October 27, 2014

TSG IntelBrief: Removing The Islamic State from Local Economies

• Like a tumor, the Islamic State (IS) feeds off the vitality of its unwilling hosts, sustaining itself from the economies of the areas it controls

• Efforts to deprive IS of its million-dollar-a-day revenue will be as difficult as it will be vital, since the group takes a percentage of local economic activity; hurting those economies to deprive IS of money will be counter-productive

• The coalition efforts to defeat IS militarily must be sufficient enough to thwart its advances while remaining targeted enough to ensure the vulnerable population doesn’t unite with IS in collective suffering

• Destroying mobile oil refineries is an effective use of air power to deny IS more finances but it will prove less effective against destroying the percentage IS takes from everyday transactions that it calls taxes

• In short, the solution is to remove IS from the money, not the other way around, which only will only weaken and radicalize already struggling populations.

Even accounting for deliberately misleading propaganda and distorted reporting, there is little doubt that the financial resources of the self-declared Islamic (IS) State will allow it to consolidate its territory and build its support in both Iraq and Syria for the foreseeable future. The group should be able to maintain its hold even if its income declines for the lack of technical expertise or the denial of territory and resources as a result of local or international action. Like a tumor, IS feeds off the vitality of its unwilling hosts, and the challenge facing the counter-IS coalition is to starve the tumor of its nourishment while keeping the patient alive. Given how embedded the group is in local economies, this will prove as difficult as it will be necessary when it comes to truly dismantling the group. Killing the patient is not a cure for cancer.

Credible estimates of IS daily revenue from its myriad streams of revenue—oil sales, taxes, extortion, sales of looted antiquity, protection, etc—range from $1-3 million dollars a day. Recent airstrikes against IS oil facilities and transport likely have cut into those oil-sales-based numbers but they have done little to stem the ways in which IS parasitically feeds off of local economies. Quite simply, IS has plugged into the financial nodes of every village it seizes, controlling transportation, commerce, power, food—everything that has monetary and symbolic value. All these economic activities continue in the face of ideological oppression, only with IS regulating the transactions. Even cutting out a majority of oil sales—by bombing facilities—does little to restrict the normal everyday business upon which IS preys.

In Mosul it was estimated this summer that the group was extorting $8 million a month from truckers and transportation companies. By seizing key transportation chokepoints both in Syria and Iraq (a look at the map shows this clearly), IS can charge large tanker trucks up to $400 to enter destinations it holds, charging smaller trucks between $50 to $100. By sheer scale, the group is making millions in both countries. Kidnapping remains lucrative as well; total revenue from ransoms is estimated to clock in at an astonishing $65 million by mid-2014.

Of course it is not all income; IS has significant revenue outflow as well. As any government knows, it costs a great deal to maintain an army, police, judiciary, and other pubic services. This is where IS is most vulnerable. Proclaiming oneself a state is not the same as paying for it, and the monetary loyalties that IS has created in the months since it has become flush with seized cash might prove to be as substantial as social media support—seemingly substantial until it suddenly isn’t.

Balancing the books for IS is Abu Salah (Muafaq Mustafa Muhammad al Khamush), who is believed to be from Morocco. Abu Salah’s time is probably spent as is any financial officer’s: managing revenue against costs, but with the added complication of being the world’s most highly visible terrorist organization. This is an important point: IS acts like a state but it can’t leverage international finances and banking like a traditional state. Despite its flags and actual accomplishments, the group remains a pariah and terrorist organization beyond the bounds of normal financial difficulties. IS can seize cash but remains unable to float bonds and other means of raising funds. Any legitimate bank account that holds IS funds is subject to seizure across the globe, and so post-9/11 financial regulations will restrict the group’s ability to launder money, even though a great deal of its dealings remain in cash. IS can issue symbolic passports all it chooses, but the all-important issuance of its own currency is beyond even the wildest claims of the so-called caliphate.

Much of the current debate is on the military airstrikes against IS, which is understandable since it is the most visible and most immediate way in which the international community can excise the tumor of IS. But cutting the group off from its money will likely play a larger and more lasting role in truly diminishing the group. Even in its worst days of 2009-2011, IS never stopped using the Iraqi city of Mosul as its own banking machine, making millions of dollars a month from extortion and ransom. The international coalition can’t bomb its way to a solution that keeps IS away from the region’s resources. Removing the money from IS is not an option and so therefore removing IS from the money is the only option, which is a long-term and systematic endeavor.


Read The Soufan Group's special report on The Islamic State here.


For tailored research and analysis, please contact:

Screen Shot 2013-10-21 at 9.32.42 AM