Why U.S. Efforts to Cut Off Islamic State's Funds Have Failed
Weeks before the attacks that killed 129 people in Paris, U.S. warplanes resumed sorties above Syria and Iraq, targeting anew oil fields and other parts of a vast petroleum infrastructure that fuels—and funds—Islamic State, one of the richest terrorist armies the world has known.
These airstrikes were launched not because U.S. officials were prescient. They came after the Obama administration found and quietly fixed a colossal miscalculation. U.S. intelligence had grossly overestimated the damage they’d inflicted during airstrikes on the militants’ oil production apparatus last year, while underestimating Islamic State’s oil revenue by $400 million. According to U.S. Department of the Treasury officials and data they released in the wake of the Paris mayhem, the terrorist group is actually taking in $500 million from oil a year. What’s more, just a few hours before the first Islamic State suicide bomber blew himself up outside the Stade de France on Nov. 13, U.S. Army Colonel Steve Warren conceded at a press briefing that some American airstrikes disrupted IS oil operations for no more than a day or two.
The Obama administration “misunderstood the [oil] problem at first, and then they wildly overestimated the impact of what they did,” says Benjamin Bahney, an international policy analyst at the Rand Corp., a U.S. Department of Defense-funded think tank, where he helped lead a 2010 study on Islamic State’s finances and back-office operations based on captured ledgers. He says the radical revision on oil revenue came after Treasury officials gained new intelligence on Islamic State’s petroleum operations—similar to the ledgers Rand used for its study—following a rare ground assault by American Special Operations Forces this May. U.S. forces, operating deep into the group’s territory in eastern Syria, targeted and killed an Islamic State “oil emir,” a man known by the Arabic nom de guerre Abu Sayyaf, Pentagon officials said at the time. (Treasury officials, who are charged with leading the administration’s war on Islamic State’s finances, declined to comment specifically on whether Abu Sayyaf’s ledgers were at the root of their new estimates, but the agency has said the figures are extrapolated from the militant group’s oil earnings from a single region in a single month earlier this year.)
It’s not clear how the U.S. got it so wrong, Bahney says, but he suspects that the latest round of airstrikes are directly related to the administration’s new math. “You have to go after the oil, and you have to do it in a serious way, and we’ve just begun to do that now,” he says. Yet even if the U.S. finally weakens the group’s oil income, Bahney and other analysts in the U.S., the Middle East, and Europe contend, Islamic State has resources beyond crude—from selling sex slaves to ransoming hostages to plundering stolen farmland—that can likely keep it fighting for years. In any case, $500 million buys a lot of $500 black-market AK-47s.
Islamic State got into the oil business long before it captured global attention through barbaric beheading videos in the summer of 2014. It seized Syrian border crossings to profit from oil smuggling. And it tapped a network that’s operated for decades, dating to at least the 1990s, when Saddam Hussein evaded sanctions by smuggling billions of dollars’ worth of oil out of Iraq under the United Nations’ Oil-for-Food program.
Most often refined in Syria, the group’s oil is trucked to cities such as Mosul to provide people living under its black banner with fuel for generators and other basic needs. It’s also used to power the war machine. “They have quite an organized supply chain running fuel into Iraq and [throughout] the ‘caliphate,’ ” says Michael Knights, an Iraq expert at the Washington Institute for Near East Policy, using the militant group’s religiously loaded term for itself. Because the U.S. apparently believed the real money for Islamic State came primarily via selling refined oil, rather than crude, last year’s strikes heavily targeted refineries and storage depots, says Bahney. He and other experts say that strategy missed an important shift: Militants increasingly sell raw crude to truckers and middlemen, rather than refining it themselves. So while Islamic State probably maintains some refining capacity, the majority of the oil in IS territory is refined by locals who operate thousands of rudimentary, roadside furnaces that dot the Syrian desert.
Pentagon officials also acknowledge that for more than a year they avoided striking tanker trucks to limit civilian casualties. “None of these guys are ISIS. We don’t feel right vaporizing them, so we have been watching ISIS oil flowing around for a year,” says Knights. That changed on Nov. 16, when four U.S. attack planes and two gunships destroyed 116 oil trucks. A Pentagon spokesman says the U.S. first dropped leaflets warning drivers to scatter.
Beyond oil, the caliphate is believed by U.S. officials to have assets including $500 million to $1 billion that it seized from Iraqi bank branches last year, untold “hundreds of millions” of dollars that U.S. officials say are extorted and taxed out of populations under the group’s control, and tens of millions of dollars more earned from looted antiquities and ransoms paid to free kidnap victims.
The taxes bring in real money. One example: Islamic State allows policemen, soldiers, and teachers in its territory to atone for the “sin” of having worked under religiously inappropriate regimes—for a fee. Forgiveness comes in the form of a repentance ID card costing up to $2,500, which requires an additional $200 a year to renew, according to Aymenn Jawad al-Tami, a fellow at the Middle East Forum who closely follows the group.
Arguably the least appreciated resource for Islamic State is its fertile farms. Before even starting the engine of a single tractor, the group is believed to have grabbed as much as $200 million in wheat from Iraqi silos alone. Beyond harvested grains, the acreage now controlled by militants across the Tigris and Euphrates river valleys has historically produced half of Syria’s annual wheat crop, about one-third of Iraq’s, and almost 40 percent of Iraqi barley, according to UN agricultural officials and a Syrian economist. Its fields could yield $200 million per year if those crops are sold, even at the cut rates paid on black markets. And how do you conduct airstrikes on farm fields?
For his part, Bahney contends that the group’s real financial strength is its fanatical spending discipline. Rand estimates the biggest and most important drain on Islamic State’s budget is the salary line for up to 100,000 fighters. But the oil revenue alone could likely pay those salaries almost two times over, Bahney says. He also believes they’ve been running at a surplus. Bahney says that if the U.S. and its allies are going to diminish the threat from Islamic State, they must recognize that knocking out oil, while critical, isn’t enough. “They’ve built up quite a bit of excess cash flow in the last year,” he warns. “So they’re going to be able to keep this going for a while.”
—With Donna Abu-Nasr in Beirut and Larry Liebert in Washington