On June 20, China’s state-owned energy and chemical giant Sinopec named a new manager for its subsidiary in Syria. The move, coming nearly a decade after the company suspended its activities in the war-ravaged nation, has ignited speculation that Beijing is finally ready to re-engage in Syria’s oil sector.
Despite the risks, Beijing’s maneuver wasn’t entirely unexpected. Several international oil companies are contemplating a return to the Syrian market. And yet even with fresh management in place, the path forward for Sinopec, like its peers, is littered with uncertainty.
Sinopec’s initial tryst with Syria’s oil sector dates to 2008, when the company acquired Canadian-owned Tanganyika Oil, leading to the formation of its Syrian subsidiary, SIPC Syria. Sinopec’s current holdings, which include fields in Syria’s northeast such as Oudeh, Tishreen, and Sheikh Mansour, collectively yield 21,000 barrels of oil daily.
The country’s civil war forced Sinopec to terminate its activities in Syria in 2013. But oil production in the self-governed northeast – local actors have been producing oil there for years – appears to have motivated Sinopec to reconsider its position. In 2016, the company reportedly sent experts to survey its holdings and to discuss the future of their fields with the Kurdish-led autonomous administration.
Those talks stalled, and Beijing’s engagement in the war-torn country remained modest. While several Chinese companies have expressed interest in investing in the country, Syria’s poor economic performance has discouraged most serious offers.
Sinopec’s recent decision to appoint representation on the ground in Syria isn’t linked to improved circumstances; the country’s northeast remains unpredictable. Instead, it seems to be driven by the broader efforts of prominent global oil entities to lay the groundwork for a measured return to the Syrian market.
UK-based Gulfsands Petroleum, which has substantial assets in northeastern Syria, is by far the most active. To expedite a return to operations, the company has pushed a plan that would allocate revenue from oil sales to finance humanitarian aid projects across the country.
“This is not political,” said Gulfsands chief executive officer John Bell. “We are trying to find an indigenous solution to a humanitarian crisis that has gone on for too long.”
Despite the rationale, the initiative hasn’t been endorsed by key local, regional, and international actors, a lack of progress Bell calls a “travesty.” Sinopec has arguably more influence than Gulfsands in the region, but it’s not clear a Chinese company can be any more successful in moving things forward.
Dealing with sanctions
Sanctions imposed on the Syrian government have made it difficult to engage in oil-related investments in the country. But Chinese businesses tend to have more tolerance for risk than their peers, as evidenced by the significant flow of oil to China from Iran.
In addition to the financial and energy benefits of engagement with Tehran, Beijing’s sanctions-defying actions strengthen its image as a major power willing to do business where others won’t.
In Syria, sanctions are also an issue but they’re not the only obstacle. In 2019, the United States warned businesses against attending an annual trade fair in Damascus, saying participants would expose themselves to possible US penalties.
China’s ambassador to Syria, Feng Biao, dismissed the threats, calling the fair “a source of power for the Syrian people and a window to develop Syria’s economy.” Fifty-eight Chinese companies attended, he said.
But attending trade fairs is low-risk. Investing vast resources to pump oil in a volatile region ups the ante considerably. To succeed, Sinopec will need to reach agreements with both the Syrian government and the de facto authorities that control and manage the region.
While similar efforts failed in 2016, much has changed since then. Chief among them is the deteriorating economic situation across Syria, which, paradoxically, creates incentives for all parties. Syria needs investment, and China needs oil.
Still, two thorny issues require negotiating. The first is finding an arrangement that would allow the autonomous administration to keep generating revenue from the respective oilfields. In Gulfsands’ Block 26, also in the northeast, local actors have produced more than 41 million barrels of oil since 2017, worth an estimated US$2.9 billion.
The second is securing buy-in from international actors, particularly the US, which has boots on the ground. Given the current state of Sino-US relations, this seems unlikely.
China may be willing to proceed anyway. Reaching an agreement would not only bolster Sinopec’s earnings but would facilitate the return for other Chinese companies that once played pivotal roles in Syria’s oil sector, such as Sinochem, China National Petroleum Corporation, and its subsidiary, China Petroleum Technology and Development Corp.
Moreover, it could serve as a catalyst to entice other Chinese businesses to explore opportunities within Syria’s borders.
While the allure of re-engaging in Syria’s oil sector is obvious, the path forward for Sinopec is rocky. The appointment of a new manager for its assets in Syria suggests that, at the very least, China is interested in keeping its options open. But with so much up in the air, Beijing may find itself compelled to exercise patience until circumstances align more favorably.
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