While Al-Qaeda-like groups are relying on donations and convincing Muslim opinion worldwide, the Islamic State of Iraq and the Levant (ISIS) is exploiting both the local population and resources on their controlled territory.
In 2015, the media headlines were unanimous. Business insider declared ISIS the “World’s Richest Terrorist Group”, The Independent questioned “How ISIS became the wealthiest terror group in history” while Forbesranked ISIS the “richest terrorist organization the world has known”.
After the November attacks in Paris, the international community decided to tackle the problem by its roots and address the issue of ISIS’s finances. One of the main concerns is their exploitation of oil industry via illicit trafficking.
According to common knowledge, their biggest source of income is the illicit trade of petroleum by a network of mobile refineries. However, some experts, like Luay al-Khatteeb, argue that this information has no basis. On the contrary, when comparing the ISIS “Ministry of Oil’s” figures and the potential production in their controlled territory, he concludes that this is technically impossible.
ISIS claims a production of oil worth $2 million USD a day. However, in early 2015, their potential production was reduced from 45 000 barrels a day to 25 000 barrels, far below the amount needed to meet their claimed revenues. Furthermore, the many air strikes are increasingly making it difficult to efficiently refine the oil they produce.
Thus, the question that the international community should ask is: if the role of oil production has been so grossly overestimated, what, or who, is financing ISIS?
Poor quality and lack of technical capabilities
There is a clear paradox between ISIS’s supposed wealth and their technical expertise.Even if they control significant installations and infrastructure in Iraq and Syria, the group needs to actually exploit the oil fields, which represent a huge technical challenge. For example, the water injection process is very complicated. It consists of injecting water into the reservoir to increase pressure and stimulate production, increasing oil production. The fact that ISIS does not master this technique greatly reduces their potential production volume and revenues. Another problem for ISIS is the increasingly poor quality of the oil they are actually producing. While it is possible to learn technical expertise, oil’s quality is inherent to the resource and has a significant impact on its price.
The Syrian fields of Al Omar, Al Tanak or Al Ward has low-quality petroleum and consists of about 40% water. Exploiting these fields requires technical methods such as the degassing process, which is challenging without sufficient financial means and expertise. Therefore, this oil is near-impossible to refine and transform into gas, according to ISIS’s current technical capabilities.
This low-quality oil is also impossible to sell, except to a very low price that locally reaches around $4 ae barrel. In order to meet the declared $2 million USD a day, ISIS would have to sell oil at $50 a barrel.
What are ISIS’s other sources of funding?
An important source of revenue for ISIS is taxing the local population on a range of goods and services, such as fuel, vehicles or education. They legitimize those taxes by providing some services, such as water or electricity, as well as maintaining security in their areas.
Nevertheless, the tax system is not enough for the organization to provide for its needs. The economy of the controlled territory is collapsing and the monthly income per inhabitant is among the lowest in the world.
Questions about state sponsorship
Even if there is no credible evidence that Gulf States are financing ISIS, the subject is hotly debated. In 2009, Hillary Clinton stated that Saudi Arabia was one of the largest donors to Sunni terrorism around the world, and as recently as 2013, the Kingdom allegedly offered a deal to several men that were on death row. They had the choice between being executed or joining jihadist militias, including Al-Nusra and ISIS, to fight against the Syrian government.
Saudi Arabia’s motivation is closely linked to its regional conflict with Iran, which is predominantly Shia Muslim. Both countries are battling to become the regional power in the Middle East, giving Saudi Arabia a reason to finance anti-governmental, Sunni jihadists in order to oppose the Shias’ influence on the state of Iraq.
ISIS’s funding is a lot less clear than the current debate is revealing. While oil revenues have been considered the cornerstone of their finances, a lack of expertise, low-quality oil, and low local prices are all contributing to small profits.
While taxing the local population can be efficient, the region has become among the poorest in the world, and ISIS cannot rely on taxation on a long-term basis.
Even if the reality of state sponsorship lacks solid evidence, there is a need to investigate the implication of Gulf State in the funding of ISIS.