The self-styled Islamic State was unlike any other Islamist extremists. It used to be a de facto state operating under the banner of a worldwide caliphate with a stronghold that stretched over a thousand miles across Iraq and Syria. However, it also had one advantage that made it a formidable force in the region: access to several financial resources.
Of course, as a de facto state, it operated like legitimate states and nations that required a considerable level of economic activity for survival. The economy of the Islamic State explains how and where it got substantial financial resources that were critical to its operations.
To be specific, it had several revenue streams that allowed it to expand and sustain an armed force assembled to siege new territories and maintain overall territorial integrity. Furthermore, the organization was also capable of executing a semblance of sectarian governance with a rigid organizational structure across its occupied territories.
Funding ISIL: Understanding The Economy of the Islamic State
A report authored by Dr. Erin Saltman and Charlie Winter and published by London-based counter-terrorism think tank Quilliam Foundation explained that funds for Islamist extremists and jihadist organizations usually come from two primary sources: donations from supporters and revenue-generating activities to include fraud, kidnapping and extortion, black market activities, and legitimate business activities.
Note that Al-Qaeda had initially demonstrated the capacity to promote financial sustainability but eventually encountered problems in sustaining this two-fold revenue structure after a global crackdown on terrorist organizations and their supporters intensified after the 9/11 Terrorist Attack in the United States.
But ISIL was different. Unlike the nomadic and decentralized structure of al-Qaeda and other jihadist organizations, the Islamic State operates as a government with military and economic units, as well as other social institutions including religion, education, and healthcare, among others. Thus, when it declared itself as a worldwide caliphate, it also declared and promoted its autonomy. However, to maintain autonomous control over its territories, ISIL needed a steady stream of revenues to cover growing military and governance expenditures.
Previous Sources of Funding of ISIL: Kidnapping and Extortion
The organization was an emerging movement in Iraq that later became an affiliate of al-Qaeda in 2004 before it became a prominent global jihadist organization. However, it was not largely dependent on funds comings from the established donor network of al-Qaeda. Founder Abu Musab al-Zarqawi generated revenues primarily from kidnapping and extortion—criminal activities that were possible due to the instability in Iraq.
Saltman and Winter mentioned that ISIL made USD 12 million a month for kidnapping and extortion in Mosul alone, even before the June 2014 siege. The abduction of high-profile individuals was more profitable. Collectively, it generated millions of dollars in revenue every month.
The economy of the Islamic State was also dependent on donations from private financiers in the Persian Gulf region. However, al-Zarqawi knew better not to depend on this funding source since the international community had intensified its operations against individual and organizational financiers. Furthermore, the organization had become too extreme, thus alienating even its previous supporters and potential donors.
Kidnapping and extortion activities remained a key source of funding for ISIL. The organization had demanded hundreds of millions in dollars for high-profile abductees to include Western journalists and humanitarian workers. For example, before the beheading of American journalist James Foley, ISIL demanded USD 132 million in exchange for his release.
Cultural and Archeological Looting: Another Source of Funding
A BBC report by Simon Cox and several news articles revealed that looting became a lucrative source of funding for the Islamic State. The organization ransacked and pillaged several museums and ancient sites. Obtained items were valuable antiques from the ancient civilization worth hundreds of thousands to millions of dollars. A 10000-year-old gold-plated bronze figurine, for example, could amount to USD 1 million.
The entire antique trading was systematic and sophisticated. It also demonstrated the emerging complexity of the economy of the Islamic State and its demonstrated awareness of running and managing an emerging economic activity.
It controlled the entire process. First, it commissioned traders and excavators to loot museums and ancient sites, and by providing permits to anyone who wishes to participate. Inspectors monitored the entire activity. It also scrutinized items and screened human figures, which were seen as idolatrous. Popular items included stonework, figurines, gold, and coins.
