Reserve. Its there for a reason. The word strategic is there in a very significant place. On that front, the proposal by some to permanently ban production in a small sliver of the nonwilderness, which could be the strategic reserve, is just wrong. Its dead wrong. As terrorists threaten oil supplies in the middle east and as state sponsors prepare to make billions of dollars from selling our oil to allies, some within congress are talking about intentionally and severely hurting American Energy production. This hearing this morning is about education. Members of the house and senate and the Administration Must understand the economic and the geopolitical context of the National Interests that we are considering. This committee has a unique perspective, given that over 90 of Iraqi Government revenues are due to oil exports, given nearly 09 of syrias Oil Production is offline and given that oil accounts for over 40 of isis monthly revenue, according to ihs. So you can expect me as chairman to continue this conversation into next year as we conduct oversight on the federal governments Energy Related activities in the counterterrorism fight. With that, i will turn to senator cantwell for your comments this morning. Thank you, madam chair. I, too, want to welcome the former chair of the committee, senator Frank Murkowski and welcome him back to the hearing room and also welcome our witnesses and thank them for being here today. Todays hearing is an important opportunity as the chair woman said to learn about the Critical Issues of the energy world, the relationship between terrorism and global oil networks and foremost about Energy Security. I look forward to hearing the witnesses and i look forward at some point in time having the administration be a witness here as well. Perhaps we can do that in the future or have a hearing in a secure room to get into even more detail on this issue. But it is something i think we need to hear from them on. At the outset of the hearing, i want to make sure that im making my views known about how important Global Oil Markets are in fighting terrorism and particularly the role of the committee to consider the impacts of the activities or infrastructure, risk for u. S. And Global Energy security and supply and understanding the global picture. Iran and iraq have some of the Largest Oil Reserves in the world. By some estimates fourth and fifth largest in the world. So control over this oil has a major impact. Overall, the movement of oil from the middle east to World Markets is also key to the stability of global supplies. Global Energy Security depends on diversity of supplies in different countries. What happens still matters, because in addition to the United States, growing countries like china have an enormous energy need and they will continue to look for resources for those energy needs to be met. In todays market, where theres robust supply, it would take a significant disruption, maybe somewhere around 5 to 10 to really disrupt the market. To give that a sense of perspective, todays Global Production is approximately 94 Million Barrels per day. The isis Oil Production is about 35,000. So thats somewhere between onetenth less less than onetenth of 1 . Its clear though that this is a constantly shifting dynamic. And in a tight market, a very, very small amount of disruption can have a very, very significant impact. So i think todays discussions are about where and when we might anticipate disruptions and what to do about them and as i predict we will probably talk a lot today about actually following the money of where the oil revenue is going as a way to fight isis. In yesterdays Armed Services committee hearing, defense secretary ash carter laid out the strategy in degrading isis oil structure. He said, we have intensified the air campaign against isils Oil Enterprise, a critical pillar of isils financial infrastructure. In addition to destroying fixed facilities like oil and processing facilities, we have destroyed nearly 400 oil tankers, reduced the source of the daily revenue and theres more to come, end quote. We will certainly look forward to hearing more about what is to come. I will be first to say, we do need to do more. According to secretary carter, what made the recent strategy possible was new intelligence that had previously not been available. He said, quote, it allowed us to identify those parts of the Oil Infrastructure that are being used to actually fund isil. I recently was briefed by a state Department Special envoy for energy. I was pleased to hear that over the past year, we have eliminated almost all of isis Refining Capacity. I was pleased to hear that the raid on the home of a former isis oil emir in may produced actionable intelligence about that following the money and more effective targeting of that, whereas previously isis could repair damage from air strikes within a matter of days, the current targeting inflicts damage that will take many months, even a year to repair. Another piece of news is that isis no longer controls any of the fields in iraq. So while progress has been made, it is very important to understand how adaptable isis is. Thats why its important for us to adapt, too. Its clear that isis adapts their strategies and they have continued to look at this as a main resource. So we need to act swiftly and decisively as well. Isis is supported by fuel purchases by the assad regime. To me, that needs to end. One of the most troubling realities of the situation is that the isis oil is being purchased by their