In-depth Analysis: Political Economy & Income Sources of Islamic State

This report delves into the political economy of the Islamic State (IS), examining its diverse income sources that have enabled its rise as a formidable terrorist organization. The analysis covers key revenue streams such as oil extraction and smuggling, taxation and extortion within its controlled territories, kidnapping for ransom, sales of antiquities looted from captured museums and archaeological sites, looting of banks and assets, real estate holdings, agricultural activities, and involvement in phosphate, cement, and sulfur industries. Additionally, the report discusses IS's exploitation of fake humanitarian aid, alleged donations from royal donors in the Gulf, and smuggling of cash across the Turkish border. The report highlights how the group's financial strength has allowed it to expand its territories, procure weapons, and support its militants, while also noting the impact of international efforts to disrupt these income sources through air strikes, sanctions, and regulations.

POLITICAL economy of the middle east

Contents
Introduction...........................................................................................................................................2
There are several ways from which IS gets its income are stated below:..............................................3
Oil Extraction:....................................................................................................................................3
Taxation/extortion:............................................................................................................................5
Kidnapping for ransom......................................................................................................................6
Sales of antiquities.............................................................................................................................6
Looting:..............................................................................................................................................7
Real Estate.........................................................................................................................................7
Agriculture:........................................................................................................................................7
Phosphate, cement and sulphur:.......................................................................................................8
Fake Humanitarian Aid:.....................................................................................................................8
Royal donors in the Gulf:...................................................................................................................8
Smuggling of cash:.............................................................................................................................9
Across the Turkish Border:..............................................................................................................10
Conclusion...........................................................................................................................................11
Bibliography.........................................................................................................................................13
1

Introduction
Islamic State(IS) is the richest and most dangerous terrorist organization in the world. It is
commonly known as ISIS which stands for Islamic State in Iraq and Syria. It was created by
Abu-Musab al-Zarqawi in 2013, who independently formed his own group from Al-Qaeda.
IS group wants to form a caliphate which means a state ruled by Muslim ruler according to
the Islamic law (Bronstein & Griffin, 2014). They asked entire jihadist group to accept its
authority and join them and most of the jihadist who were against al-.Queda joined them. By
starting a civil war in Islamic world, it expanded its territories in Iraq at first and then further
expanded in Syria in March 2013, which reflected its clear mission to the world. Now their
target is not only Syria and Iraq, they are attacking outside these countries (Heißner,
Neumann, Holland-McCowan, & Basra, 2017). Islamic State is financially strong and
consists of many different kinds of weapons like truck mounted machine guns, tanks,
armoured vehicles etc. It is not easy and economical to manage such large terrorist
organization in monetary terms. They need money to buy weapons like bombs, riffles etc,
employees salary, travelling abroad, propaganda videos. They even support thousands of
militants who is working for them and serve them in war and other terror activities. They are
still trying to increase their territories and are involved in battels for same reason. More than
8 million people are living in their territories who are totally under the control of ISIS. It is
evident that for such expansion of territories and terrorism activity demands major capital and
by looking at their successes it is obvious that they are financially very strong. We can take
example of the recent IS attacks in Paris, it clearly suggests that they are not worried about
the funding. According to Treasury Department’s Undersecretary for Terrorism and Financial
Intelligence, IS is the best funded terrorist organization till now. Many terrorist groups
depend on rich supporters unlike IS. Though it receives huge amount of donations from
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financers especially Gulf based, it does not rely totally on them. They are involved in many
other activities like oil smuggling, extortion, sales of antiquities, looting, kidnapping for
ransom, agriculture etc to support themselves financially (Pagliery, 2016). This is the reason
they are rising day by day which is significant threat to entire world. With the help of social
media campaign and their ideology, they are trying to encourage Sunnis to migrate to their
controlled territories. IS is increasing its territories and terror activities day by day as they
have regular source of income. They need to be controlled as soon as possible and to control
them, these group should be separated from the people from whom they take advantages,
such as engineers and technical experts whom they used for oil extraction. They also collect
tax from people and penalizing them for petty reasons such as for trimming their beard or
shaving, keeping pack of cigarettes etc. The only way to control them from expanding is by
cutting their income sources.
