Islamic State’s oil business: the Caliphate strikes back

16 October 2015 2:43 pm

Why has the US led bombing failed to stop Islamic State? It’s because of oil.

The Russians are in for a surprise in their battle in Syria. But then the American led coalition could have told them, Islamic State is one of the best-financed terrorist organisations in the world, and that includes state-backed ones. There is no credible estimate of the secretive group’s net worth but we know they pay their fighters around $400 a month. That’s more than Syrian rebel groups or the Iraqi government can offer. Also, it appears to have no trouble purchasing weaponry, either on the black market or from corrupt officials or militias. And it runs services across the areas it controls. It pays schoolteachers and provides for the poor and widowed. So where does it get all its cash from? The answer is oil.

As the Financial Times tells us, Islamic State is a sprawling operation almost akin to a state oil company that has grown in size and expertise despite international attempts to destroy it. The Islamic State’s oil company actively recruits skilled workers, from engineers to trainers and managers.

Estimates by local traders and engineers put crude production in Isis-held territory at about 34,000-40,000 barrels per day. The oil is sold at the wellhead for a cut rate of between $20 and $45 a barrel, earning the militants an average of $1.5 million a day. While al-Qaeda, the global terrorist network, depended on donations from wealthy foreign sponsors, Isis has derived its financial strength from its status as monopoly producer of an essential commodity consumed in vast quantities throughout the area it controls. Even without being able to export, it can thrive because it has a huge captive market in Syria and Iraq.

This is one the great ironies. Diesel and petrol produced in Islamic State areas are not only consumed in territory the group controls but in areas that are technically at war with it.

While illicit trade in oil is perhaps understandable, what is truly surprising is the degree to which ISIS’ operations resemble an ordinary national oil company. The group recruits engineers, offers competitive salaries, and “encourages prospective employees to apply to its human resources department,” according to the FT.

And when some of that ends up powering the equipment of Islamic State’s enemies, we know we have a problem.

This highlights the stark failure of the year-long coalition air strikes which have repeatedly targeted the group's refineries and pipelines.

It’s a wasted effort. There has to be another way. Maybe more effort needs to go into creating renewable energy empires in Syria and Iraq and wean them off oil, Islamic State’s black gold and economic engine.