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Syria's oil exports have come to a standstill due to sanctions and this may force a cut in production, weakening President Bashar al-Assad's ability to generate cash but not threatening his grip on power yet, traders and analysts say.
After a series of piecemeal measures, European governments have acted vigorously in recent weeks to tighten the screws on Assad in hopes of reining in his bloody crackdown on protesters, which has killed some 2,700 people in six months, the U.N. says.
From Saturday, the EU will ban European firms from making new investments in Syria's oil industry following an earlier ban on imports of Syrian oil, a key source of revenues for Assad's government.
Syria has said it can sidestep sanctions by selling oil to Russia or China . But traders said on Thursday most Syrian attempts to sell oil or related products in recent weeks have failed due to a lack of bids.
"Exports are fully paralysed. No one wants to touch it. Banks are not financing the operations. Russian companies listed in New York won't take the risks," said a trader in the Mediterranean who used to regularly deal with Syrian oil.
EU sanctions allow imports of Syrian oil until Nov. 15 under contracts signed before Sept. 2 but traders said they had not seen any fresh shipments in the past weeks.
"As far as Chinese and the Indians are concerned, they could of course try to buy some volumes. But the economics don't make any sense for them and volumes are too small to take the risks," the Mediterranean trader added.
Markets have reacted calmly to the loss of Syrian crude as the country produces just 385,000 barrels per day, or less than 0.5 percent of global supply, and exports around 150,000 bpd -- only a fraction of Libya's pre-war shipments, the loss of which seven month ago as civil war erupted rocked the oil markets.
Syria is now hunting for new buyers, mostly for its heavy Souedie crude. But its crude oil tender and a naphtha tender have lured no bids , traders said.
Sources at several major Chinese and Russian buyers contacted by Reuters said they had no plans to buy Syrian crude, which could potentially force the country to stockpile oil.
Turkey, which previously supported Assad, has said it could impose sanctions on the country thus further limiting the options for Damascus to sell its oil and products.
Sources told Reuters that Indian state-run firm ONGC was considering shipping crude to India from its Syrian joint venture instead of selling it in Europe but has not made a final decision yet.
Syria can only refine up to 240,000 bpd so it does not have anywhere near enough spare capacity to process all the crude it has been selling to Europe until now and it will have therefore to slash crude production at some point.
SYRIAN ECONOMY SHRIVELLING
In a sign of the economic damage wreaked by the unrest, the International Monetary Fund said this week it expects Syria's economy to shrink by 2 percent this year -- down from a 3 percent growth estimate made previously.
Analysts said the sanctions are beginning to have a real impact on the Syrian economy but it will take a long time before Assad's powers are seriously undermined.
"Although the regime's position is compromised it still retains ample military power along with the support of the business community in Damascus and Aleppo -- though that support may peel away as the economy deteriorates," said Ayham Kamel from Eurasia think-tank.
He estimated that Assad would stay in power for at least another six months.
Assad inherited power on the death of his father in 2000 and retains the loyalty of the core of his armed forces comprised mostly of members of the Alawite minority, to which his family belongs.
Catherine Hunter from IHS Global Insight said it would be important to see which monetary thresholds the European Union imposes on fresh investments in the oil industry from Saturday.
"I don't think it will necessarily have an overnight impact on the regime... If you look at the restrictions on Iran, it has taken a number of years for those to become apparent in terms of actual production levels," she said.
FACTBOX-Syria's energy sector:
FACTBOX-Sanctions imposed on Syria
The European Union buys nearly all of Syria's exported oil and analysts have said oil companies have a vested interest in the current government, which has provided favourable operating conditions for oil firms.
European diplomats have said they are reluctant to impose full-scale sanctions on Syria to avoid increasing the suffering of the Syrian people by cutting off fuel needed for power generation.
Oil revenues are especially important for Syria as its tourism industry, which normally accounts for around 12 percent of the economy, has been hit hard by the violence.
An internal memorandum from an oil company, seen by Reuters, predicts that Syria may soon face insufficient supply of petroleum products which will affect heating, electricity production, domestic usage and transportation.
