Inside the black heart of IS’s oil sector

KHAFSAH - At the peak of its hold on Iraq, the self-proclaimed Islamic State (IS) militant group transformed a barren expanse of desert, about four miles south of Mosul, into the black heart of its oil industry.

The low-slung hills of Khafsah are now a wasted landscape of mangled metal and explosive ordnance. But until recently this was the site of about 600 primitive oil refineries, which generated millions of dollars' worth of fuel and revenue that powered the IS group's murderous operations.

Iraq Oil Report visited Khafsah on Feb. 23, two days after it was cleared by the Iraqi Army’s 9th Armored Division as part of an ongoing operation to complete the liberation of Mosul.

The site provides vivid evidence of how the IS group ran a resilient oil sector that kept fueling its territory despite a dedicated U.S.-led campaign of intelligence analysis and airstrikes.

At its peak, the area could have refined tens of thousands of barrels of crude per day, more than enough to process all the oil production IS controlled in Iraq. Even oil from IS-run fields in Syria was initially trucked into Iraq to be processed, according to a member of IS and a fuel trader who participated in the operations.

Refineries in Khafsah continued to operate - albeit at reduced capacity - even through the opening months of the ongoing operation by Iraqi forces to liberate Mosul.

By generating revenue and fuel, the IS group was able to provide basic services in the territory it controlled – a key pillar in its claim to establishing itself as a new, would-be country. This veneer of legitimacy was at the foundation of both its ideological appeal to zealous followers and its ability to bring a broader array of civilians under control.

"We never lacked for fuels under IS control," said a elderly resident in Sanarik, a village just to the south.

A standard refinery unit in the Khafsah area, south of Mosul, on Feb. 23, 2017, two days after the area was liberated from Islamic State by the 9th Armored Division. (PATRICK OSGOOD/Iraq Oil Report)

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The making of "Haraqat"

When IS militants took over several Iraqi oil fields in June 2014 - including Qayarah, Hamrin, and Ain al-Jaysh - it moved quickly to set up a local refining industry capable of transforming crude oil into usable fuels.

IS already had enough technical savvy and bureaucratic sophistication for the task. The group was managing an oil sector in its Syrian territory, and IS recruiters were bringing in hundreds of industry experts from around the world at internationally competitive salaries, according to IS records obtained by the U.S., described to Iraq Oil Report by multiple U.S. officials.

"When the Islamic State overran Mosul, they started importing the plants from Syria," said an IS militant who goes by the name Abu Said, and who used to own a small, makeshift refinery. He remains with the group in western Mosul, where he was contacted by phone.

The remnants of these rudimentary refineries are scattered around the Khafsah area, rusted and shot out by recent battles.

The main feature of each unit is a large boiler - a plate-welded cylinder, about the size of a car - capable of holding somewhere between 30 to 50 tons of crude. As the oil heats up, its components condense at different temperatures into diesel, kerosene, and naphtha. At the top of the boiler, those fuels can be siphoned into pipes that run down into adjacent pools made of sandbags and plastic tarps.

A standard refinery unit in the Khafsah area, south of Mosul, on Feb. 23, 2017, two days after the area was liberated from Islamic State by the 9th Armored Division. (PATRICK OSGOOD/Iraq Oil Report)

This primitive refining process did not efficiently extract fuel from crude oil, and it did not yield high-quality fuels or unleaded gasoline, as a modern refinery would. It also produced noxious pollution.

But for the IS group, it had many benefits.

For one thing, such refineries can be manufactured relatively easily and cheaply. While the first units at Khafsah were imported from Syria, the IS group soon established prices at which they would sell crude and purchase refined fuel, which gave locals a strong economic incentive to build refineries of their own.

Most of the new investors were former employees at the Qayarah, Kirkuk and Baiji oil refineries, according to both Abu Said and a civilian who traded fuels in Mosul under IS. These Iraqi engineers came to administer much of the sector.

“They had sworn allegiance to IS before the group announced itself,” Abu Said said.

Abu Said's testimony matches reports from dozens of local civilians who have described to Iraq Oil Report how a refining business sprang to life shortly after IS stormed into Iraq. His account also jibes with the IS records obtained by the U.S., which show how the group used pricing incentives and taxation to regulate and stimulate a private refining sector.

The IS group helped to kick-start small refineries by standing up a manufacturing site for new boilers in the village of Tal Zalit, about 20 kilometers further west, according to Abu Said. Making the boilers locally halved their cost to around 1 million Iraqi dinars (about $770).

“The blacksmiths there never stopped working since Daesh came to Mosul,” the local fuel trader said.

The plant owners hired local civilians from villages south and southwest of site, paying 30,000 Iraqi dinar ($23) per ten-hour shift at the plants, Abu Said said.

The conditions were filthy. Workers used heavy fuel oil, a sludgy byproduct of crude refining, to feed the fires that burned in open pits beneath the boilers. Excess waste was simply dumped onto the ground, leaving black scars across the landscape.

