ISIS Political Economy: Financing a Terror State

Dimitrios Stergiou. Journal of Money Laundering Control; London. Volume 19, Issue 2. 2016.


In 2014, the phenomenon of the so-called Islamic State of Iraq and Syria (ISIS) was one of the prominent key points worldwide. It astonished the world with its fear terror tactics and the methodical mediatization of fear. Its leader Abou Bakr al-Baghdadi, assumed command of the group in May 2010 and declared the formation of ISIS in April 2013, expanding the Islamic State of Iraq (ISI) to include Syria. He emerged in the public scene in June 2014 when he proclaimed himself the first “caliph” in generations (Caris and Reynolds, 2014; Wood, 2015), while Forbes Magazine classified him as No. 54 at the list of most powerful people in the planet.

The major difficulty of this research lies on the fact that ISIS controlled territory resembles a hermit kingdom. No official data of any kind are available by international recognized organizations or bodies, and no audit of any sort are presented neither balanced sheet are published. The sources for this paper are primarily Western media, journalists, indirect habitants testimonies and very few official reports, whose sources are also direct or indirect journalism. Part of the information derives also from ISIS’s own propaganda apparatus. Valuable data about the group, especially it’s precursors, have been produced by the study of the US Department of Defense’s classified Harmony Database, which included some 200 Iraq-related documents, declassified recently through West Point’s Combating Terrorism Center (Allam, 2014). Consequently, numbers often present significant deviations depending on the source.

ISIS constitutes a phenomenon and a “sui generis” organization for three main reasons. First, the unspeakable cruelty that is used for recruitment and “marketing”. Surely, is it not the first (or the last) terrorist/criminal organization that endorses public executions, beheadings and inhumane methods in general. But it is the first that it has explicitly declared proud of it. Violations of international and humanitarian law are not any more subject of detailed investigation but carefully and methodically projected by the perpetrator himself. Second, it fights for the occupation and control of land in the frame of an “active and integrated endeavor to build an alternative to modern states from the remains of Iraq and Syria” (Caris and Reynolds, 2014). ISIS has been organized as a pro-state. As noted in an L’Orient LE JOUR article on November 11, 2014, it has also divided the territory it controls in “wilaya” (administrative regions) which have their own local government, administrative and military structure. It endeavors to acquire statehood characteristics by exercising core-state activities from disciplined military parades to minting a currency. According to a Jordanian journalist, ISIS has “undergone the quickest transformation in statehood in modern history” (Russia Today, 2014). Third, it pursues global dominance. It is not representing a revolutionary movement or a political organization that aspires the ascension into power in a given State Fuerzas Armadas Revolucionarias de Colombia—Revolutionary Armed Forces of Colombia (FARC) or a secession from it to establish an ethnic one Euskadi Ta Askatasuna—Basque Country and Freedom (ETA), Palestine Liberation Organization (PLO) nor a terrorist organization hidden in the structures of a rogue state, seeking shadow power (Al-Qaeda). After the mediatized, alleged, abolishment of Sykes-Pikot frontiers aspires the end of Westphalian notion of Statehood and the establishment of the world caliphate. Christophe Reuter, a journalist in Der Spiegel magazine captures ISIS’s “essence”: an “Islamic Intelligence State”, a caliphate run by an organization that resembled East Germany’s notorious Stasi domestic intelligence agency […] Criminologists see ISIS as a mafia-like holding company out to maximize profit. Scholars in the humanities point to the apocalyptic statement by the ISIS media department, its glorification of death and the belief that Islamic State is involved in a holy mission. But apocalyptic visions alone are not enough to capture cities and take over countries. Terrorists do not establish countries. And a criminal cartel is unlikely to generate enthusiasm among supporters around the world, who are willing to give up their lives to travel to the “Caliphate” and potentially their deaths’ (Reuter, 2015).