There are several ways from which IS gets its income
are stated below:
Oil Extraction:
IS fighters are involved in many battles and terror activities to increase their territories and to
finance their activities huge sum of capital is required. So, for that they are involved in
activities like oil smuggling. Islamic State has expanded its territories by raising civil war,
attacking Iraq and Syria, which is not possible without capital (Giovanni, GoodMan, &
Sharkov, 2014). The cost of war is very high which they might have collected before it begun
the war from the oil smuggling. Oil revenue for this terrorist group is the regular source of
income. IS has seized some major oil fields and refineries in southern Syria and Iraq which is
the major income source for this group. It is quite easy for IS to smuggle oil to Turkey, where
oil is very expensive. As this trading is illegal they sell oil at lower prices, so for Turkey it
does not matter who is selling the oil unless they are getting it at lower cost. They had been
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selling most of their refined oils to the brokers and traders in Turkish border illegally. They
transport oil by using boats on rivers that are connected to Turkey, through pipelines and also
by using horses. To take control over such illegal activities which is supporting this group to
increase their overall dominance, The U.S. and U.N. made some strict regulations and applied
sanctions to stop and control such activities (Wintour, 2016). According to UN sanctions, it is
illegal to buy crude oil from IS. Therefore, Islamic State extract oil from the fields, wells and
refine them and then sell it to neighbouring countries. They also use crude oil to generate
electricity which they use and also supply it to the neighbouring countries. Though there is
lack of exact data, it is expected that the oil extraction from such oil fields is the highest and
most reliable source of their income. Income from oil trading helped them a lot to expand
their territories in past. The revenue generated from oil extraction has declined since U.S and
other countries started launching air and ground strikes on IS captured oil fields in Syria and
Iraq resulting in destruction of half of their oil refining capacity. Even though their oil fields
are destroyed they can easily survive on oil revenues as they immediately began to produce
and stock fuel as much as they can. From the very beginning IS hired engineers and other
technical experts from different countries and best companies in the Middle East to work for
them by offering them attractive salary. Now most of the engineers and experts are killed or
they have left the place. This is also the reason for the declination of their revenue from oil
extraction.
Another problem for selling oil is that the drastic change in the price of the oil. The instability
in the oil market hampers their business of oil selling. Further, The United States targeted the
oil brokers and traders and on the other hand asked Turkey to slow down the smuggling of
oil. Many countries are trying to locate the starting point from where they sell oil because
there are many mediators via which they sell their oil. In 2016 there was a scandal in which
the Hungarian company of oil and gas called MOL group bought oil from IS. But according
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to the company they had bought oil from the Iraqi Kurdistan region. But the allegation was
not proved due to the lack of evidence.
There was one more incident that happened in Italy was that IS claimed that mafia of Iraq
supports them by buying oil from them and selling it to their country. Again, due to lack of
evidences it was not proved but the smuggling between the countries was restricted.
Taxation/extortion:
IS collects huge amount of money from taxation and extortion and it is considered as the
second largest income source for them. According to Islam, collecting taxes is considered as
sin, only in some cases taxes can be acceptable (How ISIS runs its economy, 2015). Thus, the
organization made their own financial systems so that they don’t have to depend on any
external donations. Since Islamic State has control over large area it collects taxes normally
or forcefully from people living there. People in the area has to pay taxes for water,
electricity, banking facilities, employees income, any truck that enters their territory
(Johnston, 2015). They collect taxes called Jizya from non-Muslims living under their
territory as they are allowed to follow their own religion. The non-Muslims especially
Christians family has to pay fixed amount of tax on yearly basis according to the income of
their family.
Another type of tax that people has to pay is called Ushr. About 5-10 percent of this tax is
collected from agriculture production and trading. Tax is also applied on land owned by
person living under their territory. Amount of tax on land is applied on the basis of the quality
and the worth of the land mass. This tax is referred as Kharaj. Zakat is the form of tax that
according to Islam is compulsory and is paid to the IS officers which is used in by them for
their so called holy war. This tax is collected from each and every family living in their
regions as they keep records of income of every family. As their revenue from the oil trading
has decreased, they are trying it to compensate loss by applying different sorts of taxes. After
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mid-year 2015 they are applying tax for western practices and fashions. Social behaviour of
people is strictly observed and are distinguished in terms of education, delivery of services,
fashion, policing etc by IS officers. People residing there has to pay fine for: shaved or
trimmed beard, not wearing their traditional dress, owning cigarette, women revealing her
eyes. There are other categories for which people have to pay huge amount of tax such as if
person is found without id card are charged with USD 5 and if anyone is carrying duplicate or
forged card they have to pay USD 46. Similarly, others taxes like exit fee from Raqqa city for
15 days is USD800 and if the person fails to come back within 15 days then their property is
seized. IS group changes their rules and regulations from time to time on the basis of their
own need. Due to air strikes on their oil fields and many laws are made against them 50
percent of their income is obtained from the taxes they collect from local people of their
territory.
