The Trump administration has approved the first-ever deal for an American firm to develop and modernize oil fields in northeast Syria under control of the US-backed Kurdish-led Syrian Democratic Forces.
The secretive contract, which has been in the works for more than a year and was signed in Syria last month, is expected to produce billions of dollars for Kurdish authorities in northeast Syria, none of which will be shared with the government of Syrian President Bashar al-Assad, according to sources who spoke to CNN.
News of the deal drew an immediate rebuke from the Assad government in Damascus, which issued a statement Sunday saying the deal was an attempt to “steal Syria’s oil under the sponsorship and support of the American administration,” and that the agreement is “null and void and has no legal basis.”
The contract is in line with President Donald Trump’s long-standing goal of securing US control over oil fields in the region, and gives a little-known American firm, Delta Crescent Energy, wide purview to develop and upgrade more than half of the Syrian oil fields under the control of the SDF, said one of the company’s founders.
“We have been authorized to engage in all aspects of energy development, transportation, marketing, refining and exploration in order to develop and redevelop the infrastructure in the region and to help the people in the region get their products into the international market,” said James Cain, a former US ambassador to Denmark during the George W. Bush administration and one of the co-founders of Delta Crescent Energy.
Cain’s two other partners in the company are James Reese, a retired Delta Force Army officer who used to run his own private security firm, and John Dorrier, a veteran oil executive with years of experience operating in the Middle East.
The trio formed the new company for the sole purpose of securing this deal in Syria and have worked intensely with State Department officials for more than a year, sources tell CNN. In April, the company received a license from the Treasury Department exempting it from the vast sanctions regime the US has placed on Syria in order to isolate the Assad regime, sources told CNN.
The State Department and the Pentagon have officially sought to distance themselves from the project, but sources tell CNN that behind the scenes the State Department was active in making the deal happen.
Last week, Secretary of State Mike Pompeo for the first time confirmed the deal in answering a question from Republican Sen. Lindsey Graham during a hearing on Capitol Hill.
“The deal took a little longer, senator, than we had hoped and we’re now in implementation. It can be very powerful,” Pompeo told Graham.
Politico was first to name the founders of Delta Crescent Energy.
Angering the Russians
The oil deal gives the US a more solid footing in a hotly contested part of the Middle East and strengthens its oft-questioned alliance with the Kurdish authorities less than a year after Trump said he would pull US troops from Syria, only to pull them from some parts of the country.
But it will undoubtedly aggravate tensions with Russia, which sources tell CNN was also competing to win the contract.
Russia has made no secret of its intent to assert control over the oil fields in northern Syria, which the Assad regime sees as a crucial source of revenue in its effort to build back after years of devastating civil war. In 2018, Russian mercenaries and pro-Syrian regime forces brazenly attacked a position held by Syrian Democratic Forces and their American advisers in the area. The move prompted a devastating US response, a series of air and artillery strikes that killed more than 100 fighters.
A key objective of the deal, which covers about 60% of the oil under the SDF’s control, is to cut Assad out from any of the revenue produced by the newly-developed oil fields. In fact, the contract contains a clause which explicitly prohibits any revenue from being shared with the Assad regime, said a source familiar with the contract.
“The intent here is to deny the Assad regime any benefits from legal energy production in the region,” the source said.
Russia has overtly boosted its influence in the region with its full backing of Assad over the past several years. And it has made plays for other vulnerable oil assets in the region. Russian mercenaries recently seized control over two oil fields in Libya, which remains mired in a civil war.
The US Defense Intelligence Agency “said that as recently as December 2019, the Syrian regime had awarded oil exploration contracts to Russian companies for areas of eastern Syria where the SDF is present, showing their intent to eventually reassert control over SDF-held oil fields,” according to a new Pentagon report published Tuesday.
Moscow slammed the news of the Delta Crescent Energy deal, with the Russian embassy in Canada tweeting “under the guise of democracy and liberty (aka free market) western countries continue to plunder #Syria’s natural resources.”
Despite intense competition for its oil fields, Syria is not a major producer of oil, lacking the resources possessed by some its oil-rich neighbors like Iraq.
According to an analysis by BP, Syria has about 2.5 billion barrels of oil in proven reserves, constituting just 0.1% of the global total, compared to 8.4% for neighboring Iraq and 2.8% in Libya.
Oil production in Syria has collapsed amid the destruction unleashed by the Syrian civil war, falling from 385,000 barrels per day in 2010 to 24,000 per day in 2019 according to BP. Furthermore, the global oil price has plummeted in recent months, leaving many traditional larger oil firms to focus on projects that are easier and less costly to access, a descriptor few would apply to war-torn Syria.
