July 11, 2014

TSG IntelBrief: Striking Oil: The Threat of the Islamic State’s Finances

• The Islamic State (IS) has become a functioning terrorist oil cartel, operating in two countries and presenting a unique challenge to traditional counterterrorism approaches to financing

• It has been strategic in its operations both in Syria and Iraq—seizing and holding functioning oil producing areas as well as contiguous border routes to sell it

• According to reporting from Diyala Province, Iraq, IS is now shipping $1 million a day of oil via tanker trucks into Kurdistan and Iran; for perspective, the 9/11 attacks cost an estimated $500,000 to plan and conduct

• A significant reason for al-Qaeda’s decade-long decline has been intensive pressure on its finances: this pressure simply will not be of concern to IS as long as it controls oil.

While its proclamation that it restored the Islamic Caliphatecomplete with  an ominous black map—garnered enormous attention, the Islamic State (IS) achieved something altogether troubling this week that actually warrants close attention.

The IS is now a functioning terrorist oil cartel, operating in two countries and with steady supply and demand. In the Iraqi border town of Tuz Khurmatu, IS is shipping oil it controls from the Hamrin 2 and Ujail oil fields near the contested Bayji refinery. With $14,000 per tanker, and over 100 tankers a day moving through Tuz to both Kurdistan and Iran, IS is making over a million dollars a day. Combined with oil fields in Syria, the terrorist group has moved far beyond relying on donors and extortion, presenting governments and counterterrorist organizations with a new vexing issue: how to squeeze the finances of a self-sustaining group.

While it is unclear how long IS can move oil near Bayji, it also has control of Mosul, which is near the damaged Iraqi-Turkish Pipeline (responsible to moving oil north and west). The pipeline has been inoperable for months after an attack, leaving Iraq with only Basra marine and mooring terminals as points of official oil export (along with some disputed Kurdish exports). IS has been strategic in the areas it seized, focusing on locations with proven and current oil and gas production. It hasn’t bothered to take over the unguarded Akkas gas field in Anbar province because the area is still years away from production. It would be a waste of manpower to hold such unprofitable real estate even if the Sunni makeup of the area makes it easier than other areas. The focus on profit is why IS is still battling around Bayji, to squeeze as much revenue as possible from those oil fields before likely falling back if or when the Iraqi military proves capable to the task of reclaiming it.

Adding to this is the news that IS has seized all oil fields in the Dayr al-Zur governorate of Syria, making it an actual multinational cartel. While the production of fields such as al-Omar on the Syria-Iraq border are reduced due to years of fighting, they still produce perhaps 10,000 barrels a day, providing IS with sufficient money to buy weapons and loyalty. With the seizure of Iraqi and Syrian oil fields, and the means to move the oil to willing buyers in Syria, Turkey, Kurdistan, and Iran, IS is accruing money at a disturbing rate. This amount of money combined with territorial gains and sanctuary in both countries makes IS the most serious terrorist threat since the Qaeda of 9/11. To put IS finances in context, Usama bin Ladin probably had less than ten million dollars over the years to build up AQ into a force capable of executing the 9/11 attacks (which cost an estimated $500,000): IS can get that much in ten days through oil sales.

Black market oil sales are notoriously difficult to deter, especially non-maritime shipments. It is impossible to monitor tanker trucks crossing borders that in the best of times were always conducive to smuggling, and now is clearly not the best of times. As long as IS physically holds the oil fields and the routes from them to customers, they will be beyond traditional CT financial measures. There are no sanctions that will work on IS, nor do their customers worry about such legalities. Once oil enters the market, it is indistinguishable from all other oil, negating pressure on buyers as well. The demand for oil ensures that if IS has oil, it will be able to sell it. Outside of regional or international forces seizing key oil producing areas in both Syria and Iraq, IS will continue to accrue immense financial reserves. Even if or when it cedes territory, it will keep the money, meaning the group will persist as a major threat.

Another source of leverage the oil provides is that IS can, in effect, become the source of subsidized fuel for populations desperate for help. Reports that IS is selling Syrian oil from Dayr al-Zur to local buyers at $12 a barrel, with instructions to sell it to locals at $18 a barrel, indicate IS efforts at shoring up local support are well under way. IS ideology might not have broad support but cheap oil and free gas cylinders will, adding to the challenge of uprooting a group determined to stay.


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