The Political Economy of the Islamic State; Terrorism Monitor Volume: 12 Issue: 24

The self-proclaimed Islamic State’s capture of the second-largest city in Iraq, Mosul, in June came as a surprise for many, but six months on, the group now additionally controls large swaths of both Iraq and Syria. This advance has allowed the jihadist group to increase its funding, through varied sources of income: oil fields, local banks, hostage ransom payments, donations and imposed taxes. These have made the Islamic State one of the richest terrorist groups on earth. But how would this income influence the group’s behavior? This article attempts to answer this question.

Revenues

The resources of the Islamic State organization vary. In addition to a one-off “jackpots” forcibly seized from local banks and business in areas under its control – an estimated $500 million to $1.5 billion – the group has several sources of revenue that provide a sustainable income. [1]

Private Donors

Most jihadist groups, in various places and not limited to Syria and Iraq, benefit from private donors, especially from the Gulf States, as witnessed in Afghanistan, Bosnia and Chechnya. These donations typically come under the umbrella of “humanitarian’” aid. According to several reports, private donors fund the Islamic State with about $20 million annually. This money comes mostly from individuals in the Gulf states, especially Qatar and Kuwait as both countries, unlike Saudi Arabia, have a loose banking system; it has been estimated that about $200 million from Gulf states has been paid to groups in Syria without any official documentation (Newsweek, November 6).

It is worth mentioning that not all Syria-linked donations from the Gulf go to the Islamic State organization, however, as other jihadist and non-jihadist organizations are also receiving funds. However, as the Islamic State organization is prioritizing its jihad against Shiites and presenting itself as a defender of Sunnis, it has attracted donors who are unaffiliated with jihadist groups per se, but who are funding the Islamic State because they consider themselves in a war against Shiites.

Kidnapping-for-Ransom

The group also relies heavily on conducting kidnapping for ransoms, which supply an estimated 20 percent of the group’s income; some $20 million in 2014 (Newsweek, November 6). The kidnappings are not limited to foreigners, but also involve locals who are ransomed for smaller amounts.

Local Resources and Taxes

It is not clear how much the Islamic State makes from local taxes and how much it profits from local resources and businesses. The group controls about 40 percent of Iraq’s wheat production (al-Araby, October 2). Similarly, it controls the largest fish farms in the northern areas of the country. Some sources estimated the group’s earnings from selling such commodities either locally or by smuggling goods abroad around as much as $15 million. [2]

Taxation is another important source of funds for the Islamic State. For instance, in Mosul, the group has forced local merchants to pay taxes (Anadolu Agency, September 1). Some of these merchants are supporters of the Islamic State organization or at least of a Sunni revolution against the central government in Baghdad. The money the Islamic State is making from these merchants is estimated at approximately $8 million a month. [3]

The Islamic State also imposes a tax on trucks that pass through their territory. Each truck pays roughly $300 per vehicle. However, commercial traffic through the areas it controlled as fallen off significantly. For instance, the Islamic State group controls Rutbah, the Iraqi town before the only border crossing between Iraq and Jordan; however, overland trade between the countries has dropped remarkably; previously, around 1,000 trucks would cross per day, but now only about 50 trucks per day use this route. [4] That said, even though this is a significant drop, it brings in an estimated $500,000 a month or $6 million a year for Islamic State in revenue.

Furthermore, like all jihadist groups, the Islamic State benefits from local smuggling networks, in their case, those between Syria, Iraq and Turkey. The smuggling business between these borders is a very well-established family business that is handed down from generation to generation and can generate considerable cash for the group. This revenue also providing an additional motivation for the Islamic State to seek to maintain control of these borders.

Oil

The biggest prize from the Islamic State’s advance is oil. The group now controls many oil fields in Iraq and Syria. According to the Iraqi Energy Institute, the groups controls several oilfields in northern Iraq, such as Najmah, al-Qayarah, Ajil and Hemreen (al-Wasat [Libya] September 20). Similarly, the groups controls about 60 percent of all oilfields in Syria. This oil is sold on the black market for half of the global price, prior to the recent fall in the global oil price, this amounted to approximately $40 per barrel.

As a result of the ongoing fighting against the Islamic State by the Kurdish YPG in northern Syria and the Iraqi Army supported by Shiite militias in other places, control over oilfields frequently changes hands, which mean that the income to the Islamic State group from oil fluctuates. The Islamic State organization additionally relies on mobile refineries to produce fuel that is sold locally. Although this is a poor quality oil and fuel and causes health and environmental problems, it secures a huge amount of income for the Islamic State (al-Jazeera, September 18). The group produces from 50 to 80 thousand barrels per day (bpd); for comparison, Iraq produces 3 million bpd. This equates to around about $2.5 million on average a day for the group (Newsweek, November 6). [5]

Together, these income sources amount to about $2 to $2.5 billion per year, making the Islamic State one of the richest terror groups on the globe (Independent, September 15)?

Expenses

The Islamic State organization rules about 700 kilometers of towns and villages, and a population the size of Austria’s. [6] The group needs to manage its resources in order to spend effectively towards achieving its goals in these areas. This is made more complicated for the group by the U.S.-led airstrikes against it in Syria and Iraq which are aimed at, among other goals, at weakening its ability to generate income. What options does the group have in terms of making itself financially sustainable?

