WarSclerotic

WASHINGTON: Western governments are facing an uphill battle trying to squeeze the finances of Islamic State militants, as the extremists operate like a “mafia” in territory under their control in Syria and Iraq, experts said Wednesday (Sep 17).

Unlike the Al-Qaeda network, which has relied almost exclusively on private donations, the IS group holds a large area in Syria and Iraq that allows it to generate cash from extortion, kidnapping and smuggling of both oil and antiquities, analysts said.

As a result, the group’s funding presents a much more difficult target for Western sanctions compared to Al-Qaeda’s finances, said Evan Jendruck, an analyst at IHS Jane’s consultancy.

A sanctions regime of more than 160 countries eventually succeeded in limiting Al-Qaeda’s ability to move funds through charities and banks, he said, but IS has its own sources of cash in areas under its grip.

“While such robust sanctions could somewhat limit the follow of funds to IS from outside Iraq and Syria, the groups organic funding inside its areas of control – oil fields, criminal networks, smuggling – are very difficult to curtail,” Jendruck told AFP.

Even conservative estimates portray IS as the world’s richest extremist organization, raking in at least a million dollars a day. US officials acknowledge the group has plenty of cash and is relentless about securing it.

“It is flush with cash from a variety of illicit activities such as extortion, kidnapping, robberies, and the like,” said a US intelligence official, who spoke on condition of anonymity.

The group is “merciless in shaking down local businesses for cash and routinely forces drivers on roads under its control to pay a tax,” the official said. “Its cash-raising activities resemble those of a mafia-like organization.”

IS has allegedly extracted multi-million dollar ransoms from some European governments after taking several reporters hostage, despite Washington’s appeals not to pay off the militants. The French government has denied making ransom payments.

Although IS is awash in cash, reports that the group got a hold of hundreds of millions of dollars from banks in Mosul are overstated and inaccurate, experts said.

OIL SMUGGLING NETWORK

The most crucial source of income for the group comes from an estimated 11 oil fields it has seized in eastern Syria and northern Iraq, allowing the militants to sell crude at cheap prices for cash or refined fuel products in neighboring countries.

The revenue from the oil sales could come to as much as US$2 million a day, according to Luay al-Khatteeb at the Brookings Doha Center.

Exploiting an area long known for smuggling, the oil is treated at rudimentary refineries, transported by truck, boat or mule to Iraq, Turkey, Iran and Jordan and sold at bargain basement prices – between US$25 to US$60 per barrel instead of the going world rate of about US$100, Khatteeb said.

“It has successfully achieved a thriving black market economy by developing an extensive network of middlemen in neighboring territories and countries to trade crude oil for cash and in kind,” Khatteeb wrote in a recent commentary.

The US Treasury Department has vowed to crack down on the group’s funding from oil smuggling, extortion and other criminal activity, without specifying how it will go about it.

Since 2003, Washington has imposed sanctions on more than 20 people affiliated with IS or its predecessor, Al-Qaeda in Iraq, and in recent months added two more names to the list, according to David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence.

Washington also hopes to undercut IS’s access to the international financial system, Cohen said in a statement last week.

But it remains unclear if Gulf countries will fully back the effort. Qatar and Kuwait in particular have been widely accused of allowing money to be funnelled to the jihadists, despite denials from those governments.

TERRITORY HOLDS KEY

In any case, the IS does not rely heavily on rich donors, and financial sanctions hold little promise of shutting off its cash flow, said Howard Shatz, a senior economist at the RAND Corporation think tank.

Oil sales possibly could be restricted if Turkey and Jordan tightened border controls, or if middle men for the smuggling could be identified, he said.

The group is not invincible, however, and IS suffered setbacks in the past, said Shatz, who studied the ledgers of IS’s precursor organizations.

The militants started running out of money in 2009, after losing hold of territory amid an uprising by Sunni tribes and an offensive by Iraqi and US forces that killed senior leaders. “It does come down to territorial control,” Shatz said.