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Syria has told foreign oil companies to cut production due to a backlog of crude that has filled its storage capacity because the government has been so far unable to bypass an embargo on crude oil exports imposed by the European Union.

Syria has sought to sell its oil to nations outside the EU, which before the ban imported around 95 per cent of the country’s output.

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But industry executives and oil traders said the country had been so far unable to attract new

buyers in spite of offering discounts.

The failure has forced foreign oil companies to pump crude originally earmarked for export into storage. “There is a backlog of crude in the country,” said an industry executive.

“Storage is filling up,” the executive added, saying that some companies had been told to reduce output.

Gulfsands Petroleum, the London-listed company which operates in Syria, has cut its production by around 40 per cent at the request of the authorities. The company is now pumping about 14,500 barrels a day, down from about than 24,000 b/d in August.

Industry executives said other international oil companies operating in the country, which include Royal Dutch Shell, Total of France, and state-owned CNPC of China and ONGC of India, have also recently received orders to cut back.

Although international oil companies hope the cuts are temporary, and will end when Syria finds nations willing to take its crude, others see the drop lasting as long as the EU embargo remains.

Brussels imposed the oil ban in response to a crackdown by the regime of Bashar al-Assad on pro-democracy activists that

has seen more than 2,700 people die in the past six months.

Syria produced in August around 370,000 b/d of low quality crude oil, according to the International Energy Agency, the western countries’ oil watchdog.

The country exported around 150,000 b/d, with the rest consumed domestically. Germany and Italy accounted for roughly two-thirds of Syria’s oil exports last year.

Imad Moustapha, Syria’s ambassador to Washington, said in a recent interview with the Financial Times that the country would have no problem finding markets for its oil.

“It’s not that we are approaching people, it’s the other way around. We

are being approached,” he said.

But so far this month not a single cargo of Syrian crude oil has left the nation’s main export oil ports, according to shipping data. Several tenders of low quality, high sulphur Souedie crude, the country’s main export stream, have failed to attract any interest, traders said.

Oil traders said the impact of the EU ban on Syrian oil was wider than previously expected as international banks refused to open letters of credits – a common instrument used in trading – with Syrian entities, even when to destinations outside the EU. Tanker-owners were also reluctant to send their vessels to Syrian ports, they said.

The production losses compound the tight supply and demand balance in the Mediterranean and European region, home of four of the world’s 10 largest oil importing countries: Germany, France, Spain and Italy.

But the shortfall is not nearly as big as that created by the civil war in Libya, which produced before the start of the revolution 1.6m b/d of high quality, low sulphur crude oil.

Shell directed questions about production in Syria to the Damascus-based Al-Furat Petroleum Company, which could not be reached. Al-Furat is a joint venture between Syria’s state-owned General Petroleum Corporation, which controls a 50 per cent stake, Shell Oil and CNPC. Total did not responded to calls and e-mails.

FT

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