How Is ISIS Still Making Money?

Why it’s so difficult to cut off the group’s finances

A bloodstained Syrian bank note (Bassam Khableh / Reuters)

About a month ago, the United States started accelerating its attacks on the Islamic State’s finances with an expanded military campaign against its oil fields. The industry that U.S. Defense Secretary Ashton Carter had called “a critical pillar of the financial infrastructure” of the group had proved frustratingly resilient to American bombing; Pentagon spokesman Steve Warren acknowledged that in many cases the damage had been repaired within days.

But even if airstrikes can be targeted to do more lasting damage to ISIS’s oil facilities, and the United States can knock out one critical financial pillar, others may be even more difficult to topple. Oil is lucrative for the Islamic State—to the tune of about $500 million a year, according to U.S. Treasury officials cited by Bloomberg—but analysts have found that bank robbery, extortion, and taxation together account for a higher proportion of the group’s revenues. (ISIS’s total revenues are difficult to pin down—according to figures The New York Times compiled from the Rand Corporation and the Treasury Department in May 2015, the Islamic State made about $1.2 billion in 2014, but this was based on an oil-revenue figure that now appears to have been underestimated; earlier this year, ISIS announced an estimated 2015 budget of $2 billion, though that figure may be inflated.)

As Daniel Glaser, the assistant secretary of the Treasury for terrorist financing, told the BBC in May, “They extort the money the way any mafia would extort businesses. They operate in a particular territory, and if businesses and if individuals want to be able to continue unmolested they need to pay a certain tax, if you will, of extortion to ISIL.” In 2014, that added up to $600 million, according to the The New York Times.

And then there’s this, pointed out this week by Cam Simpson and Matthew Philips of Bloomberg Businessweek, which has previously analyzed the business of ISIS in detail:

Arguably the least appreciated resource for Islamic State is its fertile farms. Before even starting the engine of a single tractor, the group is believed to have grabbed as much as $200 million in wheat from Iraqi silos alone. Beyond harvested grains, the acreage now controlled by militants across the Tigris and Euphrates river valleys has historically produced half of Syria’s annual wheat crop, about one-third of Iraq’s, and almost 40 percent of Iraqi barley, according to UN agricultural officials and a Syrian economist. Its fields could yield $200 million per year if those crops are sold, even at the cut rates paid on black markets. And how do you conduct airstrikes on farm fields?

The problem is not unprecedented. It’s difficult to disrupt the finances of an entity that’s not well-integrated with the outside world, as the United States has learned in North Korea. There aren’t appreciable ISIS assets in foreign banks to freeze. There’s little foreign trade to cut off. As Aymenn Jawad Al-Tamimi of the Middle East Forum has written, “the general consensus now seems to accept that IS is not dependent on foreign donors in any meaningful way,” so it’s not clear what cracking down on shadowy Gulf financiers would accomplish. Glaser told the BBC that he has “worked to make sure that the territory in which ISIL operates is completely cut off from the international financial system,” but the tools of international banking aren’t well-suited to disrupting the self-contained, largely cash-based economy ISIS is operating. Valérie Marcel, an energy researcher at Chatham House, told Foreign Policy that “as soon as they expand territory, their potential for taxes, theft, tolls, and oil revenue increases.”

The result is a difficult chicken-and-egg problem for the United States and its allies: They may want to choke off ISIS’s finances to help dislodge the group from its territory, but they need to dislodge the group from its territory to choke off its finances.

On the other hand, Jamie Hansen-Lewis and Jacob N. Shapiro found, in a paper for Perspectives on Terrorism, that this short-term advantage for ISIS is a long-term liability: “[T]he group’s prospects are quite poor; given they are an extractive state with exclusionary institutions, they must sell resources at a steep discount and buy weapons without access to state-to-state markets. ... While the group can clearly maintain an asymmetric insurgency over limited territory, its ability to do more is inherently limited.” Still, what ISIS has been able to do even within those limits is plenty bad enough.