Weeks before the attacks that killed 129 people in Paris, U.S.
warplanes resumed sorties above Syria and Iraq, targeting anew oil
fields and other parts of a vast petroleum infrastructure that
fuels—and funds—Islamic State, one of the richest terrorist armies
the world has known.
These airstrikes were launched not because U.S. officials were
prescient. They came after the Obama administration found and
quietly fixed a colossal miscalculation. U.S. intelligence had
grossly overestimated the damage they’d inflicted during airstrikes
on the militants’ oil production apparatus last year, while
underestimating Islamic State’s oil revenue by $400 million.
According to U.S. Department of the Treasury officials and data they
released in the wake of the Paris mayhem, the terrorist group is
actually taking in $500 million from oil a year. What’s more, just a
few hours before the first Islamic State suicide bomber blew himself
up outside the Stade de France on Nov. 13, U.S. Army Colonel Steve
Warren conceded at a press briefing that some American airstrikes
disrupted IS oil operations for no more than a day or two.
The Obama administration “misunderstood the [oil] problem at first,
and then they wildly overestimated the impact of what they did,”
says Benjamin Bahney, an international policy analyst at the Rand
Corp., a U.S. Department of Defense-funded think tank, where he
helped lead a 2010 study on Islamic State’s finances and back-office
operations based on captured ledgers.
He says the radical revision on oil revenue came after Treasury
officials gained new intelligence on Islamic State’s petroleum
operations—similar to the ledgers Rand used for its study—following
a rare ground assault by American Special Operations Forces this
May. U.S. forces, operating deep into the group’s territory in
eastern Syria, targeted and killed an Islamic State “oil emir,” a
man known by the Arabic nom de guerre Abu Sayyaf, Pentagon officials
said at the time. (Treasury officials, who are charged with leading
the administration’s war on Islamic State’s finances, declined to
comment specifically on whether Abu Sayyaf’s ledgers were at the
root of their new estimates, but the agency has said the figures are
extrapolated from the militant group’s oil earnings from a single
region in a single month earlier this year.)
It’s not clear how the U.S. got it so wrong, Bahney says, but he
suspects that the latest round of airstrikes are directly related to
the administration’s new math. “You have to go after the oil, and
you have to do it in a serious way, and we’ve just begun to do that
now,” he says. Yet even if the U.S. finally weakens the group’s oil
income, Bahney and other analysts in the U.S., the Middle East, and
Europe contend, Islamic State has resources beyond crude—from
selling sex slaves to ransoming hostages to plundering stolen
farmland—that can likely keep it fighting for years. In any case,
$500 million buys a lot of $500 black-market AK-47s.
Islamic State got into the oil business long before it captured
global attention through barbaric beheading videos in the summer of
2014. It seized Syrian border crossings to profit from oil
smuggling. And it tapped a network that’s operated for decades,
dating to at least the 1990s, when Saddam Hussein evaded sanctions
by smuggling billions of dollars’ worth of oil out of Iraq under the
United Nations’ Oil-for-Food program.
Most often refined in Syria, the group’s oil is trucked to cities
such as Mosul to provide people living under its black banner with
fuel for generators and other basic needs. It’s also used to power
the war machine. “They have quite an organized supply chain running
fuel into Iraq and [throughout] the ‘caliphate,’ ” says Michael
Knights, an Iraq expert at the Washington Institute for Near East
Policy, using the militant group’s religiously loaded term for
itself.
Because the U.S. apparently believed the real money for Islamic
State came primarily via selling refined oil, rather than crude,
last year’s strikes heavily targeted refineries and storage depots,
says Bahney. He and other experts say that strategy missed an
important shift: Militants increasingly sell raw crude to truckers
and middlemen, rather than refining it themselves. So while Islamic
State probably maintains some refining capacity, the majority of the
oil in IS territory is refined by locals who operate thousands of
rudimentary, roadside furnaces that dot the Syrian desert.
Pentagon officials also acknowledge that for more than a year they
avoided striking tanker trucks to limit civilian casualties. “None
of these guys are ISIS. We don’t feel right vaporizing them, so we
have been watching ISIS oil flowing around for a year,” says
Knights. That changed on Nov. 16, when four U.S. attack planes and
two gunships destroyed 116 oil trucks. A Pentagon spokesman says the
U.S. first dropped leaflets warning drivers to scatter.
Beyond oil, the caliphate is believed by U.S. officials to have
assets including $500 million to $1 billion that it seized from
Iraqi bank branches last year, untold “hundreds of millions” of
dollars that U.S. officials say are extorted and taxed out of
populations under the group’s control, and tens of millions of
dollars more earned from looted antiquities and ransoms paid to free
kidnap victims.
The taxes bring in real money. One example: Islamic State allows
policemen, soldiers, and teachers in its territory to atone for the
“sin” of having worked under religiously inappropriate regimes—for a
fee. Forgiveness comes in the form of a repentance ID card costing
up to $2,500, which requires an additional $200 a year to renew,
according to Aymenn Jawad al-Tami, a fellow at the Middle East Forum
who closely follows the group.
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?
For his part, Bahney contends that the group’s real financial
strength is its fanatical spending discipline. Rand estimates
the biggest and most important drain on Islamic State’s budget
is the salary line for up to 100,000 fighters. But the oil
revenue alone could likely pay those salaries almost two times
over, Bahney says.
He also believes they’ve been running at a surplus. Bahney says
that if the U.S. and its allies are going to diminish the threat
from Islamic State, they must recognize that knocking out oil,
while critical, isn’t enough. “They’ve built up quite a bit of
excess cash flow in the last year,” he warns. “So they’re going
to be able to keep this going for a while.”
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