The areas the Islamic State organization controls in Syria and Iraq require a large amount of money. According to budget figures from the Iraqi government, Islamic State-controlled areas in Iraq alone need about $2.6 billion annually. In war-devastated Syria, estimates are much higher: about $8 billion. [7] This poses a serious challenge for the Islamic State. The group’s leader was clear about this difficulty in his first video appearance at a Mosul mosque in July, but also sought to downplay the importance of such issues: “I do not promise you, like other kings and rulers, welfare, security and prosperity… [but I promise you a Caliphate].” [8]

However, despite such rhetoric, one of the biggest challenges the Islamic State faces is maintaining its alliance with local Sunnis in the areas under its control. This alliance was the major reason behind the group’s success has after the group promises to address Sunni Arabs grievances in both Iraq and Syria, such as the lack of services, shortage of food and water, the regular loss of electrical power and having no functioning public institutions (The Guardian, October 27). If the group cannot deliver such improvements, or at least maintain current standards, this alliance could therefore be jeopardized.

Geographical Control or Terror Tactics?

The Islamic State, like most jihadist groups, switches easily back and forth between two policies: a territorial strategy that involves controlling geographical space and a terrorist strategy, in which the group does not attempt to hold ground but instead resorts to tactics such as suicide bombings, assassinations, and car bombs. So far, both these strategies are limited to Iraq and Syria and there is little evidence that the group is currently seeking to pursue a strategy of global jihad (CNN, October 17). Indeed, all the evidence suggests that the Islamic State is presently focusing on the “near enemy” and fighting along sectarian lines; neither in Syria nor Iraq is there evidence of training camps similar to those that were created in Afghanistan, Waziristan or even Iraq post-2003 that trained jihadist operatives to attack the West (“the far enemy”).

However, if the group feels unable to hold these large areas in Iraq and Syria the group may change its strategy toward a more terrorism-focused approach. The huge amount of financial resources it is accumulating could make big difference in determining the scope and effectiveness of any such future attacks. Comparing the Islamic State’s attacks in Iraq between 2012 and 2013 shows a marked difference; the group – according to its own figures – carried out 4,500 attacks in 2012 and 7,681 attacks in 2013, an increase of about 26 percent. The effectiveness of the attacks increased as well; much of this increase is likely due to the group’s increased wealth. [9]

Exporting attacks to outside the areas under its control could also be more economically effective for Islamic State than trying to manage the large amounts of territory it has seized. This becomes obvious when comparing the costs of large terrorist attacks around the world; the 9/11 attacks cost al-Qaeda about $500,000, the 2002 Bali bombings $50,000, the Madrid commuter train bombing in 2004 $80,000, the 7/7 attacks in London about $10,000 and the Westgate attack in Nairobi cost al-Shabaab about $5,000 (Washington Post, August 23, 2008; CNN, December 10, 2013). [10]

Conclusion

By controlling large areas of territory in Iraq and Syria, the Islamic State has increased its funds and become one of the richest armed groups in the world. However, building a state with a population of around eight million people and budgeting for their needs would require more funds than the jihadist group already has. This challenge is growing as the Islamic State has thousands of fighters to equip and fund and also is fighting an on-going war, which requires further spending, especially now that U.S.-led airstrikes are deliberately targeting its economic resources (BBC Arabic, September 5). These challenges might lead the group to change its strategy from expanding geographically to more hit-and-run style of attacks, as it can carry out many more attacks with a significantly lower cost. In other words, the Islamic State organization may have to choose between being a rich terrorist group or a poor state.

Murad Batal al-Shishani is an Islamic groups and terrorism issues analyst based in London.

Notes

1. This term was used by Tom Keating, a London-based Royal United Service Institution (RUSI) expert on terrorist financing.

2. See, digital.ahram.org.eg/Motnw3a.aspx) and

http://www.shafaaq.com/sh2/index.php/news/iraq-news/71192--------qq.html.

3. See, Mona Alami, The Islamic State and the Cost of Governing, Sada (Arabic), Carnegie Endowment for International Peace, September 4, 2014. Harith Has a, al-Qaeda fi al-Mosul: Dawlah dakhil dawlah, (al-Qaeda in Mosul: a State inside a State), http://www.al-monitor.com/pulse/ar/originals/2013/10/al-qaeda-mosul-iraq-sunnis-minorities.html##ixzz3KddFSZYz.

4. The author spoke to several truck drivers on the Jordanian-Iraqi border this September.

5. Op Cit., Alami.

6. Ahmad Abazed, al-Mashhad al-Suri ba'd Der al-Zour (the Scene of Syria after Der al-Zour), Forum for Arab and International Affairs (Doha- Qatar), 2014.

7. Op Cit., Alami.

8. See the full text of his speech in the Friday sermon; https://www.alplatformmedia.com/vb/showthread.php?t=53543.

9. For full access to the ISIS military report (2012-2013), see https://archive.org/details/al-naba2.

10. Please see http://www.9-11commission.gov/report/911Report.pdf and “Report of the Official Account of the bombings in London on 7th July 2005,” https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/228837/1087.pdf.