet, to operate its principal fields
at Suwaydiyah and Qaratshuk in the far northeast.
current Syrian oil production is 185,000 b/d,
including early production of at least 15,000 b/d from Thayyem
,
which is trucked to the Iraq-Syria pipeline for transport to Hims
Domestic consumption of petroleum products has expanded
rapidly over the past two decades, doubling since 1975. Current
demand for petroleum products is about 190,000 b/d and growing
over 10 percent annually. Military and industrial growth and
price subsidies have fostered high consumption of several
products., and government projections indicate total consumption
.r: P~'tr..~],' tars p . acts twill rise to 320,000 b/d by the turn of the
Syria' i-s oiLly partly meeting current domestic demand for oil
products. Liquid propane gas, primarily consumed in household
uses, remains priced about 50 percent below cost and demand is
booming. Electricity rates for domestic and commercial users
also remain well below cost and account for much of the growth in
fuel oil consumption. To curb consumption and relieve pressure
on the budget, the government in late 1985 announced much-needed
25X1
25X1
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price increases for most petroleum products to reflect actual
costs. According to Embassy reporting, rationing of some oil
products began in February and electricity is shut off in
Damascus for three or more hours per day. 25X1
Pecten Production Helps
The Pecten Syria Corporation--a consortium of Shell
Royal Dutch Shell, and Deminex of West Germany--is deve
Thayyem and other finds and will divide the marketed pro
with the Syrian Government. According to Embassy report
Pecten had drilled 17 wells by last October and plans to
24 additional wells by October 1986 to meet their 1988 p
goal of 100,000 b/d. Based on current reporting, we est
production goals will be met on schedule. The benefits
USA,
loping
duction
ing,
complete
roduction
imate
to S ria
however, will probably not meet Damascus' expectations.
25X1
Syrian crude oil production is expected to increase
s ubstantially later this year.
25X1
L
We expect the low gravity, low sulfur Thayyem
crude will initially reduce imports about 40 percent and could
eventually displace all oil imports if new discoveries allow
Pecten production to increase above 140,000 b/d.
25X1
Although production-sharing negotiations are still underway,
the cost recovery and profit share for Syria's foreign partners
i
'
w
ll curtail Syria
s financial return.
25X1
Financial Gains Fall Short
We estimate during the cost recovery period, Syrian financial
gains will be limited. Total oil exports may actually fall as
Syria compensates Pecten for domestically-consumed Thayyem crude
with Suwaydiyah crude on a value equivalent basis. While the
current market prices for the two grades of crude are very close,
light grades generally are higher priced.
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Syria will likely remain a net importer at least until 1988.
We estimate Pecten output will have to increase to over 75,000
b/d--including Syria's foreign partner's share--before Syrian oil
trade comes into balance. If new discoveries allow production to 25X1
i
ncrease to over 75,000 b/d, Syria and its partners will export
met by concessional deliveries from Iran. We estimate that the
low level of initial output will extend Pecten's cost recovery
period well over two years. After costs are recovered, Syrian
export earnings on 75,000 b/d (at $15 per barrel) will increase
by $100 million but will not significantly improve Syria's
foreign payments position. 25X1
Syria is holding Thayyem's early production as "credit"
against future production. This policy has been a point of
contention between Syria and its business partners and will
likely add to Pecten's cost recovery period, thereby further
postponing substantive financial returns to Syria. Embassy
reporting indicates Pecten has previously limited production
below potential to maintain leverage over the Syrians. 25X1
Although occasional disputes have disrupted Damascus'
relations with its foreign partners, Syria has been unusually
accommodating toward Pecten. Damascus has twice adjusted
Pecten's exchange rate for imports to lower, more realistic
rates.
We believe that Assad views Tha em as one
of the bri htest ho es for Syria's economy
Long-Term Growth Potential
Embassy reports on estimated reserves suggest Syria may--at
best--become self-sufficient in crude oil and perhaps a nominal
crude oil exporter. Pecten, however, has found oil in a third
concession east of Thayyem that may allow substantially hi her
production by the early 1990s. Although no 25X1
indication of production above 100,000 b/d, Pecten's extensive
investment and planned excess capacity suggest hi her long term
production is a realistic possibility. 25X1
Syria still has high reserves in its northeastern fields and
production could be maintained and even increased if Syria
invested more in updating equipment and seismic studies. Syria's
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northeast reservoirs are very complex, low density fields, and
increased production will require advanced Western equipment and
expertise. It is unlikely, however, that Damascus will allow
greater Western involvement in its oil industry at this time.
New development ventures are unlikely while world energy markets
Outlook and Implications
For the next one or two years, Damascus will remain dependent
on its present suppliers, especially Iran, for concessional oil
shipments. Syrian import needs over the medium-term are
confirmed by the oil supply contract recently negotiated with
Tehran for 100,000 b/d through March 1987. As Thayyem production
is stepped up during 1987 and other finds are developed, Damascus
will gradually grow less dependent on foreign suppliers. Syria
doubtless will continue to demand high levels of aid from Iran
and Arab countries, but Assad will have more room to maneuver.
