Drilling while Hama burns

As protesters die daily, and the international community mulls what further measures to take to isolate the Assad regime, it is business as usual in Syria’s oil industry and the international oil firms operating there. Within the last month, the AIM-listed Gulfsands, have announced discovery of new reservoirs and increased production while another, Kulczyk Oil Ventures, said it had started new drilling in an exploration block about half an hour’s drive from the city of Hama, where Syrian army tanks are in hostile occupation of the middle of the city and over 100 protesters are reported killed in the past 10 days. All the normal corporate cogs have been in motion the last few months – slick and misleading press releases, option calls, reverse takeovers and other action with shell companies in Canada, Cyprus, Poland, Singapore, the USA, the UK and Australia, to name a few.

Oil industry executives tend to maintain a variety of positions in circumstances like these. Some strain desperately to believe they are no part of the picture and throw up their hands. Others actively connive with the regime, constrained by questionable shareholdings which got them the licenses in the first place. Many, perhaps most, will maintain that business is separate from politics and cite their primary obligations to their shareholders. A few even seek to glamorise their plays, presenting themselves as investors in true fundamentals, with a stomach for high risk. But there is a different kind of blood on the streets investing to be done, which is to stand on the right side of history, in solidarity with the protesters of Homs and Hama and reap the reward later of a grateful government and a relationship of trust that could normally take decades to build. That is the real high-risk, high-reward long game.

In Libya, Eni, the oldest and most committed of the international oil companies in the country, has cut its ties with the Gaddafi regime at considerable risk to its current capital investment profile, and is working with the rebel government. When the old tyrant goes, they will stand in pole position in a competitive market place for having stood with the Libyan people when it counted.

Syria is not a major exporter to world markets but oil is a critical component of its political economy. Formally, revenues account for a third of the state budget but as far as the Assads go it is a magical slush fund, unrestricted income compared to other revenue streams filtered and strained through more regular workings of government. Experts in any case suspect a lot of fiddling of the books and off-budget shipments.

Both the EU and the USA are actively considering sanctions on the oil industry, at the request of Syrian opposition leaders and with the broad support of protesters inside the country, who are well aware that such action would cause some hardship for themselves. Such sanctions could be highly effective at targeting the regime’s ability to fund and mobilise the repression.

But there is also general agreement that the upstream should be left untouched and preserved, in fact, for Syria’s new day. The idea is to cut the Assads off but keep everything in place so that the crude and revenue taps can be turned back on again as soon as they go. Those involved say oil companies have privately raised issues of contractual obligation. This is classic short-term thinking. The companies are not disclosing even to diplomats the actual terms of force majeure and stabilisation in their contracts, forcing public policy makers just to take their word for it that these will not cover commercial losses. And even if there were some degree of loss, industry leaders who can only conceive of clinging onto the status quo until the last possible moment could be in for a rude surprise.

Colleagues in the Syrian protest movement want to have a dialogue with the oil majors like Shell and Total but have so far failed to obtain access. Their next move will be towards some very public diplomacy indeed. Look forward to slogans and demands – written in English, French and Dutch – on banners raised amid the burning tyres and careering tanks of Hama. Uploaded from mobiles, picked up by every mainstream broadcaster for prime time viewing, singling out individual companies by name and asking them to wash the blood off their hands.

In the balance of things, when that happens, where will the shareholders real interest lie?

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