Bitumen residue on the ground by a "haraqat" refinery unit in the Khafsah area south of Mosul on Feb. 13, 2017, two days after the area was liberated from Islamic State by the 9th Armored Division. (PATRICK OSGOOD/Iraq Oil Report)

Hundreds of trucks per day brought crude into the area and took fuels out. Some of the trucks had been stolen by IS, but others remained the property of truckers involved in Iraq’s smuggling business, which dates back to the Saddam Hussein regime.

IS maintained a direct monopoly on producing and selling crude oil through its "al-Rekaz" department, but the fuels business was a thriving private enterprise, monitored closely and taxed by IS.

The Mosul fuel trader estimated that there were once around 2,500 fuel shops across Mosul. The Khafsah area supplied enough diesel to run an estimated 210 neighborhood generators across Mosul’s 42 neighborhoods, the trader said.

The start of airstrikes targeting IS’s oil activity only helped the local refining industry to grow.

“After the second half of 2015, Daesh realized that the local market is more beneficial than the outside market; also, it became harder to export oil because of air strikes that attacked tanker convoys. So Daesh sold to the local refineries,” the Mosul fuel trader said.

“So, if a crude tanker truck gets targeted by an airstrike, it is usually the loss of the businessman, since Daesh was already was paid for that crude,” he added.

With refining booming, Khasfah acquired a second name - "Haraqat," which means "Burner" in Arabic - a reference to the fires that burned beneath each of the boilers.

Local residents say that IS militants executed several hundred people and discarded their bodies in this sinkhole, in the Khafsah area, which was also used as a repository for refining waste. Pictured here on Feb. 23, 2017, the pit was substantially larger before IS operatives used earth-moving equipment to fill it in partially. (PATRICK OSGOOD/Iraq Oil Report)

Industrialized killing

As Haraqat grew, oil tanker trucks were not the only traffic to the area. Buses delivered hundreds of Yezidi men, former Mosul police officers and soldiers, and other prisoners of the IS group.

In the middle of Khasfah lies a sinkhole - an unassuming depression, perhaps four meters deep, with the twisted remnants of a pickup truck at the bottom.

It may be the largest mass grave in Iraq.

A video posted to YouTube on Jan. 15, 2015 appears to show the pit when it was much wider and deeper. At the top edges, the dirt is stained reddish-brown, presumably from the blood of executions. The pit is so deep that the bottom can’t be seen.

In early 2015, IS killed 2,070 people imprisoned at various sites across Mosul and the surrounding area, who were accused of being policemen, soldiers or informants. On Aug. 6 that year, the group posted lists of the names of the dead at morgues in the city, according to civilians in Mosul at the time, but the bodies were never found.

Many of them are thought to have been dumped at Khafsah. Nearby residents – who saw many of the killings take place – estimated that at least several hundred people had been killed or dumped there.

After the initial round of killing, IS continued to take people to the site to be killed or threatened, a resident said.

"One day Daesh brought a woman from Mosul at dawn, and threw her into the pit while she was still alive," said an elderly shepherd from the nearby village of Adbah, who saw IS regularly bring people to the site to be killed. "She kept screaming for three days asking for help."

Rudimentary refinery units in the Khafsah area, just south of Mosul, on Feb. 23, 2017. (PATRICK OSGOOD/Iraq Oil Report)

Haraqat dismantled

U.S. airstrikes against the IS oil sector took out its larger, more sophisticated oil refineries, but the Haraqat refineries made harder targets because they were so small, cheap, and numerous. U.S. analysts also knew most of the people manning them were civilians.

Multiple U.S. officials said the only way to eradicate the IS oil sector fully was to eliminate the group's ability to control territory.

By July 2016, IS began withdrawing some resources from Khafsah. Iraqi security forces were closing in on Qayarah, an oil town south of Mosul, which was a primary source of crude supply to the refineries. IS militants torched about 20 wells at the Qayarah field as they withdrew.

At about the same time, IS operatives shipped out hundreds of the Haraqat units. Where they once stood, there are still blackened pits where the heavy fuel oil, which burned beneath the boilers, has now calcified into black rubble.

"Daesh moved some of the their plants back to Syria and sold them at very low prices when the Iraqi security forces regained control of Qayarah oilfields, and continued operating the rest,” Abu Said said.

An officer with Iraq's elite Counter Terrorism Service stationed nearby said on Thursday that government intelligence knew that many Sanarik residents had been oil workers under IS, though no one there would admit it.

In the center of Khafsah, the ground around the sinkhole has been gouged by earth-moving equipment, suggesting a significant effort by IS to cover up the mass grave. A single bullet casing recovered from the edge of the pit was the only physical evidence of what had happened there.

Patrick Osgood and Rawaz Tahir reported from Khafsah. Other staff reporting on Mosul are anonymous for their security.