THE BUSINESS OF TERROR
How Islamic State radicals finance horror, war and administration,
Weapons, vehicles, employee salaries, propaganda videos, international travel — all of these things cost money. The recent terrorism attacks in Paris suggest the Islamic State terrorist organization hasn’t been hurting for funding. David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence, described the Islamic State group last October as “probably the best-funded terrorist organization we have confronted” — deep pockets that have allowed the group to carry out deadly campaigns in Iraq, Syria and other countries.
But where does the Islamic State group get all this money?
It turns out that the group’s methods of financing are very different from other prominent terrorist organizations, and much more difficult for the United States and other countries to shut down. Unlike many terrorist groups, which finance themselves mainly through wealthy donors, the Islamic State group has used its control over a territory that is roughly the size of the U.K. and home to millions of people to develop diversified revenue channels that make it more resilient to U.S. offensives.
And the group’s financial resources have grown quickly as it has captured more territory and resources: According to estimates by the Rand Corporation, its total revenue rose from a little less than $1 million (U.S.) per month in late 2008 and early 2009 to perhaps $1 million to $3 million per day in 2014.
The Islamic State group has other expenses besides the cost of carrying out terrorist attacks and waging war. The terrorist group runs schools, a religious police force, food kitchens, an Islamic court system and even a consumer protection authority. It reportedly pays fighters roughly $400 a month, which is more than the Iraqi government offers some staff.
Its control of an expansive territory obviously gives the Islamic State group a valuable source of funding and flexibility. However, some U.S. officials have argued that having territory might also be seen as a weakness for the group. Maintaining a state of eight million to 10 million people, waging war around its borders and financing and carrying out international attacks are costly and difficult. Without adequate funds to provide services to the local population, people in Islamic State territory might turn against the group.
As other writers have pointed out, considered as a state, the group looks quite poor, with a budget roughly on par with Afghanistan or the Democratic Republic of Congo. But considered as a terrorist organization, it looks wealthy and diversified.
Here are ways the Islamic State group earns its revenue:
Oil The oilfields that it has captured in Syria and Iraq have been a major source of funding. Although it’s relatively easy for the United States and other countries to prevent large-scale exports of oil from Islamic State territory, it’s much harder to control the black market oil trade that reportedly flourishes along the porous borders of territory controlled by the Islamic State group and surrounding countries.
The terrorist group mostly refines oil in small, mobile refineries, then ships it by truck to the Turkish border, where oil brokers and traders buy or barter for it. Because the trade is illegal, the oil is sold at a steep discount that can fluctuate wildly.
Oil sales initially provided much of Islamic State’s revenue, but that has declined since the U.S. and others launched an extensive campaign of airstrikes on the group’s oil and gas facilities, according to a report by the Congressional Research Service in April. By October 2014, the U.S. had reportedly destroyed about half of the group’s refining capacity.
Taxation/extortion Because the Islamic State group controls an expansive territory, it can levy taxes on the people who live there. Some of these taxes are akin to those of a normal state, while others are more like extortion.
The Islamic State group levies taxes on goods sold, utilities such as electricity and water (when they run, that is — in some areas, the electricity is only on for an hour a day), telecommunication companies, cash withdrawals from bank accounts, employee salaries, trucks entering Islamic State-controlled territory at checkpoints, looting archeological sites and non-Muslim communities in general. A report by Thomson Reuters estimates that this system of extortion and taxation could generate as much as $360 million per year for the terrorist organization.
Kidnapping for ransom A UN report from October 2014 cited estimates that Islamic State had generated $35 million to $45 million in the previous year through kidnapping for ransom alone.
Wealthy donors Some estimates say that Islamic State received up to $40 million in 2013-14 from businessmen, wealthy families and other donors in Saudi Arabia, Qatar, Kuwait and the United Arab Emirates. Many of these elite donors chose to fund the group because of fear and animosity for Iran and Syrian President Bashar Assad. A report by the Brookings Institution in 2013 observed that donors in Kuwait were channelling hundreds of millions of dollars to various Syrian rebel groups.
Sales of antiquities As the Islamic State group has gained territory, it has taken control of museums, private collections and archeological sites, such as the ninth-century B.C. grand palace of Assyrian king Ashurnasirpal II. This has given the terrorist group an expansive supply of precious art and historical artifacts. Earlier this year, the group had at least 4,500 cultural sites under its control, according to the Parisbased Financial Action Task Force.
Some of these antiquities are destroyed, but others are resold for a profit, often flowing to markets in Turkey and Jordan, and from there to Europe and other advanced countries.
The Islamic State group has other expenses besides the cost of carrying out terrorist attacks and waging war. It runs schools, food kitchens, an Islamic court system, and even a consumer protection authority.
Iraqi banks The Treasury Department has estimated that the Islamic State group gained at least half a billion dollars in cash by seizing branches of state-owned banks in northern and western Iraq in 2014.
Sales of other looted property As Islamic group captures territory in Iraq, it has acquired American vehicles, weapons and ammunition that can be used or resold. It has also reportedly resold construction equipment, generators, electric cables, cars, livestock, furniture and other goods.
Real estate According to Niqash.org, a website published in partnership with a German nonprofit, Islamic State has been generating cash by renting and auctioning off the properties of people who have been killed or fled newly occupied areas.
Foreign fighters Some foreign fighters who travel to join Islamic State bring with them hard currency, though this appears to be a relatively limited funding source.
Agriculture Islamic State now controls some of the most fertile parts of Iraq and Syria, which produce a lot of wheat and barley. According to Thomson Reuters, if those crops were sold at a 50-per-cent discount on the black market, that could still generate more than $200 million in annual income.
Phosphate, cement and sulphur The area Islamic State has captured is rich in natural resources including phosphate, cement and sulphur. Thomson Reuters estimates that phosphate resources might generate as much at $50 million a year at discounted prices, while sulphuric acid and phosphoric acid might generate $300 million.
Human trafficking Many reports have documented Islamic State’s practice of selling women and girls into marriage or sexual slavery, including many women from the Yazidi and ShiaTurkman minorities.