Kidnapping for ransom
According to the U.N report in the year 2014 IS organization collected 35-45 million dollar
by kidnapping wealthy person for ransom. The United states and U.K. made it illegal to pay
ransoms to any terrorist organization in order to control the situation where IS was targeting
to make hostages from US and UK. IS terrorists not only targets foreigners but they also
kidnap people from their own communities and collects ransoms.
Sales of antiquities
As Islamic States has control over large areas, they have captured many museums and
archaeological places (Swanson, 2015). More than 12000 such places are captured by the IS
groups. The historical artefacts, antiques and arts from the museums, historical places and
private collection are sold to the advanced countries from which they get millions of dollars
per year. They are selling these antiques dating from 9,000 B.C. to A.D. through many
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mediators and dealers. They even sell useful objects from tomb, shrine, palaces and destroy
the rest of the objects.
Looting:
They have been involved in bank robberies which is considered as the third largest income
source for them. After capturing Mosul in 2014 IS terrorists robbed bank of Mosul that had
more than millions of dollars in their vaults. The organisation got access over huge fund
when it took control over Mosgul in 2014 where it looted Mosgul central bank and various
other banks. It is said that it approximately looted US$ 429 million from the central bank.
They even seized many bank branches in Iraq and collected over billion dollars. The
American vehicles, construction equipment, cars, furniture and expensive goods that they
acquire from their territories are sold which is also the reliable source of income for them.
Real Estate
Due to the war that is going on in Iraq and Syria many people have been killed and many
people left these places and moved to other place (Dar, 2016). The Islamic State uses the
property of such person by renting them or selling them. They also captured the properties
owned by any Iraqi government officials, police and army officers. Now again they have
decided to capture the properties of the doctors and other experts.
Agriculture:
The most fertile and productive land of Syria and Iraq is under control of Islamic State. Huge
amount of wheat and barley is produced in these lands every year. The crops that is generated
from these lands brings millions of dollars to them.
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Phosphate, cement and sulphur:
The area that comes under the Islamic State territory is very rich in natural resources. From
the natural resources like phosphate, sulfuric acid and phosphoric acids, they earn huge sum
of money.
Fake Humanitarian Aid:
There has been news of money laundered through unregistered and fake charities in the
name of humanitarian aid. They use various apps like WhatsApp, kirk for coordinating with
groups for payments and geographical drop points. Application like WhatsApp which is used
all over the world for communication purpose can also be used in sending exact locations.
These groups use these apps to know each other location which is helpful is deciding drop off
points. Also, kirk which allows the terrorist to register using a username without even asking
to provide a valid phone number which could identify them. The affiliates of ISIS use their
twitter accounts to share their usernames and publishing other information’s. Facebook which
bought WhatsApp, never responded to Newsweek questions on the use of its global
messaging app or its steps to track such activities and reporting the same to the US
authorities. In one of the statement released by Kirk it stated that, “it never monitors, stores
the conversation between its users.” The use of twitter and other social media accounts for
only spreading their propaganda to attract as many followers and once the connection is made
donations starts to accumulate. Using these funds in the name of aid helps ISIS to allocate to
various operations.
Royal donors in the Gulf:
IS also gets fund from the private sources, government of Kuwait, Qatar and Saudi Arabia.
These three countries are rich in oil sources. In these countries many rich businessmen, Royal
people supports IS groups directly or indirectly by providing them with fund. Recently these
countries gave huge amount of money to the rebels including IS who were fighting against
the Bashar Assad (the president of Syria). This act of these countries gained attention of
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many countries and received negative criticism from the Secretary of the States, Hillary
Clinton and other international communities. After this incident Saudi Arabia was forced to
imply laws and sanctions against these funding. Saudi Arabia blocked every financial support
to any terrorist organization and made strict law against those who provides any kind of
support to any terrorist groups. Later Saudi Arabia joined U.S. by providing bomber and
fighter planes along with the airstrikes to fight against IS organization. According to the Lori
Plotkin Boghardt, there are still private donors in the Gulf which are continuously funding IS.