Traders and excavators were responsible for smuggling the antiques out of the Iraqi or Syrian border. These items usually ended up in the hands of Turkish or Lebanese merchants who sold them to dealers in Europe or Gulf countries. These items landed in the houses of wealthy Europeans or individuals from Qatar or Dubai.
Less-valuable items as determined by their lesser date of origin still found their way into the back rooms of tourist shops in Beirut and southern Turkey. Undeniably, there was a sprawling market for these rare finds and to a certain extent, patrons were indirectly supporting ISIL.
Other Economic Activities: Taxation, Protection Money, and Salve Trade
There is a reason to believe that the economy of the Islamic State was expansive and vibrant. The siege of Iraqi and Syrian territories did not result in the collapse of established social, political, and economic structures and institutions. Despite the ISIL occupancy, several commercial and industrial activities remained. Stores and other small businesses continued to operate.
However, ISIL levied taxes and extorted money from big-shot businesses in exchange for protection. Businesses operating outside the Islamic State were required to pay road and import taxes to use roads and infrastructures under the control of the jihadist organization. Even telecommunication companies with towers inside the Islamic State were required to pay unless they were willing to forego business in ISIL-controlled territories.
The organization also imposed a protection tax on non-Muslim individuals. This was similar to the poll tax the prophet Mohammad placed on non-Muslims in exchange for protection. However, it threatened non-Muslim communities that refused to pay. In other words, like other autonomous states and similar to early Muslim communities, the Islamic State got its funding from existing legitimate economic activities and taxation.
Another source of revenue for ISIL was the fledging slave trade of women. Non-Muslim and Muslim infidels or apostate women became commodities. Some ended up as sex slaves for ISIL fighters while others were trafficked and sold as slaves in several hotspot markets. The Islamic State created a commercial activity out of the commodification of women.
Oil and Gas: An Important Industry in the Economy of the Islamic State
Remember that ISIL got some of its funding from existing legitimate activities. The oil and gas industry was the truest testament to the revenue-generating capacity and financial sustainability of the economy of the Islamic State.
Sieging several territories in Iraq effectively meant taking control of dozens of oil fields. Saltman and Winter reported that the organization created partnerships and codependency spanning the Levant region by reactivating hundreds of black-market refineries and a network of smuggling facilities that were operational during the 1990s and 2000s.
A report by Fazel Hawramy, Shalaw Mohammed, and Luke Harding of The Guardian explained that ISIL worked with several third parties to include middlemen and smugglers, traders, refiners, and transport companies to sell and distribute cheap oil and gas in Turkey and Syria. It took advantage of the fact that it had control over areas near the Syrian and Turkish borders. In addition, it kept the price of oil cheap to attract traders and customers.
It also sold oil and gas to the Assad regime. This was an unlikely transaction considering that ISL occupied several Syrian territories and had waged war to remove the Syrian government. Saltman and Winter said that these sales were made with a mutual understanding that the Assad regime will not bomb certain areas in exchange for cheap oil and gas.
Estimates of revenues from the sales of oil and gas vary. However, figures were around USD 1 million to USD 3 million a day. Regardless of the exact figure, the income remained steady, sizeable, and more reliable than other revenue streams.
Nevertheless, the above range of revenue-generating activities illustrates the depth and sophistication of the Islamic State. It did not depend on a single source of funding. Furthermore, unlike other terrorist organizations, it operated as a de facto state with an established economic system. Revenues generated from different economic activities kept it afloat
FURTHER READINGS AND REFERENCES
- Cox, S. 2015. “The Men Who Smuggled the Loot that Funds IS.” BBC. Available online
- Hawramy, F. and Harding, L. 2014. “Inside Islamic State’s Oil Empire: How Captured Oil Fields Fuel ISIS Insurgency. The Guardian. Available online
- Saltman, E. M. and Winter, C. 2014. Islamic State: The Changing Face of Modern Jihadism. Quilliam Foundation. ISBN: 978-1906603984