In the spring of 2014, the world watched in shock as a terrorist organization, the self-styled Islamic State of Iraq and the Levant (ISIL), exploded across Syria and Iraq, capturing four major cities— Raqqa, Mosul, Fallujah, and Tikrit— in a matter of months. After declaring itself an Islamic caliphate and attempting to rally Muslims across the world, the newly-titled Islamic State (IS) proceeded to take control of 80% of Syria’s oil fields, including the largest, al-Omar, and establish paramilitary rule in its captured territory. By the end of 2014, IS held approximately 100,000 sq. km. across northern Syria and western Iraq, an area populated by 12 million people.
Unfortunately for IS, these territorial gains would not last long. Justifying itself with an extremist interpretation of the Qur’an, IS accompanied its military victories with brutal acts of violence, including the capture of 6,383 Yazidi women and children as sex slaves, beheadings of several foreign journalists and aid workers, and the horrific burning-alive of a Jordanian pilot, Muath al-Kasasbeh. Repercussions were swift, as Egypt, Jordan, America, Russia, and several European countries strafed IS territory with thousands of airstrikes in retaliation. On the ground, rebel groups, Kurdish militants, and government forces have spent the last two years eroding IS territory, the latest victories being the recapture of Mosul by Iraqi forces on 10 July, and the recapture of Raqqa by Syrian forces last month.
The terrorist organization’s days are numbered, but not only due to military losses.
In a 2017 study by the International Centre for the Study of Radicalisation and Political Violence, IS’ main sources of revenue, in order of financial weight, were listed as follows:
Taxes and fees are collected from people living inside IS territory. In 2014, these amounted to $300-400 million (USD).
Oil revenues stream in from the local black market. Purchasers, according to a press release by the U.S. Department of the Treasury, include Turkish middlemen, Iraqi Kurds, and most ironically, Bashar al-Assad’s Syrian government. These comprised another $150-450 million.
Looting, confiscations, and fines in captured territory seem to be an immense source of wealth. However, the gain is temporary and fluctuates with military success. ICSR estimated this financial value to be upwards of $150 million.
Kidnapping of both foreigners and wealthy locals provides an inconstant but lucrative source, with estimates ranging from $20-$30 million.
Since 2015, each of these revenue streams has been consistently declining. US-led airstrikes have decimated IS’ oil production; under Operation Tidal Wave II, hundreds of oil tankers have been bombed. Ground forces have rapidly retaken territory, including the al-Omar oil field, thus cutting off IS’ supply, and crackdowns on the Turkish border have also proven effective in limiting oil trade. As IS loses ground, it also loses taxable citizens. The IHS Markit Conflict Monitor estimates that, as of June, tax revenues had fallen by 79% since 2015. This is mostly due to lost territory, but also due to funds drying up. The Iraqi government stopped paying government officials in IS-held territory in July 2015, after it was discovered that IS reaped massive monetary benefits from taxing these salaries; in Mosul alone, more than $1 billion was paid to government workers while it was under IS control. Without military successes, IS has been unable to plunder new cities, and since the international community has begun to realize the negative effects of paying ransoms, money from kidnappings has depleted. All these spell disaster for what was once known as the “best-funded terrorist organization” confronted by the US. According to the ICSR report, “since 2014, Islamic State’s annual revenue has more than halved: from up to $1.9b in 2014 to a maximum of $870m in 2016.”
Revenue is the heart and soul of how IS has held out so long, even after making an enemy of the world’s most powerful states. When IS first infiltrated the Syrian civil war through the rebel group al-Nusra, years of political chaos and government corruption had left rural communities destitute, with high unemployment and inflation. The Assad regime left huge swathes of northern Syria largely ignored, except for basic and poor-quality services. According to terror expert Gerges Fawaz, IS “recognized that their swift military expansion depended on their ability not only to terrorize enemies but also to co-opt Sunnis, including the poor and the tribes, using economic incentives and networks of patronage and privilege” (ISIS: A History). After capturing cities, IS bought acquiescence— and even loyalty— by filling the void left by the state. They provided garbage collection, day-care, constant electricity, and even extended water infrastructure out to rural villages that hadn’t received it in years. These state-like activities wouldn’t have been possible without the major funding sources of which, in early years, IS had plenty.
But as IS has been squeezed financially, it has had to cut spending on all fronts. Its fighters’ salaries, which used to be the highest of any militants in the area, were halved from $400 to $200 USD per month. A captured document grimly states that this was due to the “exceptional circumstances the Islamic State is facing.” Services are also being cut back as IS is forced to divert its funds to military operations. According to a Mosul resident, there was an “acute financial crisis” just before the city’s recapture, due to a lack of jobs (Guardian). Citizens who originally welcomed IS for bringing stability and prosperity, began to turn against the organization— in large part because of its brutality, but also because resources were low. An example of this is Fallujah, a city that initially celebrated the IS takeover. However, resources began to deplete less than a year later, and by February 2016, Fallujah was experiencing such severe food shortages that the UN sent out an appeal to allow aid workers to enter the city (a request which IS denied). Soon after, local residents staged a revolt against their tormentors and helped spur on the city’s liberation by Iraqi forces.
Each financial loss for IS creates a snowball effect; lost territory means less oil and tax revenue, which means increased extortion and decreased services for citizens, which means greater unrest and support for liberation forces, which means more lost territory. Now started, the vicious cycle will carry forward until IS loses so much ground that it is forced to crawl back into the woodwork.
But that’s not the end of the story.
It was economic and political failure that helped IS come to power; years of neglect and poverty had forced the Syrian and Iraqi rural population to confront their governments’ inadequacy and search for alternatives. Initial success and financial prosperity allowed IS to pose as such an alternative, and although the organization has been exposed as nothing more than a violent proto-state, the situation by which it seized power remains unresolved. In the next few months, as the last of IS’ military holdouts are eradicated, a gaping void will be left in their place. The Assad regime is no less corrupt and ineffective than it was three years ago, and since their liberation, the former cities of IS, although no worse off, will not be in a better financial state. An immense amount of reconstruction is necessary before business as usual can take place, and this will require billions of dollars. Even after the liberated territory is mostly re-assembled, unemployment, inflation, ineffective government, and poor services must still be confronted if IS—or something worse—is to be prevented from rearing its head again. In some ways, the battle has only just begun, although this time, the enemy must be foughts with funds, not guns.