The Economics of terror

Last updated 23 Nov 15 @ 21:48 |
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Timothy Compston takes a closer look at the way Islamic State – arguably the World’s richest and most extreme terrorist group – is funded.


As attention is given to the barbaric acts of IS – and the huge swathes of territory stretching across Iraq and Syria now under its direct control – a crucial question that needs to be asked is how has it been able to continue to fund its operations and get its hands on an estimated $2 billion annually, despite the coalition of forces ranged against it?

Rather than being akin to a more conventional terrorist group like the IRA, with a small number of so-called ‘freedom fighters’, the route IS has taken means the amount of funding to keep the wheels in motion is substantially greater. It is not simply a case of buying weapons and explosives to carry out attacks, IS needs to be able to take and hold ground – retaining the services of thousands of fighters – while putting in place the administrative and economic structures to sustain what is, to all intents and purposes, a state.

In the view of Nick Kochan – the investigative journalist and author who has covered the subject of terrorist financing over the years – a key to understanding Islamic State is to first appreciate the diversity of its sources of finance: “I think it has a very strong sense and orientation towards its economic viability. It is not, as I understand it, massively supported by external funds, rather than in the early days. It seems to have gained the strength of an intended state and, in that sense, built-up what seems like quite an elaborate fund-raising component.”

Kochan goes on to explain that unlike some terrorist groups there actually seems to be quite a devolved fundraising element to IS: “Obviously the oil exploitation is very significant and the taxation. There are also the funds brought in by foreign fighters. They are not just bringing themselves but also hard currency because they need to buy weapons or other material from the group itself.”

To give some idea of the scale of the area controlled by IS, and why a strong economic base is so pivotal, in September 2014 the director of the US National Counterterrorism Center (NCTC) – Matthew Olsen – said that the bulk of the Tigris – Euphrates river basin (an area around the size of the UK) – fell under its influence. More recently it was suggested by the US military that in Iraq IS had lost about a quarter of its territory although the picture in Syria was pretty much unchanged. Of course the situation on the ground is fluid and, outside of the main population centres, the exact level of control will vary considerably. Regarding the number of people living in IS territory, the International Committee of the Red Cross suggests it could be more than 10 million – on a par with the population Belgium – although it is difficult to give an exact figure.

One well-documented source of revenue, which is helping to pay IS’ thousands of fighters and administrators, is money stolen from the vaults of the Central Bank of Iraqi when Mosul in Nineveh Province was overrun in June 2014. Estimates vary as to the amount taken, from a high of $400 million for all of the funds secured from banks in the area to – according to a CNBC report – $85 million for the losses from the Central Bank of Iraqi alone. Whatever the exact figure, by any measure these are substantial sums. Of course, for a militant group, taking money from banks is not a sustainable revenue stream if the area it controls isn’t growing. Given this reality, there is a strong imperative on IS to try and replenish these resources by seizing more and more territory.

Another way it has been able to obtain finance is through taking money from the local population: “You have got the whole issue of taxation,” says Nick Kochan. Extorting money from businesses in the city of Mosul, for example, it is suggested nets IS $8 million per month and this is just from one population centre. Interestingly, as highlighted in the New York Times in February of this year, there is a source of funding which is often overlooked. For the parts of Iraqi where Islamic State’s reign of terror holds, the paper reveals that tens of thousands of civil servants – doctors, nurses, teachers and local authority workers – are still able to collect their salaries from the central government in Bagdad. Electricity and water employees in many areas continue to work and receive their wages.

To put the inflow of money into the IS economy as a result of these payments into context, the New York Times says that the head of the Nineveh provincial council’s finance committee who fled Mosul, when Islamic State took over, revealed that $130 million was being paid every month to government workers in Mosul. With workers still receiving their wages, the crux of the problem is that it is not being distributed in the same way as pre-IS. It is reported that, as the official financial system is no longer up and running, the money has actually to be collected by ‘department emissaries’ who go into Iraqi-controlled territory and then return to hand it out. This mechanism gives IS the opportunity to take a slice of this money. Up to 50 percent is apparently being confiscated before it reaches the hands of the workers.

Kidnappings and associated ransom payments are also high on the agenda – for 2014 this is thought to have amounted to $20 million. There are also ‘tolls’ to be paid for those looking for safe passage through IS territories. Added to this, we have all seen how religious minorities have been treated by IS and those that have not been driven out or murdered  are forced to pay a ‘special tax’ above and beyond anything required of the wider population.

Significantly, the areas of Syria and Iraqi which IS has brought under its wing have some of the most valuable antiquities anywhere in the world thanks to its status as a cradle of civilisation. In ancient times Mesopotamia played host to the Babylonian and Assyrian empires and, over time, parts even came under the Greek and Roman sphere of influence. This rich vein of history provides easy pickings for those seeking to sell on such items to international collectors who are all too happy to get their hands on these irreplaceable items.

