A tragic waste of human life.

Photographer: Paul Gilham/Getty Images

The Intolerable Costs of Terrorism in Lives and Dollars

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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The costs of failing to defeat Islamic State are rising to intolerable levels, both in lives tragically lost and dollars destroyed. A look at the numbers available suggests that the consequences of not acting outweigh the risks of a full-blown military boots-on-the-ground conflict.  

Al-Qaeda's Heirs

Terrorism killed 32,658 people last year, up from just 3,329 at the start of the decade, according to the Global Terrorism Index compiled by the Institute for Economics and Peace. Last year saw an 80 percent increase from the previous year, marking the biggest annual jump in 15 years. Fatalities among private citizens surged by 172 percent:

Source: IEP

The shocking events in Paris recently, as well as the downed Russian plane flying from Eqypt's Sharm el-Sheik tourism resort on Oct. 31, mark a new chapter in the conflict as IS proves it can wreak havoc just about anywhere in the world. Some 78 percent of 2014's deaths happened in just five countries -- Iraq, Nigeria, Afghanistan, Pakistan and Syria. But the conflict is spreading, with 11 countries suffering more than 500 deaths last year, up from just five in 2013. History suggests governments are much more motivated to address terrorist threats when they're at the doorstep rather than in some faraway place; perhaps that suggests that finally we may get some concerted action.

Terrorism's impact is also financial. The IEP calculates that terrorist actions wiped a record $52.9 billion off the global economy last year, using a "cost of violence" methodology measuring the direct and indirect costs from the loss of life, destruction of property and losses from ransom payments:

Source: IEP

Dr Christina Schori Liang, a senior fellow at the Geneva Centre for Security Policy, notes in a paper for the IEP that IS (also known as ISIL or ISIS) is "the richest terrorist organization in history, with an estimated wealth of $2 billion." IS earns about $1.5 million a day from selling oil, producing as many as 40,000 barrels per day and selling for as little as $20 a barrel. The oil is smuggled through Iraq and Kurdistan, border guards are bribed, while donkeys and trucks traverse deserts and mountain passes to avoid detection. IS has its own underground pipelines and refineries; while coalition forces had destroyed 16 mobile refineries by the end of last year, they can be rebuilt for as little as $230,000.

Its income is boosted by trafficking people and auctioning slaves, kidnapping for ransom (raising $45 million last year), extortion, taxes on income, business revenues and consumer goods in the lands it controls, as well as looting and selling antiquities. The Financial Action Task Force reckons IS stole about $500 million late last year just by raiding state-owned banks in the territories it controls. As Liang argues, "the West has so far failed to impede ISIL's financial gains which are marked by a fluidity and wealth never seen before."

Strangling the flow of cash that allows IS to arm its jihadists and fund the local infrastructure in the regions it occupies could smother the organization in ways that may prove even more effective than bombing its bases. As the journal Studies in Conflict and Terrorism noted as long ago as 2004 in a report on al-Qaeda, though, terrorist groups typically rely on informal money transfer networks and under-regulated Islamic finance channels which are harder to close down.

Juan Zarate, a former U.S. deputy national security adviser and author of "Treasury's War: The Unleashing of a New Era of Financial Warfare," and Thomas Sanderson, co-director of the Transnational Threats Project at the Center for Strategic and International Studies, had this to say in the New York Times in June 2014:

Our options and appetite for more investment of blood and treasure in the fight against terrorism may be limited, but without addressing all dimensions of the financing threat, our progress over the years may be lost. If groups like ISIS can fill their coffers, run economies and consolidate their hold on power, we may be facing a new, more dangerous brand of global terrorism that will threaten the United States and its allies for years to come.

Driving a wedge between IS and the dollars it needs demands greater cooperation between the various countries that profess to oppose the group, more punishing sanctions against any nation found to have turned a blind eye to stolen oil crossing its borders, a coordinated refusal to pay ransoms, and severe retributions against anyone found to participate in the trading of looted treasure. Waging financial war on IS to undermine its ability to operate as a nation state should clearly be more of a priority than it has been so far.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story:
Therese Raphael at traphael4@bloomberg.net