Islamic State fighters forced to accept pay cuts as air strikes damage oil production and leave dent in revenue
Jihadists raided banks and businesses when they swept into Iraq in 2014, initially seizing at least US$500 million, and have raised millions more from smuggling oil, antiquities and other illicit schemes.
Islamic State’s (IS) finances have been squeezed by falling oil prices and air strikes on oil production sites and cash hoards, forcing salary cuts for its fighters and limiting purchases of arms and ammunition, according to US officials.
Unable to dislodge the extremist group from its quasi-state, the US-led coalition has begun targeting buildings where it suspects the militants store cash from looted banks, ransom payments or taxes collected in territory they control.
US officials estimate the group has lost more than US$100 million in 10 such air strikes. In one, a Pentagon video released last month showed a missile slamming into a building near Mosul, in Iraq, sending a cloud of bills fluttering in the air and presumably incinerating others.
That’s a small fraction of the multibillion-dollar wealth the Sunni militants have amassed in Iraq and Syria over the last two years.
US officials, who have struggled to trace the group’s funding schemes, cautioned that the financial losses are still more a management problem for IS than a strategic threat to its future.
Still, combined with the group’s several recent defeats on the battlefield, the effort is showing some results, according to US military, counterterrorism and Treasury Department officials.
The bank vaults aren’t being replenished. It is a fairly closed economy. And you can only tax and extort people so many times
US intelligence officials recently obtained an IS notice, for example, that said leaders had halved monthly salaries for all fighters in Raqqa, the group’s self-declared capital in Syria, because of “exceptional circumstances.”
“They’re cutting people’s salaries, cutting wages,” Col. Steve Warren, spokesman for the US-led military coalition, told reporters Wednesday in a teleconference from Baghdad.
That’s a “fairly significant indicator” that the air strikes have hampered the militants’ ability to generate revenue, he added.
“There is nothing on their economic horizon that could backfill” the lost oil revenue and burned cash stores, agreed Matthew Levitt, the former top Treasury Department official on terrorism financing.
“The bank vaults aren’t being replenished. It is a fairly closed economy. And you can only tax and extort people so many times,” he said.
Daniel Glaser, an assistant secretary of the Treasury, said air strikes on oil infrastructure have “undoubtedly impeded” the group’s’ ability to “profit from oil as it had been doing.”
Glaser praised the Iraqi government’s decision in August to stop issuing about US$170 million a month in salaries and pensions to Iraqi citizens in captured areas. That stopped the militants’ ability to tax that income at rates of up to 50 per cent.
“It is clear that these measures in fact have played a key role in pressuring ISIL financially,” Glaser said at a conference on terrorism financing at Chatham House in London, using an acronym for IS.
The Treasury Department also has imposed financial sanctions on more than 30 individuals and institutions accused of assisting the group.
In the most recent cases, on February 11 Treasury officials sanctioned Faysal al-Zahrani, who managed oil fields and moved money for the group in eastern Syria; Husayn Juaythini, who recruited fighters in the Gaza Strip and Libya; and Turki al-Binali, a religious advisor who called for attacks on Bahrain after the government there revoked his citizenship.
Cutting them off from US banks and financial systems is unlikely to affect the militants’ operations, however, because IS is largely self-funded, said Seth Jones, a former US counterterrorism official now with Rand Corp., the Santa Monica-based think tank.
It still controls major cities and towns in Syria and Iraq. The militants can raise money by increasing local fees and taxes, demanding a bigger cut from smugglers and expanding extortion of businesses, Jones said.
“Until they start losing territory, I am sceptical it will have a huge dent on their ability to collect money,” he said.
Until they start losing territory, I am sceptical it will have a huge dent on their ability to collect money
In any case, the militants have a ready supply of cash. They raided banks and businesses as they swept into Iraq in 2014, initially seizing at least US$500 million, and have raised millions more from smuggling oil, antiquities and other illicit schemes.
Officials say intelligence for some of the recent air strikes came from a Delta Force raid into Al Amr, a town in eastern Syria, in May.
The US commandos killed their target, Abu Sayyaf, who ran IS black market oil and gas operations. But they took his wife, Nisreen Assad Ibrahim Bahar, and a cache of notebooks, laptops, cellphones and other materials back to a base in Iraq.
The 25-year-old Iraqi woman ultimately revealed details about the group’s leaders and clandestine financial system, according to a criminal complaint, filed on February 8 in US District Court for the Eastern District of Virginia, that charged her with conspiracy to provide material support to a terrorist organisation.
Bahar, who is in Iraqi custody, said IS had used her house to store large sums of US dollars from oil and gas sales, according to the court documents.
Starting in October, coalition air raids began targeting other buildings with suspected cash hoards. The coalition also stepped up attacks on oil wellheads, oil and gas separation plants, and tanker trucks, mainly in the oil-rich Dair Alzour region in eastern Syria.