"(It) will make the winter period much harder for the public. This will leave the Assad administration in a more difficult position against the public," it said.
Source: Reuters
After a series of piecemeal measures, European governments have acted vigorously in recent weeks to tighten the screws on Assad in hopes of reining in his bloody crackdown on protesters, which has killed some 2,700 people in six months, the U.N. says.
From Saturday, the EU will ban European firms from making new investments in Syria's oil industry following an earlier ban on imports of Syrian oil, a key source of revenues for Assad's government.
Syria has said it can sidestep sanctions by selling oil to Russia or China . But traders said on Thursday most Syrian attempts to sell oil or related products in recent weeks have failed due to a lack of bids.
"Exports are fully paralysed. No one wants to touch it. Banks are not financing the operations. Russian companies listed in New York won't take the risks," said a trader in the Mediterranean who used to regularly deal with Syrian oil.
EU sanctions allow imports of Syrian oil until Nov. 15 under contracts signed before Sept. 2 but traders said they had not seen any fresh shipments in the past weeks.
"As far as Chinese and the Indians are concerned, they could of course try to buy some volumes. But the economics don't make any sense for them and volumes are too small to take the risks," the Mediterranean trader added.
Markets have reacted calmly to the loss of Syrian crude as the country produces just 385,000 barrels per day, or less than 0.5 percent of global supply, and exports around 150,000 bpd -- only a fraction of Libya's pre-war shipments, the loss of which seven month ago as civil war erupted rocked the oil markets.
Syria is now hunting for new buyers, mostly for its heavy Souedie crude. But its crude oil tender and a naphtha tender have lured no bids , traders said.
Sources at several major Chinese and Russian buyers contacted by Reuters said they had no plans to buy Syrian crude, which could potentially force the country to stockpile oil.
Turkey, which previously supported Assad, has said it could impose sanctions on the country thus further limiting the options for Damascus to sell its oil and products.
Sources told Reuters that Indian state-run firm ONGC was considering shipping crude to India from its Syrian joint venture instead of selling it in Europe but has not made a final decision yet.
Syria can only refine up to 240,000 bpd so it does not have anywhere near enough spare capacity to process all the crude it has been selling to Europe until now and it will have therefore to slash crude production at some point.
SYRIAN ECONOMY SHRIVELLING
In a sign of the economic damage wreaked by the unrest, the International Monetary Fund said this week it expects Syria's economy to shrink by 2 percent this year -- down from a 3 percent growth estimate made previously.
Analysts said the sanctions are beginning to have a real impact on the Syrian economy but it will take a long time before Assad's powers are seriously undermined.
"Although the regime's position is compromised it still retains ample military power along with the support of the business community in Damascus and Aleppo -- though that support may peel away as the economy deteriorates," said Ayham Kamel from Eurasia think-tank.
He estimated that Assad would stay in power for at least another six months.
Assad inherited power on the death of his father in 2000 and retains the loyalty of the core of his armed forces comprised mostly of members of the Alawite minority, to which his family belongs.
Catherine Hunter from IHS Global Insight said it would be important to see which monetary thresholds the European Union imposes on fresh investments in the oil industry from Saturday.
"I don't think it will necessarily have an overnight impact on the regime... If you look at the restrictions on Iran, it has taken a number of years for those to become apparent in terms of actual production levels," she said.
FACTBOX-Syria's energy sector:
FACTBOX-Sanctions imposed on Syria
The European Union buys nearly all of Syria's exported oil and analysts have said oil companies have a vested interest in the current government, which has provided favourable operating conditions for oil firms.
European diplomats have said they are reluctant to impose full-scale sanctions on Syria to avoid increasing the suffering of the Syrian people by cutting off fuel needed for power generation.
Oil revenues are especially important for Syria as its tourism industry, which normally accounts for around 12 percent of the economy, has been hit hard by the violence.
An internal memorandum from an oil company, seen by Reuters, predicts that Syria may soon face insufficient supply of petroleum products which will affect heating, electricity production, domestic usage and transportation.
"(It) will make the winter period much harder for the public. This will leave the Assad administration in a more difficult position against the public," it said.
Source: Reuters
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