Damage at an oil refinery that was targeted by what activists said were U.S. strikes near the Syrian town of Tel Abyad, October
Damage at an oil refinery that was targeted by what activists said were U.S. strikes near the Syrian town of Tel Abyad, October 2, 2014.
Courtesy Reuters

A key element of U.S. President Barack Obama’s strategy against the Islamic State of Iraq and al-Sham (ISIS) has been striking at the oil fields seized by the group to undermine its finances. But ISIS is a diversified criminal business, and oil is only one of its several revenue streams. U.S. officials ignore that fact at their own peril.    

It is true that oil is ISIS’ key source of funding right now. The terrorist group has become the world’s richest precisely because it has seized some of the world’s most profitable oil fields in Iraq and Syria. Even with those fields operating below capacity due to a lack of technology and personnel, ISIS is estimated to be producing about 44,000 barrels a day in Syria and 4,000 barrels a day in Iraq. ISIS sells crude at a discount (around $20–$35 per barrel) to either truckers or middlemen. The crude gets to refiners at around $60 per barrel, which is still under market price. Smugglers pay about $5,000 in bribes at checkpoints to move the crude oil out of ISIS controlled territory. Even selling the oil at a discount via pre-invasion smuggling routes out of Iraq, ISIS can still expect over a million dollars in revenue each day. 

And ISIS’ enemies are getting richer from the trade, too: Kurdish part-time smugglers who facilitate ISIS’ oil sales can earn up to $300,000 each month. A Kurdish newspaper recently published a list of people involved with ISIS, especially its oil operations. The list includes individuals with the last names of several Kurdish ruling families; a Toyota branch in Erbil, which sells ISIS trucks; a Politburo member and military leader; and oil refineries, among others. Some of those on the list were associated with oil smuggling under Saddam Hussein. Kurdish facilitators also provide goods to ISIS, including trucks, gas cylinders (for cooking and heating), gasoline, and other necessary commodities.

Oil is not ISIS’ only source of revenue. For example, when the group needed seed capital to recruit personnel and acquire military equipment to conquer the Sunni-dominated areas of Iraq, some of it came from donors in the Gulf States, who had funded the antecedents of ISIS. More recently, ISIS funding has come from the usual terrorist businesses—smuggling, kidnapping, extortion, and robberies. In one reported case, a Swedish company paid $70,000 to rescue an employee who had been taken by ISIS. And before the American journalist James Foley was beheaded, ISIS fighters demanded an exorbitant sum for his freedom, which they did not receive.

Still more funding comes from the sale of counterfeit cigarettes, pharmaceuticals, cell phones, antiquities, and foreign passports. The trafficking of some of these commodities into Turkey from Syria has risen dramatically. For example, cigarette smuggling has increased, fuel smuggling is estimated to have tripled, and cell phone smuggling has risen fivefold. ISIS is also taxing black market antiquities at 20–50 percent, depending on the region and type of antiquity. Meanwhile, foreign fighters sell their passports for thousands of dollars in Turkey before entering Syria, where the proceeds help fund them and ISIS. These particular forms of illicit trade are attractive to terrorists because there is less competition, less regulation, and limited law enforcement in these markets compared to others, such as the arms and narcotics trades. 

These days, ISIS in many ways resembles a legitimate business. It has diverse revenue sources, seeks and develops new profit lines, and focuses on its most successful products and competitive advantages. ISIS was smuggling oil in Syria before its fighters entered Iraq. The lure of those better oil fields might have been one of the reasons it expanded its operations. ISIS is also entrepreneurial—for example, it has obtained several modular mini-refineries, which are low cost, low capacity, and mobile. The U.S. Department of Defense has targeted about a dozen of these facilities. ISIS leaders are rational business actors, too. They seek the best professional services; engage in cost-benefit analysis, focusing on crimes that yield the highest reward with the lowest risk; and use advanced technology to recruit personnel globally.

ISIS leaders’ talent for business is not surprising. Although the group has its fair share of ideological fanatics, it also includes foreign fighters that have extensive criminal expertise, such as the Georgian militant Tarkhan Batirashvili, known by his nom de guerre Sheikh Abu Omar al-Shishani, who was arrested for illegally harboring weapons. Of ISIS leader Abu Bakr al-Baghdadi's 25 deputies in Iraq and Syria, approximately a third served in the military during Saddam Hussein’s rule, and nearly all were imprisoned by American forces after the 2003 invasion, often with terrorists and insurgents who are now in ISIS. These experienced Baathists can tap into the illicit smuggling networks of the Saddam era.

In other words, ISIS already had years of expertise in outsmarting the West as it establishes front companies, bribes officials, and launders money. And, with its greatest revenue stream—oil—under attack, it can easily adjust the balance of its portfolio to favor non-oil activity. What’s more, now that the group actually controls territory, it can squeeze the local population and businesses for cash and taxes, just as the Taliban did to great effect in Afghanistan

The United States and other governments, expecting strikes on ISIS-held oil facilities to be a silver bullet, have failed to adequately engage the business community, which could provide enormous insight into ISIS’ operations. To undermine an economic competitor, you must do more than cut off its key funding—you have to go after its business and business models. In other words, it takes business to defeat an illicit business. 

To prevent firms­­­ in Kurdish Iraq from selling trucks to ISIS or helping refine oil, the West could do more to ensure that the government in Baghdad pays good prices for the oil that it is obtaining from Kurdish Iraq and shares its revenues with the region. The failure of the central government to do so means that businesses will seek alternative customers—even bad ones.

The effort to counter ISIS should also involve Western businesses. The cigarette industry follows the ebb and flow of the illicit cigarette trade. Energy and pharmaceutical companies monitor the movement of their commodities in the region. Transport companies have insights into the dynamics of illicit trade, and insurance companies have insights into kidnapping. That is why public-private partnerships are key. Corporations can share the information they already collect on illicit trade routes, smuggling shipments, and key facilitators. They can also warn consumers not to purchase the counterfeit and smuggled commodities that fund terrorism.

For now, the government response to ISIS has not taken the business community enough into account. But without such cooperation, Washington cannot hope to successfully counter the nimble ISIS. 

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  • LOUISE SHELLEY is University Professor at George Mason University and Director of the Terrorism, Transnational Crime, and Corruption Center (TraCCC). She is the author of Dirty Entanglements: Corruption, Crime, and Terrorism.
  • More By Louise Shelley