Oil majors Royal Dutch Shell and Total have slashed Syrian oil production as international sanctions make exports impossible, industry sources told Reuters.

Syrian oil represents less than 1 percent of daily global production but accounts for a vital portion of Syrian government earnings, which Western powers say could be used by Assad for a bloody military crackdown on the opposition.

U.S. and EU sanctions aimed at crude oil exports have warded off normal buyers of Syrian crude, which mainly flowed to Europe, causing storage tanks to brim and forcing cuts.

"The ministry has instructed all of the joint ventures to cut production significantly," said an oil industry source with knowledge of the Syrian oil sector.

Syria stops payments to Shell and Total

Financial Times said that  though oil production in Syria is ongoing, sources close to the government said Damascus stopped paying supermajors Royal Dutch Shell and Total.

Sources familiar with the Syrian energy sector told the Financial Times that major energy companies working in Syria were getting paid by the government until a few weeks ago. Payments slowed and eventually stopped as European governments put more pressure on Damascus .

"Payments have been delayed and some are outstanding," said one industry insider who spoke to the Financial Times on condition of anonymity. "My sense is the government has no cash."

Shell and Total are among the largest investors in the Syrian energy sector. The country had its $3.5 billion-a-year oil export revenue curtailed by an embargo from European consumers.

Ayham Kamel, a Syrian expert at the risk consultant company Eurasia Group, told the newspaper the looming economic issues were "the most significant challenge to the regime."

London-listed Gulfsands Petroleum announced in October it was instructed by Syrian authorities to continue keeping oil production low in the country.

INVESTMENTS AT RISK

So far, the higher risks for international oil firms doing business in Syria have not prompted existing firms to withdraw but it could affect future investment.

Syrian oil production is in decline but it is still deemed a key base for foreign oil firms given its proximity to new oil and gas discoveries in the eastern Mediterranean, like off the coast of Israel and Lebanon, as well as the Gulf states.

"Syria is a geopolitical play for the oil companies. It’s a gateway into Iraq," said one of the industry sources.

The Syrian oil ministry is trying to lure in new players to participate in a bidding round for three offshore blocks. This round has already been delayed and first submissions are due by Nov. 15, according to the ministry’s website.

A second oil industry source confirmed that this was affecting production at Shell’s joint venture and a third source said it had impacted Total’s investments.

Both firms declined to give an official comment.

This is the first indication that sanctions-related output cuts are widespread after British company Gulfsands Petroleum Plc said the oil ministry had asked it to cut output.

Syria produced around 350,000 barrels per day (bpd) before the unrest of which about a third was exported, with most flows going to Europe.

In a further sign that foreign interests could be jeopardised, the EU is mulling tougher sanctions on Syria which would make it illegal for international firms to maintain oil and gas investments there.

Canada’s Suncor Energy, Britain’s Petrofac, India’s Oil and Natural Gas Corp and the China National Petroleum Corporation (CNPC) are also operating in Syria’s energy sector.