Conflict Ressources

The trading of oil has recently received greater scrutiny since it has been connected to the financing of terrorist organization, specifically ISIS [1]. While the role of natural resources in starting and prolonging violent conflict has been discussed and studied extensively under the heading “resource curse”, strong debate remains over the causal connection and the role of specific resources.

The potential to be used illegally at a larger scale without state concessions is attributed to “lootable” resources, which are “highvalue resources in market with low barriers to entry” [2]. The barriers to entry in the oil market could be said to be higher at the production level than in other markets (such as alluvial diamonds, which can be mined without great investments or technology), making it more difficult to control or set up production sites, which often requires more technology to extract and especially to refine the crude oil. Therefore, especially in the case of the more valuable refined oil, transportation logistics are vulnerable to diversions. Pipelines, which frequently cross hundreds of kilometres, can the tapped and the extracted oil used or smuggled into neighbouring states, where the prices are higher. Another type of illegal activity is “bunkering”, meaning, “ships are illegally supplied with fuel to be sold on the black market” [3].

Its connection to the financing of terrorist group Daesh/ISIS in the Middle East is what has given the issue of illegally sourced oil its recent global prominence, including UN Security Council and General Assembly resolutions calling for political and economic isolation of ISIS (e.g.  Resolution 2710 (2014)).

While the International Convention for the Suppression of the Financing of Terrorism (1999) [4] proves a legal instrument against terrorist financing, the more politically relevant international body for regulating terrorist financing has become the Financial Action Task Force (FATF), which extended its mandate to this issue after having being founded to fight money laundering. The FATF is an inter-governmental body that seeks to protect the global financial system against being exploited for the purposes of money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction. The organization establishes guidelines and recommendations to be implemented by nation states in response to their national risks. Member states have to undergo mutual evaluation processes and evaluation by the Monetary Fund and the World Bank.

The FATF’s effectiveness stems from the economic relevance of its members, who can sanction beaches of its standards through a boycott by its member states. These sanctions can target both state and non-state members. Even though the FATF’s standards do not have the status of international law, its 40 recommendations and sanctions, resulting from beaches thereof, can be very effective.

The FATF’s ‘Recommendation 5’ on criminalizing terrorist financing orients itself on the Terrorist Financing Convention and the Security Council Resolutions, but “deliberately go[es] beyond the various international legal obligations” [5]. It includes the criminalization of knowingly engaging either directly or indirectly in trade with terrorist organizations or individual terrorists, including as intermediary traders.

Interesting legal-illegal interfaces thus exist along the value chain of oil, which drastically increases in price, as the crude oil is refined. This process, however, needs more sophistication than accessing the crude oil does. To secure greater income, terrorists and oil thieves therefore have an interest to either obtain refined oil or process it themselves. Alternatively, they rely on traders who buy their crude oil and resell it to refineries. The situation is thus similar to the situation of financing non-state violent groups through “blood” diamonds. Ensuring that companies need to know the origin of their oil would therefore go a long way in curbing the economic power of terrorists gained through the oil trade. Unlike the luxury good diamonds, however, individuals and companies alike depend more heavily on oil.