Where does Islamic State get money from?

Even as the United Nations has authorised member countries to do more to combat the Islamic State (IS), one of the key challenges the world powers would face in the war would be to choke the funding of the jihadist group.

The group, which has established a proto-state in the self-proclaimed ‘Caliphate’ that stretches from the suburbs of Damascus to the outskirts of Baghdad comprising 8 to 10 million people, is one of the best funded terror outfits in the world.

It has a religious police in the ‘Caliphate’ and is also running schools, food points and other administrative centres. Besides, it is fighting a protracted war on its borders against several enemies — the Iraqi and Syrian national armies, rebel forces and other jihadist groups such as Jabbat al-Nusra.

According to The Economist, IS fighters are paid around $400 a month, better than an average Iraqi soldier. Where does the money come from for all these operations?

Donors’ money

Usually terror organisations are run on money they receive from international donors. The IS is also getting money through this channel. According to a Washington Post report, the IS received up to $40 million in 2013-14 from businessmen, wealthy families and other donors in Saudi Arabia, Qatar, Kuwait and the UAE.

Last week, Kuwaiti authorities had arrested six men who were allegedly belonging to an IS cell in the Gulf country. The authorities say they were involved in recruiting, providing logistics and funding for the terror group, which, if proved true, would substantiate the theory that cash is flowing from the Gulf into the coffers of the IS.

But unlike other terror groups, the IS is not only dependent on international donors for revenues.

Ever since it captured the eastern Syrian city of Raqqa in 2013, the IS has expanded its financial muscles along with its military capabilities. According to the Rand Corporation, the IS’s total revenue rose from a little less than $1 million a month in 2008-2009 (when it was called the Islamic State in Iraq) to perhaps $1 million to $3 million a day in 2014.One of the means of revenues was tax collection in the ‘Caliphate’.

According to some estimates, the group charges retail stores about $2 a month in taxes. A report by Thomson Reuters estimates that extortion and taxation by the IS could fetch the group around $360 million a year.

The group has also made millions from kidnappings. According to some estimates, the jihadist group has made at least 20 million in 2014 through kidnapping for ransom alone. The IS has also looted banks in Iraqi cities that fell to its hands. Mosul was a case in point.

When it captured Iraq’s second largest city in June 2014, jihadists ran over the city’s central bank looting $429 million, Nineveh governor Atheel al-Nujaifi had said then. The IS has also set up a Ministry of Antiquities whose main job is to sell precious and historical artefacts in black market and generate cash, according to Al Monitor.

Single largest source

But the group’s single largest source of income is oil trade. The group controls six of Syria’s 10 oil fields, including the big Omar facility, and at least four small fields in Iraq, including those at Ajeel and Hamreen, according to Maplecroft, a risk management firm.

A recent Financial Times report stated that the group has established a network of oil trade starting from the production fields to the end user in and around the ‘Caliphate.’

The report puts the IS’s daily revenue from oil trade at $1.5 million. They sell oil to independent traders at the oil fields who will get it refined in the mobile or local rudimentary refineries established in Iraq and Syria and then the refined product would be taken either to the IS-controlled or private oil markets or to the neighbouring countries such as Turkey where traders would buy it.