Disrupting ISIS Funding

ISIS Funding - BBC map

From BBC News | Source: World Energy Outlook, IEA, Petroleum Economist, Institute for the Study of War

 

by Anastasiia Gnatenko

The U.S. Treasury has recently confirmed its intentions to try to halt the flow of money to Islamic State of Iraq and Syria (ISIS) by targeting its oil business and imposing sanctions on the external donors. Since it began its operations early this year, the Islamic State went far beyond the definition of a terrorist organization, claiming enormous territorial and political ambitions, growing in size dramatically and involving constant inflow of revenue from a very diverse range of sources.

Simplifying group activities to a war of “believers against infidels” does not explicate the situation anymore, as the religious motives are not the only ones in place. ISIS is primarily focused on financial self-sufficiency and independence, raising revenues from oil sales, taxes on businesses and individuals, ransom payments, operation of captured factories, selling antiquities and the like. Such activities make it function more like an operational state than a jihadist group.

The international community is now facing the challenge of finding means to prevent further escalation of the conflict with ISIS. Experts agree on the fact that revenue has primary importance in these terms. The focus of the “War on Terror” has become the disruption of “the ISIS economy.”

The estimated total revenue of ISIS per day varies greatly from one source to another. U.S. Treasury’s Under Secretary for Terrorism and Financial Intelligence David Cohen recently described the ISIS as the “best funded terrorist organization we have ever confronted,” with a revenue between $1 and $6 million per day. One may wonder about the source of such substantial wealth, which makes ISIS the world’s most financially sophisticated terrorist organization.

Despite the common belief that most of the revenue comes from ransom payments and funding from wealthy Gulf partners, most experts agree that these inflows are not the dominant source of income for the organization.

In the early stages of ISIS activity, individual donations sent by local and external supporters from the Gulf provided the main source of the organization’s income. According to a recent article in Newsweek, ISIS received $40 million over the past two years from governments and individual donations from the oil-rich countries of Saudi Arabia, Qatar and Kuwait. However, its volume decreased following huge pressure and criticism from the international community and the U.S. As a result, these countries adopted new legislation aimed at countering terrorist financing.

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Despite numerous efforts to stop foreign funding, there is evidence of private Gulf donors continuing to funnel money to ISIS. “Qatar and Kuwait continue to stick out as two trouble spots when it comes to counterterrorist financing enforcement,” Lori Plotkin Boghardt, a fellow in Gulf politics at the Washington Institute for Near East Policy, told Newsweek.

Besides the control of a territory stretching from Aleppo in the North to Baghdad in the South, including the cities of ar-Raqqah in Syria and Mosul in Iraq, the group has also taken hold of natural resources, agriculture and oil fields located in this area. Revenue from selling oil is ranked first in the ISIS income sources list. The volume of oil extraction in the controlled territory, according to various estimates, can reach up to 70 thousand barrels daily, which, if sold on the black market, can bring up to $3 million. Crude oil and refined products are being sold through well-established smuggling networks across the borders of Turkey, the Kurdistan Region, Syria and Iran. On top of that, not only does this business provide funds to keep ISIS’ war-machine running, but also benefits buyers and intermediaries of the transactions, who buy oil at lower prices and are paid in cash for their services.

The aim of the U.S.-led coalition’s decision to bomb ISIS’ oil derricks is to cut the major revenue flow. The most recent International Energy Agency report shows that the volume of oil production decreased dramatically from 70 thousand to 20 thousand barrels per day after the aerial campaign of the coalition.

However, one of the most important shortcomings of this strategy is that it has already led to higher diesel and petroleum prices for 8 million civilians in the ISIS-controlled territory. The local population is now dependent on ISIS to supply them with cheap oil. With winter approaching, further bombing can lead to an energy crisis in the region, and the problem of finding a substitute supplier of oil and petrol will be difficult to solve. Civilians will most likely continue paying the price for any distortions in ISIS’ money-flow.

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