Financing Jihad: Why ISIL Is a Lot Richer Than Al-Qaeda

June 26 (Bloomberg) -- Bloomberg’s “Money Clip” Host Adam Johnson reports on today’s top news stories. (Source: Bloomberg)

The extremist militants battling government forces in Iraq know it takes more than guns and ammunition to carve out their Islamic state.

As violence escalates outside Iraq’s largest northern oil refinery in Baiji, fighters from the Islamic State in Iraq and the Levant are trying to add to the oil fields and facilities the group controls in Syria and are also eyeing factories and power plants. With assets and territory, ISIL’s leader, Abu Bakr al-Baghdadi, has financial strength that al-Qaeda never managed to have under Osama bin Laden, who relied mainly on supporters living in the Gulf Cooperation Council nations.

“ISIL is not out in the economic boondocks of Afghanistan or hidden in deserts and caves,” Paul Sullivan, a Middle East specialist at Georgetown University in Washington, said by e-mail. “ISIL is developing in a vital oil, gas and trade area of the world. It can grab as it expands.”

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Al-Qaeda fought and lost to U.S. forces in Iraqi towns ISIL now controls, including the city of Mosul, while an al-Qaeda offshoot has set up a stronghold in the southern mountains of Yemen after Saudi security cracked down on them in 2004. By holding key territory, ISIL may be able to dodge global efforts to halt the flow of money to terrorists.

This undated file image posted on a militant website on Tuesday, Jan. 14, 2014, which has been verified and is consistent with other AP reporting, shows fighters from the al-Qaida linked Islamic State of Iraq and the Levant (ISIL) marching in Raqqa, Syria. Photograph: Militant Websitev via AP Images Close

This undated file image posted on a militant website on Tuesday, Jan. 14, 2014, which... Read More

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This undated file image posted on a militant website on Tuesday, Jan. 14, 2014, which has been verified and is consistent with other AP reporting, shows fighters from the al-Qaida linked Islamic State of Iraq and the Levant (ISIL) marching in Raqqa, Syria. Photograph: Militant Websitev via AP Images

The Haditha Dam in northwestern Iraq on the Euphrates River and sections of the 600,000 barrel-a-day pipeline running to Turkey, which hasn’t operated since March, are targets of ISIL, said Hassan Hassan, an analyst with Delma Institute, an Abu Dhabi-based research center.

Lucrative Assets

The North Fertilizer Plant in Baiji, which Houston-based KBR Inc. won a contract to revamp in 2011, could also fall under their control, as could cement plants in the north, Hassan said.

ISIL tries to control “any lucrative resources from oilfields, gas plants, paper factories,” he said.

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The militants fought other rebel groups, including the al-Qaeda-linked al-Nusrah Front, for control of the oil and gas fields in Syria, according to Amir al-Dandal, a son of the representative of Al Bou Kamal tribes in the country’s east.

“ISIL is the most organized in terms of controlling wells and selling to traders,” al-Dandal, 33, who now lives in Qatar and has close contact with family members there, said by telephone. “It’s a war for money, and oil is key.”

Feeding People

As it cements its northern power base, ISIL faces economic challenges that require money, according to Charles Ries, a vice president at research company Rand Corp. in Washington. The group controls areas in Syria and Iraq with a similar land mass to Wyoming, he said, larger than the U.K.

Photographer: Emrah Yorulmaz/Anadolu Agency/Getty Images

Kurdish forces battle ISIL fighters in the Karakus district of Mosul, Iraq, on June 26, 2014. Close

Kurdish forces battle ISIL fighters in the Karakus district of Mosul, Iraq, on June 26, 2014.

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Photographer: Emrah Yorulmaz/Anadolu Agency/Getty Images

Kurdish forces battle ISIL fighters in the Karakus district of Mosul, Iraq, on June 26, 2014.

The three Iraqi provinces received about $1 billion a month in total from the central government, Ries said.

“It’s hard for me to see how ISIL would be able to feed, clothe and provide social services for this population of 8 million people given the fact there aren’t many resources,” Ries said. “How will the Sunni extremists, who are presently in control, be able to maintain the economic situation for the population now under their control?”

The group has used extortion, kidnapping and smuggling to raise money and intimidate the Sunni population under its control, Fabrice Balanche, a lecturer and director of a Middle East group at the University of Lyon 2 in France.

“ISIL has its own funding linked to levies it imposes in the territories it controls,” he said by telephone. “We know that for more than a year, merchants in Mosul have been paying a ‘revolutionary tax.’ It also sells black market oil and gets ransoms from kidnappings. But that’s not enough to maintain its men and buy arms.”

Photographer: Karim Sahib/AFP/Getty Images

Smoke billows from an area controlled by the Islamic State of Iraq and the Levant (ISIL) between the Iraqi towns of Naojul and Tuz Khurmatu. Close

Smoke billows from an area controlled by the Islamic State of Iraq and the Levant... Read More

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Photographer: Karim Sahib/AFP/Getty Images

Smoke billows from an area controlled by the Islamic State of Iraq and the Levant (ISIL) between the Iraqi towns of Naojul and Tuz Khurmatu.

Taking Millions

ISIL may be taking in several million dollars a month, according to a U.S. intelligence officer, who spoke during a telephone briefing on June 24 and declined to use his name because of security concerns. The group also probably seized more cash from banks, the officer said.

In Mosul, ISIL fighters stripped guards of their weapons at a central bank branch and stole the “little money” the bank had when they took the city earlier this month, Walid Eedi, director general of statistics at Iraqi central bank, said this month. Gunmen stole about $1 million, he said.

The group al-Qaeda in the Arabian Peninsula in Yemen also uses similar tactics, according Saeed Obaid al-Jemhi, who is based in the Yemeni capital of Sana’a and is the author of a book on al-Qaeda in the country.

When militants attacked Seyoun in the southeast province of Hadramaut, they looted the National Bank, the Agricultural Bank and the International Bank of Yemen, he said.

Bank managers described militants unsuccessfully shooting rocket-propelled grenades as they tried to open safes in the banks, according to Jemhi.

“Financing is more important than weapons and explosives,” he said. “Without money, it would be crippled.”

Aid Clampdown

Saudi Arabia and other Gulf countries have made it difficult for their citizens to provide funds to Islamic causes abroad without government approval. During the war in Afghanistan, Saudi supporters could donate money directly at their mosque with no government supervision.

Halting terrorism financing from the Gulf area remains difficult, and “even small amounts of money that get through have a very substantial impact,” U.S. Treasury Secretary Jacob J. Lew said in Jeddah on June 17. The U.S. has been working with Gulf countries to stop the money flow to militants.

In Yemen and Syria, the cost of keeping a fighter in the field is estimated to range between $10 to $50 a day, according to Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai.

“Terrorist labor expenses are low,” he said. “Fighters with ISIL and in Yemen aren’t in it for the money. They have a cause, and religious fervor. Plus, the ability to garner battlefield experience is invaluable.”

To contact the reporters on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net; Mahmoud Habboush in Abu Dhabi at mhabboush@bloomberg.net; Gregory Viscusi in Paris at gviscusi@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Rodney Jefferson

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