Moreover, Assad will have less incentive to reconcile with Iraq
for secure oil supplies. 25X1
Syria's foreign payments position will likely remain
troubled, even as oil trade turns into a surplus. Non-oil
exports--primarily cotton and phosphorous--are weak and
declining, and foreign aid will probably continue to contract as
the regional depression continues. Assad has consistently
subordinated economic interests to political goals, but he may be
inclined to take measures to increase Syria's share of the
increased output from the new oilfields. If relations with
Pecten in particular or the US in general turn sour, Syria could
easily increase taxation on its foreign partners, demand
renegotiation of the production-sharin contract, or even
expropriate foreign assets. 25X1
Increased oil wealth will help hide the structural problems
in the Syrian economy and likely postpone necessary reforms.
Syria's economic problems will not disappear, and the majority of
t}-heipopu1a1t-:.~?:?11 probably will not feel any benefits from higher
oil~.produci:ioix. A marginally stronger economy will bolster 25X1
'
Assad
s determination to pursue high military expenditures,
however, which are already an extreme burden on the ecbhbmv_
The prospects for increased US leverage over Damascus through
greater involvement in the oil industry are poor. Although
Pecten has a high stake in Syria, threats of sanctions and
disinvestment are not likely to induce Assad to alter his
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policies. If Pecten withdrew operations in Syria, the impact on
Damascus would be minimal. The Syrian Petroleum
Company--possibly with Soviet, East European, or Arab
assistance--could easily take over Pecten's operations with
little disruption. In addition, West European oil firms,
including Pecten's part-owners Royal Dutch Shell or Deminex,
could offer Western expertise to keep production on schedule and
continue exploration on new fields.
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APPENDIX #1
Iran: Syria's-Import Lifeline
Syria's oil import requirement combined with its chronic
foreign exchange shortages--estimated below $100 million in
May--make it dependent on concessional oil shipments. Since
Damascus broke relations with Iraq in 1982 and closed the 1.2
million b/d Kirkuk-Homs pipeline, Syria has relied primarily on
I
f
ran
or crude oil deliveries to meet its growing demand.
Syrian nonpayment of its debt and Iranian intransigence over
selling below its official price have strained relations between
them and resulted in periodic cut-offs of Iranian deliveries.
Moreover, Syrian tankers loaded with Iranian oil have been
targets of Iraqi attacks twice in 1986, further disrupting
crucial imports. We estimate 1986 deliveries of Iranian oil at
approximately 6.5 million barrels--only three ultra-large
The oil link to Iran has been weak since the outset of the
relationship in 1982. Deliveries have continued, albeit at
progressively lower levels, despite Syria's consistently poor
payment record.
--March 1982: Syria forms strategic alliance with
Iran, and Tehran agrees to supply 180,000 b/d to Syria.
--April 1982: Syria closes the 1.2 million b/d Iraqi
pipeline.
--April 1983: Supply contract amended to 120,000 b/d
supplied at $2.50 below official price with 20,000 b/d
free for military. Almost $1 billion in oil debts
forgiven.
--May 1984: Contract renewed at same terms, and
Syria's-$993 million oil, debt rescheduled on generous
terms.
--May 1985: Contract renewed again, possibly further
delayed debt payment.
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--August 1985: Iranian deliveries halted for four
months.
--December 1985: Syrian Prime Minister signs accord in
Tehran to resume shipments. Iranians agree to partial
payment in barter.
--May 1986: Annual negotiations on supply contract cut
off. Contract expires, but deliveries continue.
--June 1986: Iranian Deputy Foreign Minister Besharati
in Damascus on eve of scheduled Syria-Iraq ministerial
meeting. Iran probably promise to resume steady oil
shipments.
--July 1986: Syrian delegation in Tehran signs six
month contract commencing October 1986 for 100,000 b/d.
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SYRIAN CRUDE OIL SALES PRICE
AND EXPORT REVENUES
J
W
Gr
< 15
S011, 0 ~,P~ PQ~ 0 Jv S\! , 14-06 41, OG \40Q~lG S101: 0,0105 AQR ~P ~v~
1985 - 1986
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SYRIA: CRUDE OIL PRODUCTION
215
192 192
106 111 111
85
201
182 179 175
185
170 170 170 1750
166
? PROJECTED = Year-End Daily Output 25X1
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SYRIA: PROJECTED CRUDE OIL TRADE UNDER PECTEN PRODUCTION S'-=W:NARIOS
N
TOTAL EXPORTS
25 50 75 100 125 150
Pecten Production Levels (thousand b/d)
Price: $15 barrel
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Selected Syrian Petroleum Activity
Turkey
Tartu-s;- W!, it
GPO' A ' Hims
BAnTuasl-1 'IIamah
Est. capacity
BEIRUT* 3,700 bid
I ( ?Al Dunaytuah
Israel
/- 1
We,f Li
"f
r~,~lr
Adhra;
1,*DAMASCUS
7aplme, est. capacity
,Cfl nnn 1./.J
Jordan
Hour, d~,ry rPlrr's, fl lntinn H
n,~l n,. I. e. 00lily p,l,M1n ri,r,.ve
Iraq Petroleum Company (IPC),
est. capacity 1,200,000 bid
(closed)
--General Petroleum
Organization (GPO),
est. capacity
170,000 bid
Saudi
Arabia
Madinat ath
.-- Thawrat
Iraq
Oiltield
Petroleum refinery
Oil storage facility
Crude oil pipeline
- . Refined products pipeline
ril6- Oil export terminal
Hydroelectric power plant
Thermal power plant
lbo lidnnlrlclr:
I50 Mil,
~=.
708166(543504)7-86 25X1
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