enemy, the assad regime, either paying cash or other means. The u. S. Treasury sanctioned a syria individual for facilitating this. Instead of focusing on alleged Oil Smuggling in turkey, russia needs to use its influence to stop assad regime from buying oil and gas from isis. I know secretary kerry is traveling there today. Maybe thats a conversation that he can have. But back to our larger issue here. The large and troubling issue is that for years terrorist organizations have been funded through oil sales. The chairwoman mentioned a few of those incidents in her statement. In nigeria, for example, oil the oil has fuelled conflicts since 2005. And boko haram is likely funded through the crude oil theft and sales. Nearly 40 of the u. S. Oil demand is met by oil and 93 of transportation is fuelled by oil. So i also think its important given these facts that these terrorist targeted organizations, we need to diversify our economy in the interest of National Security. In the past 6 of our nations gdp goes to purchasing petroleum. 40 years ago, we created the Strategic Petroleum reserve to prevent the Economic Security impacts of crude oil disruptions. The chairwoman and i remain committed to making sure the reserve is a strong asset for our nation. We recently worked to make sure that the reviews identification of Infrastructure Investment needed for the Strategic Petroleum preserve given the shift change over our resources and where those are, that those investments need to be made. In the transportation bill, sales of this were authorized. It needs to be protected from further shredding. Its important we have this as a resource for us to protect against instability in oil markets. While im sure were going to hear a lot of discussion today from our panelists about the larger implications of National Security and our dependence on oil, we need to continue to make sure that we are doing everything here at home to make sure that we are secure and that we are isolated to the greatest degree possible from these impacts on our economy. I thank you, madam chair. I look forward to hearing the witnesses. Thank you, senator cantwell, for a very strong statement. Appreciate it. Welcome to each of the panelists that have joined us here today. We appreciate you giving us this time and the attention on the subject of the day, terrorism and Global Oil Markets. The panel will be led off by dr. Keith crane who is the senior economist for rand corporation. Welcome to the committee. He will be followed by mr. Peter harrell, who is the senior fellow for a center for new american security. Dr. Sara vakhshouri is the nonresident senior fellow for the atlantic council. Thank you for joining us. And we will wrap up the panel with mr. Jamie webster, who is the senior director for ihs. We appreciate you being here this morning. Not only your contribution but ihs has been a great source of information for the committee. We appreciate that as well. I would ask that you try to confine your remarks to about five minutes. Your full statements will be included as part of the record. Once you have concluded your testimony, we will have an opportunity to ask questions from the members here. With that, dr. Crane, if you would like to begin, please. Thank you. Thank you, chairman murkowski and Ranking Member cantwell for the opportunity to testify today. Im going to talk about isil the insurgency. Isil has a large number of affiliates. We know many people swear allegiance to it. It has been used for branding in afghanistan and elsewhere. Terrorist operations tend to cost little. Will focus on the big money, which is the insurgency. I will talk about what it costs isil to run its operations in those areas of iraq and syria that it controls. How does isil cover those costs . What can we do to reduce those revenues and how effective those measures are likely to be. Major costs are salaries for fights and large numbers of other people, please and intelligence operatives. Roughly, there could be 80,000 of those individuals, u. S. Intelligence agencies thinks theres 31,000 fighters. If you assume 400 a month, were looking at about 400 million there. Personnel costs are only a fraction of what they spend. There are other costs for hospitals and schools and ammunition and other supplies. So total costs are substantially higher. How does isil cover these costs . Oil and sales of oil and Refined Products are the single most important source of income running about 500 million a year. In the past, syria used to produce about a third of what north dakota produced. Today maybe 400,000, 500,000 per day. That has collapsed over the course of the civil war. We are looking at 35,000 to 50,000 barrels. Isil controls most. So sales are running from 40,000 to 50,000 Barrels Per Day. Most of those sales actually go to small entrepreneurs who run tea pot refineries in isilcontrolled territory. There are skads of these. They refine those products, diesel and gasoline, they go everywhere. They go into iraq. Of course, they go into syria. Theyre sold to isils enemies. They are used by isil. They go into turkey and elsewhere. In addition to that, as the chairman mentioned, a substantial number of barrels go to the syrian government. Thats the most important source of revenue. In addition to that, isil has been selling antiquities, which is stolen, which would run up to 100 million a year. The largest source of revenue is the other category which is extortion, theft of cars, kidnapping and taxes in quotes and tolls. What can we do to reduce those