The Economic Collapse of Islamic State

The Economic Collapse of Islamic State

The richest and most well-funded terrorist organization faces the specter of bankruptcy. Islamic State’s treasuries no longer have the resources to hold out in its multi-frontal struggle with various fronts across different parts of the Arab world.

The consecutive defeats that have struck the organization in Syria, Libya, and Iraq, as well as the international siege imposed on it for two years, have exhausted its resources, and it is no longer capable of continuing as a “state”. It appears as though, in the future, it will operate as a group or organization, in the vein of its predecessor, Al-Qaeda.

In the aftermath of its dominance over the Iraqi city of Mosul, in June 2014, Islamic State’s budget was estimated at US $2 billion. At the time, this was considered the largest recorded budget for a jihadist group, accumulated from various different sources, most prominently the seizure of $429 million from the Iraqi central bank branch in Mosul.

The group further established a monetary system in the areas that it took control of in Syria, Iraq, and Libya, based on imposing taxes on residents, as well as kidnapping people for ransom. They moreover relied on armed robberies, in addition to investing in oil fields in the areas under their control, and selling their products on the black market. The group further relied on its network of supporters and loyalists around the world, who transferred money to them illegally to support them.

But two years of continuous war have dried up Islamic State’s once-ample funds, placing it in the grips of a stifling financial crisis. The United Nations said in a report on February 6 that the group is on the “defensive”, and that its budget is depleting, forcing it to operate on a “crisis” budget to meet the needs of its organizational structure, which is made up of thousands of fighters, camps, and administrative staff. The organization has been said to have decreased the salaries dispensed to its members by 50%, in a first step towards austerity measures.

Tax Resources in Decline

The defeats that Islamic State has been subject to have led to the diminishing of their geographical areas in Syria and Iraq, and the loss of all the spheres of influence in Libya. This in turn has caused a marked decline in tax return, which was considered among its main financial wellsprings.

A report by the IHS Conflict Monitor, published in May 2016, revealed that people could be “taxed for each irrigated hectare of farmland ($46 per year), the wheat you produce (10 percent) and any crops you sell at your local market.”

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Share TweetHaving lost major financial wellsprings, Islamic State is now operating on a "crisis budget".

Further, the funds earned by the organization from taes during 2014 were estimated at over $450 million, while it also earned 2.5% of the spoils from its fighters’ conquests and the local resident’s assets based on the Islamic tenet of zakat. The group earned approximately $23 million from the taxes it imposed on the salaries paid by the Iraqi government to its employees in Mosul. However, this ended after the Iraqi government decided to stop transferring the money to the bank branches in the areas controlled by the group. This in turn forced the group to raise taxes, to compensate for the loss of financial resources.

Culminating the international siege was a UN Security Council resolution in December 2016, aiming to cut off all sources of funding to the group.

Even the kidnappings and blackmail operations conducted by the group in its first years significantly decreased after the scope of the war expanded and intensified, whereas foreigners and journalists no longer took the risk to venture into their strongholds.

In 2014, the group recorded revenues of up to $45 million in ransom money. Today, though, it appears preoccupied with ensuring its own survival, rather than seeking out spoils.

Oil Wells Run Dry

At the height of its glory days, during 2014 and 2015, oil resources constituted the backbone of Islamic State’s budget. The areas under its control were rich in natural resources, in particular oil and gas, as the group had seized over eighty oil wells, selling their resources locally, or internationally through traders. Its revenues from oil resources were estimated at approximately $2 million per month at the time.

The group further recorded around $450 million in returns from smuggling oil during 2014, exploiting Turkey’s “look the other way” policy on its borders with Syria. This allowed the group to establish wide smuggling networks for the disposal of its oil production, which reached fifty barrels a day at its highest in Syria, and between twenty-five and thirty barrels a day in Iraq.

Yet, this state would not last for long. In autumn of 2014, the global coalition sobered up to the fact that oil was one of the main sources of finances for the group, thus turning the oil wells under Islamic State’s control into targets for airstrikes. In light of this, the group’s bloodline was quickly shut down.

Meanwhile, the depletion of lands under Islamic State control allowed for the Iraqi authorities to recapture much of the energy infrastructure in those areas, such as the refineries that were made up of “modular refineries, petroleum storage tanks, and crude oil collection points.”

Ahmed Nazif

Ahmed Nazif is a Tunisian journalist focused on religious groups and minorities.

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