The self-styled Islamic State is unlike any other Islamist extremists. Apart from being an established de facto state operating under the banner of a worldwide caliphate with a stronghold stretching over a thousand miles across Iraq and Syria, there is one advantage that makes the terrorist organisation a formidable force in the region: Access to several financial resources.
Where does the Islamic State get its money? Through several revenue streams, ISIS is capable of funding and sustaining an expanding armed force assembled to siege new territories and maintain overall territorial integrity. Furthermore, the organisation is also capable of executing a semblance of sectarian governance with a rigid organisational structure across its occupied territories.
In the report authored by Dr. Erin Saltman and Charlie Winter and published by London-based counter-terrorism think tank Quilliam Foundation, funds for Islamists extremists and jihadist organisations usually come from two primary sources—donations and revenue-generating activities to include fraud, kidnapping and extortion, black market activities, and legitimate business activities. Al-Qaeda had initially demonstrated the capacity to promote financial sustainability but eventually had difficulty sustaining this two-fold revenue structure as crackdown on terrorist organisations and their supporters intensified, especially after the 9/11 Attack in the United States.
But ISIS is different. Unlike the nomadic and decentralised structure of al-Qaeda and other jihadist organisations, the Islamic State operates as a government with military and economic units, as well as other social institutions to include religion, education, and healthcare, among others. Thus, when it declared itself as a worldwide caliphate, it also declared and promoted its autonomy. However, in order to maintain an autonomous control over its territories, ISIS needs a steady stream of revenues to cover growing military and governance expenditures.
Previous sources of funding of ISIS: Kidnapping and extortion
Before ISIS became a prominent global jihadist organisation, it was an emerging movement in Iraq that later became an affiliate of al-Qaeda in 2004. 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 ISIS made USD 12 million a month for kidnapping and extortion in Mosul alone, even before the June 2014 siege. Abduction of high profile individuals was more profitable. Collectively, ISIS enjoyed millions of dollars of revenues every month.
The Islamic State also received donations from private financiers in the Persian Gulf region. But al-Zarqawi knew better not to depend on this funding source, especially because the international community had intensified several operations aimed at identifying and barring individual and organisational financiers. Furthermore, it is also worth mentioning that previous supporters had eventually considered ISIS unworthy of funding simply because the organisation has become too extreme.
Kidnapping and extortion activities nonetheless remained a key source of funding for ISIS. The organisation has been demanding 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, ISIS demanded USD 132 million in exchange for his release.
Funding through looting museums and excavating ancient sites
A BBC report by Simon Cox and several news articles revealed that looting has become a lucrative source of funding for the Islamic State. The organisation has ransacked and pillaged several museums and ancient sites. Obtained items were valuable antiques from the ancient civilisation worth hundreds of thousands to millions of dollars. A 10,000-year-old gold-plated bronze figurine, for example, could amount to USD 1 million.
The entire antique trading is systematic and sophisticated. ISIS controls the entire process—first by commissioning traders and excavators to loot museums and ancient sites, any by providing permit to anyone who wishes to participate. ISIS inspectors monitor the entire activity. They scrutinise items and screen human figures, which are seen as idolatrous. Popular items include stonework, figurines, gold, and coins.
Traders and excavators are responsible for smuggling the antiques out of Iraqi or Syrian border. These items usually end up in the hands of Turkish or Lebanese merchants who sell them to dealers in Europe or Gulf countries. The final destinations of these items are in the houses of wealthy Europeans or individuals from Qatar or Dubai.
Less-valuable items as determined by their lesser date of origin still find their way in to the back rooms of tourist shops in Beirut and southern Turkey. Undeniably, there is a sprawling market for these rare finds and to a certain extent, patrons are indirectly supporting ISIS.
Taxation, protection money, and slave trade in the Islamic State
There is a reason to believe that the economy of the Islamic State is expansive and vibrant. The siege of Iraqi and Syrian territories did not actually result in the collapse of established social, political, and economic structures and institutions. Despite the ISIS occupancy, several commercial and industrial activities have remained. Stores and other small businesses continue to operate.
However, the ISIS has levied taxes and has extorted money from big shot businesses in exchange for protection. Businesses operating outside the Islamic State are required to pay road and import taxes to use roads and infrastructures under the control of the jihadist organisation. Even telecommunication companies with towers inside the Islamic State are required to pay unless they are willing to forego business in ISIS areas.
The organisation has also imposed protection tax on non-Muslim individuals—similar to the poll tax the prophet Mohammad placed on non-Muslims in return for protection. However, ISIS threatens non-Muslim communities for refusal to pay their dues. In other words, like any other autonomous states and similar with early Muslim communities, the Islamic State gets its funding from existing legitimate economic activities and taxation.
Another source of revenue for ISIS is the fledging slave trade of women. Accordingly, non-Muslim and Muslim infidels or apostate women have become commodities in the Islamic State. While some of them end up as sex slaves of ISIS fighters, others are trafficked and sold as slaves in several hotspot markets. Furthermore, the younger and the prettier the women, the more valuable they are. The Islamic State has certainly created a commercial activity out of commodification of women. Nonetheless, this 21st slave trading ultimately highlights the depths of abuse and brutality committed by ISIS toward women.
Oil and gas industry inside the Islamic State
As mentioned, ISIS gets it funding from existing legitimate activities. Nonetheless, the oil and gas industry is the true testament to the revenue-generating capacity and financial sustainability of the Islamic State. When ISIS sieged several territories in Iraq, it effectively took control of dozens of oil fields. Furthermore, Saltman and Winter reported that the jihadist organisation has created industry partnerships and co-dependency spanning across 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 revealed that ISIS works 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. The jihadist organisation takes advantage of the fact that it has control over areas near the Syrian and Turkish borders. In addition, it keeps the price of oil cheap—about USD 25 per barrel—to attract traders and customers.
It is also worth mentioning that ISIS has been selling oil and gas to the Assad regime—an unlikely transaction considering that the jihadist organisation has occupied Syrian territories and have waged war to remove the Syrian government. Saltman and Winter said that these sales are made with a mutual understanding that the Assad regime will not bomb certain areas in exchange for the cheap oil and gas.
Estimates of revenues from the sales of oil and gas vary. However, figures are around USD 1 million to USD3 million a day. Regardless of the exact figure, the income remains steady, sizeable, and more reliable than other revenue streams.
The discussion above illustrates the depth and sophistication of the Islamic State. The sources of funding for ISIS are multifold. The organisation does not rely on a single revenue stream. Unlike other terrorist organisations, ISIS has successfully operation a de facto state with an established economic system. Revenues generated from different economic activities keep the Islamic State afloat.
Further details of the report of Saltman and Winter are in the paper “Islamic State: The changing face of modern jihadist” published by Quilliam Foundation. Details of the report of Simon Cox are in the article “The men who smuggle the loot that funds IS” published online on the BBC website. More details of the report of Hawramy, Mohammed, and Harding are in the article “Inside Islamic State’s oil empire: How captured oil fields fuel ISIS insurgency” published in The Guardian.