revenues . We have been targeting oil field facilities like loading depots and tanking trucks. We can put sanctions. And we have also we can use oil Trading Network to locate and neutralize oil leadership. How effective are these measures likely to be . It appears that our strategy of hitting Oil Separation and loading facilities and empty tanker trucks have put a dent in terms of revenues from oil. In addition, financial sanctions there are Larger Companies in syria, in the kurdish regions and elsewhere which have been dealing with isil that we could push back that we could put under sanction or threaten to do so. And theres a limited number of dealers who deal in antiquities or people have the money to spend to purchase these products these artifacts, thats another area where i think we could clamp down on. And then i think that our intelligence agencies, the u. S. Military, can focus on the networks. That said, these measures will not lead to the financial demise of isil. Theres other opportunities. Theres ways that they can do work around oil Refined Products. But they are good things to do. To conclude, measures to reduce funding for isil are an important component of our strategy to degrade the organization. Sales of oil Refined Oil Products are the most important Single Source of revenues and the tactics of focusing on that are an Excellent Way for our country to go ahead. That said, were not going to halt all sources of revenue that the organization obtains. Thank you. Thank you, dr. Crane. Mr. Harrell, welcome. Thank you very much. Push your button there. Chairwoman murkowski, Ranking Member cantwell, thank you for inviting me here to testify. Its a privilege to share my perspectives with you today. I intend to focus my spoken remarks today on the Islamic States oil trade which as dr. Crane is a principal source of revenue for the terrorist organization and one that must be shut down. Im going to keep my spoken remarks brief but have submitted a longer statement for the record. In my view, oil is actually probably the second largest source of revenue for the Islamic State. When you add up all of the things that dr. Crane said as others, those probably amount to slightly more than the oil revenue. To give one example of the scale of what is in the other category of isil revenue, treasury assistant secretary Daniel Glazer estimated earlier this year based on intelligence of the u. S. Government had received that isil has managed to loot between 500 million and 1 billion in cash out of bank vaults that they have opened in isil territory. Clearly, you add that, the taxes, the extortion that they are able to get, all told, a very significant source of revenue. Clearly, the oil revenues are also critically important to isil. Like dr. Crane, i estimate that the Islamic State earns about 500 million per year from the oil trade. Mostly through the sale of crude oil in syria. Most, if not all, of the Islamic States Oil Production occurs at small wells in syria. There may be a small amount of Oil Production in iraq. But the vast majority occurs in syria. The oil is sold by isil at the well head for perhaps between 15 and 40 per barrel. Its sold to independent distributors who then onward sell it to the small refiners that dr. Crane talked about or move it on elsewhere in isil territory. According to most estimates, isil is earning between 1 and 1. 5 million per day in oil revenue. I should say those estimates are up to about three, four weeks ago when the u. S. Military began its escalated campaign against oil targets. Until about three or four weeks ago, those estimates had been remarkably stable for about a year. If you look back a year ago, the estimates were a million or slightly more per day. If you look three or four weeks ago, you are looking at broadly stable oil revenues in isil territory. As dr. Crane said, this is not high tech business. These are very rudimentary techniques to extract the oil. And the refiners and distributors are using to refine and distribute it. I assess most of the oil produced in isis territory is consumed in isis territory. There are more than 5 Million People living in that territory. Theres certainly ample local demand to consume virtually all of that production. That said, theres clearly some smuggling that is occurring. Sales to the assad regime are actually probably more natural gas than crude oil. Theres also ample evidence of smuggling into turkey, into the kurdish autonomous regions of iraq and potentially into jordan as well. A says most of that oil smuggled out is also consumed locally in those countries and is not entering in any meaningful way Global Oil Markets. So what can the u. S. Government and our Coalition Partners do to further attack this oil revenue . I think that the single most important step that the u. S. Government can take is to continue to escalate the military targeting of isil Oil Installations and the distribution network. The fact is the oil is being sold in isis territory. Its being sold for cash. Theres not a lot of leverage the International Sanctions can have on those operations that take place within their own territory. And taking out the infrastructure is probably most important step we can take. That said, there is, as i mentioned, obviously some smuggling that is occurring into adjacent countries. And i think the adjacent countries such as turkey need to step up their efforts to crack down on oil. They are turning back trucks where they can. The smuggling is continuing. I think those countries should increase their