Prior to the oil price collapse, the Defense Intelligence Agency assessed that the oil fields in northeastern Syria controlled by the SDF have likely garnered “between $1 million and $3 million a day in revenue until the recent price collapse,” according to the Pentagon report published Tuesday.
Origins of Delta Crescent Energy
Though Trump had previously indicated a desire for a major Western oil company to help the Syrian Kurds develop their oil, given the risks, a major company was never likely to get involved.
That left an opening for Delta Crescent to exploit.
The origins of the relationship between Cain and Reese trace back to 2016, when Cain’s son-in-law and his sister went missing in Brussels following an attack by ISIS on the Brussels-National airport.
At the direction of friends, Cain reached out to Reese, a decorated Army infantryman who served 18 years before retiring in 2007. Cain was told the former Delta Force officer, and founder of the private security firm TigerSwan, might be able to help him, Cain said. TigerSwan has had numerous contracts with the State Department over the last few years, helping them provide humanitarian assistance and stabilize portions of Syria wrecked by the civil war.
They were subsequently able to determine that Cain’s son-in-law and his sister had been killed in the attack, Cain wrote in his oped.
Cain and Reese bonded and began discussing deeper ramifications of US policy in the Middle East, particularly in Syria. They agreed that the US needed to take a more active approach to stabilizing the region’s oil supplies and ensuring they remained out of the hands of terrorist groups and ISIS, a source familiar with their thinking explained.
Over time, they began formulating the idea for a company that could fill the void on the ground in Syria.
The two realized, one of the Delta Crescent Energy founders explained, that they needed someone with oil expertise, and eventually recruited Dorrier to join them.
Dorrier was among the first American oil executives to vie for contracts with Baghdad following the US invasion of Iraq in 2003.
According to news reports at the time, in May 2003, Dorrier’s firm, Gulfsands Petroleum, signed the first US oil contract in Syria in 15 years, agreeing to drill wells in the country’s east, an area currently controlled by the SDF.
At that time, the US was seeking to foster better relations with the Assad government.
In late 2018, Cain wrote an op-ed opposing an earlier Trump declaration of plans, also not realized, to withdraw US forces from Syria — arguing it would risk American lives and undermine US strategy in the region.
Around that same time, Cain and Reese began discussions with the State Department, including Jim Jeffrey who is the US Special Representative for Syria Engagement, about their oil pitch, sources familiar with the process told CNN.
Traveling to Syria, Reese also discussed the proposition with General Mazloum Abdi, the commander of the Syrian Democratic Forces, on his intermittent trips to Syria.
When they finally secured the OFAC license in April, the coronavirus pandemic shot their momentum. It took months until they could travel to Syria again and officially secure the Syrian signatures on their contract. That happened in mid-July, which launched them down the path of beginning to implement the plans for modernization, and getting the existing oil supply on the international market, Cain said.
Cain and his partners remain clear-eyed about the challenges ahead.
“We recognize the risks but we don’t shy away from the opportunity or the obligation,” Cain said, without providing details on their approach to the barrage of risks involved in the effort.
Achieving success will be an uphill battle, regional experts argue, particularly because of the country’s political and economic instability which has driven out the majority of firms that have tried to invest in the country.
“The last few years since the start of the war in Syria have seen most international companies withdraw from the country, with the business environment becoming less and less appealing as a result of security concerns, international sanctions, reputational issues and weakening of business infrastructure,” Andrew Freeman, a Middle East and North Africa analyst at the risk consultancy firm Control Risks, told CNN.
Freeman added that the primary benefit of the deal is “weakening Assad’s claim over Kurdish parts of Syria; ensuring he cannot benefit from any oil and gas royalties; and ensuring that Russian or Iranian companies don’t get to control those oil & gas assets (like they did elsewhere).”
While the footprint and the role of the US military in Syria is limited, with fewer than 1,000 US troops currently in the country, according to military officials, securing Syria’s oil infrastructure to prevent it falling into the hands of ISIS has been a task that US forces have been performing for some time.
Despite the presence of Assad’s militias and Russian forces eager to seize control of the area, the US government will not explicitly say that it would come to the aid of the American contractors were they to come under attack.
Last week, Graham said that he spoke with Mazloum about the contract being signed. Officials from the SDF did not reply to CNN’s request for comment.
A recent Pentagon report said that coalition officials believe that without such economic stability, Mazloum and the Syrian Democratic Council’s (SDC) executive committee president, Ilham Ahmed, “would be more likely to make financial concessions to Russia — which is pressing for access to the eastern Syria oil fields — in exchange for a political deal for the Kurdish-led administration in northeastern Syria with the Syrian regime.”