By: Ludovico Carlino
Two recent offensives against Islamic State (IS) in Syria have forced the group further south, squeezing its so-called caliphate into a small pocket of territory between the Syrian and the Iraqi border. More crucially, these two successful operations — one undertaken by the Syrian Democratic Forces (SDF) and the other by the Syrian army — have almost put an end to the group’s ability to generate the revenue necessary to sustain its operations.
On November 12, 2017, the SDF, a U.S.-backed coalition of Sunni/Kurdish fighters spearheading the offensive against IS in eastern Syria, seized the al-Tanak oilfield in Deir al-Zour province from the group (Hawarnews, November 12). Just a few weeks earlier, on October 21, the Syrian army wrested control of the al-Omar oilfield, also in Deir al-Zour province, from IS (SmartNewsAgency, October 21, 2017). The ground operation, supported by air power, ultimately deprived the terrorist group of the most important energy asset under its control since 2014 (Madardaily, September 12, 2015).
Establishing and Exploiting a Proto-State
Since the establishment of its self-proclaimed caliphate in 2014, IS effectively reached economic self-sufficiency through the illegal exploitation of energy, business, agricultural and commercial assets in territory under its control in Syria and Iraq (al-Sumaria, January 13, 2016; al-Modon, January 17, 2016). As a consequence, it was frequently described as the richest terrorist organization in history. Without that constant flow of cash replenishing its coffers and underpinning the attempts at governance and the highly bureaucratic structure it set up, its caliphate (used in this article to refer to the administrative body of the IS proto-state) would probably never have reached the resemblance of a functioning entity.
According to IHS Markit Conflict Monitor, which has been tracking the group’s finances since the early stages of the caliphate, the IS “business model” rested on four main pillars, established well before the June 2014 proclamation, but developed and pervasively bureaucratized after that. Those pillars were: the production and smuggling of energy-related products, such as oil, natural gas and gasoline; a pervasive system of taxation on the population and on the profits of all commercial activities held in areas under its control as well as the confiscation of commercial assets and properties; a wide range of other illegal activities, including bank robberies, the smuggling of drugs and antiquities, kidnappings for ransom and the exploitation of other local resources such as agriculture; and the management of state-run businesses, including small enterprises such as transport companies or real estate agencies (BusinessWire, December 7, 2015).
At the peak of IS territorial strength in Syria and Iraq, around late 2014, the group was exploiting more than 360 oil and gas fields in the two countries, including those in the oil-rich Deir al-Zour province, home to two-thirds of Syria’s energy assets. Meanwhile, about nine million people were living in the caliphate and were compelled to pay taxes and fines to the group or face brutal punishments. Major population centers — this includes Mosul, Ramadi and Tal Afar in Iraq, and Raqqa, Deir al-Zour and Mayadin in Syria — provided the group with crowded markets from which a share of the profits ended up in its own treasury (Deirezzor24, August 5, 2015; SkyNewsArabia, February 20, 2016). This strict control over populace and territory, coupled with the lawlessness in Syria and western Iraq, ultimately enabled IS to create a parallel economy to sustain its territorial gains and fund its war machine.
The group gradually absorbed criminal and illegal smuggling networks that were already operating in Syria and Iraq, especially along the porous border between the two countries, bureaucratizing the whole system to serve its own purposes (Addiyar, March 6, 2016). Hence the caliphate included several diwan (departments/ministries) tasked with overseeing economic activities, such as the Diwan al-Rikaz (department of “precious resources”) a Treasury (the so-called Bayt al-Mal, or “house of wealth”) and a pool of bureaucrats tasked with implementing their guidelines. [1]
Constant Decline of Territory and Money
All terrorist groups, as with any criminal organization, have historically used illegal means to obtain the funds necessary for their operations and criminal enterprises. IS was no exception, with the key distinction being that the group needed a constant stream of revenue to run its proto-state. This is not to say that IS has been using generated revenues to improve the economy of the areas under its control. Recent studies have shown the group channeled only a limited portion of its income into local economies, which barely keeps them afloat. [2] Moreover, a portion of the revenues raised was most likely kept back for future operations or used to support IS affiliates elsewhere, as in the case of the Philippines (Philippine Star, October 24).
However, providing basic services to the local population, running militant training camps and supporting thousands of fighters and their families who had migrated from different parts for the world to pursue their dream of living in a state “truly governed by Islamic law” all required regular funds. As this system was largely dependent on the exploitation of territory, IS’ ability to generate money has always been strictly correlated to its level of territorial control.
By about mid-2015, for instance, when its caliphate was still encompassing large swaths of territory in both Syria and Iraq, IS’ overall monthly revenue was estimated at around $80 million. The majority of this, around 50 percent, came from taxation and confiscation, while around 43 percent came from oil revenues (Rudaw, December 12, 2015). In early 2016, as its territorial control started to decline at a higher pace, the first consistent drop was recorded in the group’s monthly revenues — a drop by about 30 percent— as the population living within the caliphate declined to around six million people, leaving IS with fewer people and businesses to tax and less property and land to confiscate.
At the same time, oil production also went down to 21,000 barrels per day from the 33,000 first reported (al-Hurra, February 17, 2016; Middleeasteye April 18, 2016). This was the result of energy assets being retaken from IS’ control, especially in Iraq, and the intensification of the U.S.-led coalition’s military efforts to degrade IS’ capability to produce energy-related products. Almost all of the main oilfields operated by the group were in fact targeted by airstrikes, resulting in reports of extensive structural damage and the slowing of oil production (MicroSyria, February 15, 2016).
In June 2017, three years after IS leader Abu Bakr al-Baghdadi declared the caliphate, the group had lost more than 60 percent of its territory and 80 percent of its revenues. There was a steady decline in the group’s financial streams: oil production and smuggling, taxation, confiscation and other illicit activities. Average monthly oil revenue went down by 88 percent, and income from taxation and confiscation has fallen by 79 percent (al-Monitor, June 29, 2017; Kurdistan24, June 30, 2017). Territorial losses have played a key role in contributing to this loss of revenue. In particular, the group has been hurt by the recapturing of heavily populated Iraqi cities, such as Mosul, and oil-rich areas in the Syrian provinces of Raqqa and Homs.
A Continued Threat
In the past, IS used to increase the fiscal burden on the local population to compensate for declining revenues (Azzaman, January 13, 2016). As the group no longer controls major urban centers, its capability to do so has been degraded. However, at the same time, without a proto-state to run, IS requires less cash.
As the group’s strategic priority will now be waging a guerrilla style insurgency in both Syria and Iraq, the group will likely channel the money it has stockpiled over the years to fund its future campaigns. This is a considerable amount, and will be sufficient for IS to remain relevant in the years to come, even without territory under its control to exploit.
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