Why Daesh (ISIS) Isn't Going to Change the Oil Market

One of my favorite Twitter friends, Hannah Thoreson explains why Daesh (better known as ISIS) isn't going to become a mega-petroleum power:

Problems begin at the wellhead. ISIS faces a variety of complications arising from its status as a war zone oil producer. Its production is similarly limited by what its forces can seize. From an energy producer’s standpoint, the fields that ISIS has taken in northern Iraq and Syria are marginal. It is in Southern Iraq is where the larger and more lucrative oil wells are located; and ISIS has not yet captured that territory from the Iraqi government. The remaining troubles for ISIS are as old as the oil industry itself.

The organizing problem for ISIS is the dearth of refining capacity in Iraq, and particularly in ISIS-controlled regions of the country. This limits what ISIS can do with the crude oil it obtains. Indicating the severity of the refinery shortage, in recent days ISIS and Iraqi Army forces have clashed over control of the country’s largest refinery. In the absence of sophisticated refining operations, it is reliant on mobile refining platforms that can only produce 300-1,000 barrels per day of poor quality fuel. Lacking the ability to transform larger quantities of crude into refined product hurts the profitability of its overall oil operations. Cross-border sales of its remaining crude must be used to purchase additional gasoline and refined products from neighbors.

The lack of available energy transit infrastructure is an equally significant burden. The technology ISIS employs to transport petroleum is extremely primitive. For example, the transit link it controls across the Iraqi border to Turkey consists of a plastic tube only a few inches underground.  Without major pipeline infrastructure at its disposal, ISIS has taken a brute force approach. It moves heavy barrels of oil across the desert on the backs of human laborers, who physically carry ISIS’s oil on their shoulders.

Finally, ISIS also has a human resources challenge. It simply does not have the skilled engineers and technicians needed to manage an oil enterprise. This problem it has imposed on itself. The group’s terror tactics have prompted them to flee. The trademark violence of ISIS is not ideal for retaining the talented workforce it needs to refine oil.

There's a lot more in the piece, but the bottom line is that Daesh can't really get off the ground right now to be a major oil company too, while it's barely a "state."