But terror is not the only way that al-Baghdadi, has astonished the world. ISIS in just three years from an unknown branch of Al Qaida in Iraq became according to David Cohen US Treasury Under Secretary for terrorism and financial intelligence (FININT) “the best-funded terrorist organization we’ve confronted”. Matthew Levitt, Director of the Stein Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy, calls ISIS “the best-financed group we’ve ever seen”. Robust finance constitutes also an excellent tool of Propaganda; Abu Bilal al-Homsi, the nom de guerre of a Syrian activist who serves as liaison to ISIS proclaimed: “It’s a victory that the Islamic State has an economy and is self-sufficient” (Financial Times, 2014). Through economic governance seeks the legitimization of its vision and tries to run a fully regulated economy, by endeavoring to control both the means of production and the distribution of goods and services, forbidding access selectively and using the supply as leverage.

Sources of Financing

Overall, as noted in a New York Times article on November 25, 2014, in Iraq “groups responsible for many insurgent and terrorist attacks are raising $70 million to $200 million a year from illegal activities.” ISIS’s financial network extends back before 2014 with its predecessors (Al-Qaeda in Iraq, Islamic State of Iraq—ISI) using the same “dark” fund-raising methods. Between August 2008 and January 2009, ISIS made an average of US$1 million per month maintaining a meticulously balanced budget and generating a budget surplus. By the time Baghdadi took charge in June 2010, the group had already begun siphoning Iraq’s oil, opening gas stations in the north and extorting money from industry contractors. (Allam, 2014). November 2014 estimates suggested that the group made between US$1 and 3 million per day and that the surplus at the end of 2014 were approximately US$2 billion (Johnston, 2014). The leaders of the various groups were wary that revenues from external sponsors have “strings attached” and have turned to self-finance. Therefore, the funding is generated within the territory in Iraq and Syria where it currently operates.

ISIS organization has developed internal structures dedicated to maintaining financial self-sufficiency and an independence from potentially vulnerable external donors (Lister, 2014). The group was already financially self-sufficient for about eight years as a terrorist and insurgent group before committing itself to running a proto-state (Levitt, 2014). According to Mr Cohen “ISIS depends on complex management networks, with CFO-like figures and professional administrators who allocate and monitor the group’s money top-to-bottom” (Johnston, 2014). Cells were required to send up to 20 per cent of their income to the next level of leadership, for the funds to be redistributed according to needs (Chulov, 2014).

Mosul is considered the crest of ISIS financial activity. Even prior to the capture of the city (June 9, 2014), the groups revenues were roughly US$12 million a month in the city alone (Lister, 2014). According to US officials, earlier, Mosul groups’ total cash and assets were US$875 million. Afterwards, the pillage of banks and the looting of military supplies added another US$1.5 billion, from which US$420 million was in cash (Allam, 2014; Chulov, 2014).

According to the Financial Action Task Force (FATF), an independent inter-governmental body, ISIS earns revenue primarily from five sources listed in order of magnitude: illicit proceeds from occupation of territory; kidnapping for ransom; donations including by or through non-profit organizations; material support such as support associated with Foreign Terrorist Fighters (FTFs) and fundraising through modern communication networks (FATF, 2015).

Illicit Proceeds from Occupation of Territory

In this category, fall sources of revenue related to the population, land and natural resources. Every aspect of financial activity is a potential source of revenue. Everything that can be sold from oil and wheat to slaves and foreign passports is being smuggled. Framing its activities as “taxation” or “charitable donations”, ISIS draws the maximum of both non-monetary economic assets as well as physical cash (FATF, 2015). The ideological reasoning is the enforcement of the Koran’s teachings on imposing the Jizya “contribution” twice per year on Christians and Muslims (Wood, 2015).


Extortion has long been one of the group most lucrative revenue. As of early 2009, ISIS was making in Mosul roughly the same share of revenue from extortion as from oil. The population is being extorted via the banking system, transportation tariffs, daily business activity, salary payments, human trafficking, seizure of property-mostly from Christians, Shiites and formal government officials which is been later auctioned off for cash (Shamdeen, 2014) or simply theft at gunpoint.