“If and when they [IS] occupy a new city or a new place they have got the wealth to extract from that place and that can include robbing banks, a new population to tax, and a site of antiquity to rob or to export,” says Nick Kochan

The looting of artefacts in the region is nothing new of course, in the aftermath of the 2003 invasion of Iraq, for example, the losses from the National Museum of Iraq were well documented. Fast forward a decade and IS has certainly not been slow to jump on the antiquity bandwagon. Beyond the videos of historical artefacts being blown up for being ‘un-Islamic’, the trade in antiquities is on the up – especially those which can be moved around easily like small statues, coins and jewellery. In fact this is now reckoned to be one of IS’s main sources of income, with items, such as those taken from museums in Aleppo, being smuggled on a daily basis from war-torn Syria into countries like Turkey and Lebanon. Artefacts are often hidden in the belongings of refugees crossing international borders and local merchants on the other side are eager to sell them on to dealers and collectors in Europe and beyond and Islamic State taking a slice of the pie – say 20 percent – from those engaged in the trade. This is not an insubstantial amount given that some artefacts are reckoned to have fetched over $1 million.

Recognising the seriousness of the situation on the artefact smuggling front, earlier this year the UN Security Council unanimously passed a resolution banning all trade in antiquities from Syria and also reaffirmed a ban on Iraqi artefact sales. The UN Security Council reiterated its concern that IS and others were: “generating income from engaging directly or indirectly in the looting and smuggling of cultural heritage items… to support their recruitment efforts and strengthen their operational capability to organise and carry out terrorist attacks.”

Oil is all pervasive with regards to the economics of the Middle East and, not surprisingly, needs to be factored into any discussion on the viability of a terrorist group or regime like Islamic State. A year ago this month the United Nations suggested that the revenue which IS was able to gain from oil varied between $846,000 and $1.6 million per day. Other reports gave a combined figure of $2.8 million per day for Syria when the sales of oil and electricity from captured oil wells and power plants are factored in. Back in July 2014 it was suggested that IS was able to rake in $25 per barrel for the crude that  fighters were taking from the South of Mosul and that this, according to the Iraqi Oil Report, was then being passed on to middlemen in the Kurdistan area of Iraq.

Nick Kochan also acknowledges that, from his research, much of the oil that falls into IS hands is refined in the Kurdish part of Iraqi: “A university academic from Iraqi described to me the very basic equipment used by Kurdish traders who get the oil from IS and then pass it through in a more refined state quite plausibly to Turkey.” When I show surprise that it would travel through a Kurdish area – given their well-publicised antipathy towards IS – Kochan responds: “This is one of the lessons of terrorism whereas you have got your ideological friends, and foes, when it comes to money there are often crossovers between naturally antipathetic groups. You have got people who will team up in business that are opposed in war.” On a follow-on point that some of the IS oil is even rumoured to make its way to the Syrian regime, Kochan says that this is a pretty well established fact.

Focusing on another surprising avenue that is helping to sustain IS, although certainly not deliberately, aid that flows into parts of Syria – from which the Assad regime has withdrawn – needs to be factored into the equation. For NGOs (Non-Governmental Organisations) and donor Governments there is certainly a difficult balance to be struck here as no one wants the local population who find themselves on the frontline of IS brutality to suffer even more but, at the same, it could be argued that the substantial quantities of food, medicine and other supplies, being sent with the best of intentions is helping to prolong and stabilise IS’ rule there.

Money from sympathisers to the cause is also an important financial driver for IS, social media is frequently used to call for donations of hundreds of dollars to buy weapons such as AK-47 assault rifles and RPGs (Rocket Propelled Grenades). Gulf State donors alone are thought to have given tens of millions of dollars and the number of foreign fighters and other individuals keen to travel to Syria underlines that, whatever we in the West may think of IS and its methods, it has a strong pull for many worldwide who are willing to give up their money and their lives for the cause.

On reflection, for Nick Kochan a key weakness in the IS economic model is that it rests on constantly acquiring new centres of population of wealth: “If they don’t grow then their economics kind of comes unstuck because they don’t have the means to, for example, raise productivity and moreover for the crude oil extraction systems these are probably deteriorating because they can’t access new components when they break down. There are also issues over whether they have the manpower to keep them up and running.”

Ultimately, while as we have seen the income streams that IS currently has access to are pretty diverse in the longer-term, it may struggle to maintain the cash flow it needs to sustain itself if further territorial gains are out of the question and, crucially, if it finds its de facto boundaries being pushed back by the coalition of forces ranged against it.


Timothy Compston is a journalist and PR professional who specialises in security issues. He studied International Relations and Strategic Studies at Lancaster University, is PR director of Compston PR and a past chairman of both the National PR Committee and CCTV PR Committee of the British Security Industry Association (BSIA).