ISIS’ Oil Trouble

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Konstantin Bodragin

The tides may be turning on ISIS, if analysis of the group’s recent revenue downturn turns out to be correct.

The self-styled Islamic State came into existence just over a year ago, when ISIS leader Abu Bakr al-Baghdadi announced the establishment of a caliphate in a large territory spanning significant parts of Iraq and Syria. ISIS seemed almost unstoppable for a while, making significant gains month by month. The conflict has now entered a stalemate, and may be teetering and about to crash back on ISIS’ heads.

An unlikely coalition of forces made up from radical and conservative Kurdish fighters (PKK and Peshmerga, respectively), Sunni and Shia militias in Iraq and Syria, the Assad regime with the assistance of Hezbollah, Iran, the United States, and now Russia – have managed to stall ISIS’ advancement and stretch its supply lines to their limits.

The value of coalition airstrikes against key ISIS holdings cannot be overestimated. They have provided indispensable assistance to local fighters on the frontlines, as well as destroying supplies en route to ISIS territory. They have also disrupted its money making machine – oil production.

Managing a territory as large as ISIS controls is not cheap. Conducting a full-scale war on multiple fronts at the same time is mind-bogglingly expensive. After gaining the territory and establishing its caliphate, ISIS immediately turned to regulating the flow of money.

“ISIS controls the state, so they tax the population, confiscate property, can produce income from state-run businesses and from oil and gas. Other terrorist groups don’t have that,” said Columb Strack, a senior analyst at IHS.

Analysis of data gathered from local sources, leaked ISIS documents, and social media reveals that the group has total earning of about $80 million a month. Roughly half of that amount comes from taxes, levies, and confiscation of property. 43 percent comes from selling oil on the black market. The rest comes from electricity sales, drug smuggling, and donations.

Back in October, reports estimated that ISIS earned nearly $50 million from oil sales. The United States has indicated it believes ISIS conducts its oil smuggling operations through Turkey, and would wish to see the country tighten its borders. Russia, as consequence of the emerging dispute between it and Erdogan’s regime over the downed Russian jet, has overtly blamed Turkey of assisting the terrorists.

Whether Turkey blocks ISIS’ oil route or not, it seems that revenue stream is beginning to dry up, in large part due to the US-led coalition airstrikes focus on ISIS’ oil wells, refineries, and tankers.

“There are early indications that the group is struggling to balance its budget,” Strack said. “Airstrikes have significantly degraded the group’s refining capacity and ability to transport oil via tanker convoys.”

With the Kurdish-led Syrian Democratic Forces and Peshmerga attacking key locations in the north, and Russian-backed Armed forces squeezing from the south and east, losing its oil-based revenue could prove to be a deadly blow to ISIS. It’s early days yet, but coalition efforts could make this well dry up.