Kuwait and Qatar are still not in the picture when it comes to discontinuing the financial
support providing to these terrorist groups. Even after the continuous financial sanctions over
these two countries by the U.S. governments, things are still not under control.
There are factors which directly support this IS groups. The first being the banking system of
Qatar and Kuwait which are exploited by these terrorist organizations, unlike Saudi Arabian
banks which raises alarms when huge amount is siphoned to the IS. The second being Qatar
and Kuwait are in able to control the activities of highly dominant and influential ISIS donors
due to their strong political connections which may fallout if they are intervened.
In Kuwait, the member of parliament and family having their members in parliament were
directly involved in raising funds for these jihadist groups which had direct connection to
ISIS controlling the influential ISIS donors or supporters is very complicated for these
countries.
Smuggling of cash:
There is tradition of passing down the secret smuggling routes by families from one
generation to another as they are very secured and are used during the lean period when the
west imposes the economic sanctions. The guards at the borders over these routes are blind
folded when bags are full of cashes and truck full of oil or goods are passed through their
check points. The smugglers who used to trade oil during Saddam regime across Iraqi borders
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to Iraq, Turkey and Kuwait are now working on these routes between ISIS controlled Iraq
and the outer world. At its core, the ISIS money mincing machine functions on greed and
fear it has over the millions of people it controls. They also show themselves in the wide
range of monetary activities which are outsourced through middle man and hordes of self-
driven parties (Inside ISIS Inc: The Journey of a barrel of oil, 2015). There is no estimation
of the extent of the total asset and revenue of the organization. It is also said that it is one of
the best funded organization that the United States has ever faced.
The organization economy and its fighters mostly rely on the sale and production of seized
sustainable resources.
Across the Turkish Border:
There were actives around the border areas between Turkey and Syria which were pinned as
key places where funds were transferred for ISIS (Hackett, 2016). According to the US
department of homeland security, despite the use of technology this organization still did not
use the virtual currencies example Bitcoin to avoid its engagement with the global world of
finance.
This organization is still forced to trade in cash due to its dependence on the criminal
network. This type of fashion is common in the middle east where people uses briefcase to
carry cash up to 1 to 2 million and pass through mostly gulf airports especially for the people
travelling in private in private planes.
Based on the different types income sources of IS, they can be classified as the regular and
reliable source and others are irregular source of income. The income source from the Oil
trading, agriculture, taxation and money from the rented properties are the reliable source of
revenue. As Iraq and Syria are rich in oil resources and most of the oil fields are under
control of IS, they get huge revenue from it. Millions of dollars are generated from the
agriculture as the land of Iraq and Syria is very fertile making it a reliable and regular source
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of income. IS collects huge amount of taxes from the people who are living in their territories
and they always change their rules and regulations according to their need.
There are few irregular sources of incomes such as looting, kidnapping, selling the antiques
from the historical places.
Conclusion
From the above paper we can conclude that ISIS is the most dreaded terrorist organization in
the world which has not only spread its reach over Iraq and Syria but to its neighbouring
countries as well. Their operations are well funded which they generate via several channels.
Their main sources not only include the donations from wealthy donors of the middle east but
also from the production of oil and crops and trading them across borders and other parts of
the world. As the sale of oil being the major source of revenue, they are also involved in
extortion, selling antiques, looting, and kidnapping for ransom to run their operations and for
buying weapons like bombs, riffles to maintain their dominance over the occupied regions. It
is also clear that such organization cannot function efficiently without the involvement of
skilled and intellectual work force from engineers, hackers, financial consultants to train their
military personnel.
Apart from the various sanctions imposed by the west mainly the United Nations and The
United States, these terrorist groups still continue their operations. Even countries like Qatar
and Kuwait are supporting IS groups and never supported the west when it came to imposing
sanction on the funding of these organizations.
Lastly, to stop this organization their sources of revenue should be blocked which will
directly affect their operations. As the most important thing for their mission is money and
military. If they are deprived of capital they won’t be able to buy weapons or won’t able to
pay salary of their armies. The United States has already reduced their control over oil fields
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in Syria and Iraq. UN committees and other international committees should take strict action
against the countries that support IS and other jihadi groups. There should be strict
monitoring over their activities on the social media so that masses could be stopped following
this organization propaganda of supporting them. Border areas of the countries like turkey
and Italy should have high securities so that smuggling can be controlled.
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