The USA estimates that ISIS has generated or had access to the equivalent of at least US$500 million in cash alone, as it has taken control of state-owned bank branches in north-western Iraq over the later half of 2014. Furthermore, the group has taken the cash deposits of local Christians and Muslims. Cash withdrawals in general are conditional; the account-holder is forced to submit a statement to a three-person committee of ISIS members, to be established the existence, if any, of connections between the account and government institutions, Christians, Yazidis or Shiites who are considered the enemy. Even if the account is cleared, the account-holder is allowed to withdraw only 10 per cent of the balance in the account. Also, abusing the concept of “Zakat”, a tax of 5-10 per cent is levied on all customer cash withdrawals. Much of this cash is denominated in dinar, the Iraqi currency, which makes it difficult for ISIS to use it abroad (Joumah, 2014; FATF, 2015). Bank robberies are limited due to the need of service to the population; however, group members reportedly going home-to-home, business-to-business, demand cash at gunpoint. Refusal to comply occasionally begets abduction of family members (Carnegie Endowment for International Peace, 2014).

Furthermore, the group benefits from the cash entering into where it operates. The respective governments are still paying a number of civil servants, but they prevent the money-transfer to ISIS controlled areas. Therefore, the employees need to travel long distances to collect the paycheck and upon return they are being “taxed” at rates of up to 50 per cent. The potential profit for ISIS is hundreds of millions of USD per year. On the other hand, start-up business is free, provided that a 2.5 per cent of year’s revenues goes to the group (Solomon, 2015).

As of December 4, 2014, Middle East Media Research Institute listed on its Web site, a pamphlet titled “Questions and Answers an Taking Captives and Slaves” which was released by The Research and Fatwa Department of the Islamic State and printed by ISIS’s publishing house, Al-Himma Library. According to the pamphlet:

It is permissible to buy, sell or give as gift female captives and slaves, for they are merely property, which can be disposed [as long that doesn’t cause (the Muslim ummah) any harm or damage].

The group has organized “slave auctions” with prizes varying from US$13 to 3,000. Although human trafficking has limited value as lucrative source of revenue, it contributes to meet the demands of its fighters (FATF, 2015) and as inconvenient truth it may be, from an economical point of view, slave-labor force constitute cheap production means.

ISIS has reportedly imposed specific taxes on the movement of goods in parts of Iraq where it operates, including a road tax of US$200 in northern Iraq and a US$650-800 “customs” tax on trucks entering the Iraq from the Syrian and Jordanian borders (Hawramy et al., 2014; FATF, 2015). Passing trucks may be also taxed about 10 per cent of the value of their cargo (Solomon, 2015). The group is using also this “road tax” as accommodating policy towards Sunni tribes—who control the trucking business across western Iraq—by charging reduced rates for the transport of goods on the main highway between Jordan and Baghdad (Lister, 2014).

Oil and Gas

As of November 25, 2014, New York Times listed on its Web site, that various groups responsible for many insurgent and terrorist attacks raised US$25 million to US$100 million from oil smuggling and other criminal activity involving the state-owned oil industry. Oil smuggling in state level is not new. Of the 2 m or so barrels of oil pumped out of well in Nigeria each day, as many as 400,000 are reckoned to be stolen and forwarded to neighboring countries (The Economist , March 7, 2015). In Iraq and Syria, smuggling networks outside the formal economy are more or less a family business which passes from generation to generation using connections with governments. From 2006 to 2009, ISIS predecessor, the Islamic State of Iraq, raised around US$2 billion through smuggled oil originating in the Baiji refinery in northern Iraq (Shatz, 2014).

Even prior to the conflict, Syria’s oil fields were considered old and inefficient producing only 10 per cent of total capacity (Leigh, 2014). Furthermore, ISIS due to the lack of specialized personnel encounters difficulties both in upstream (extraction) and in part of the downstream (refining) sector. The geology of the Syrian Euphrates Valley which controls is complex, the fields have been in steep decline since they peaked at about 400,000 barrels per day (bpd) 10 years ago, and were only producing about 90,000 bpd in March 2011. Therefore, they require the injection of large amounts or water to sustain production, a method that necessitates sophisticated logistics. As a result, some of the oilfields it had appropriated in late 2012 in eastern Syria had been sold back to the Syrian regime. On the other hand, those fields—the largest of which are Omar and Tanak—produce light, low-sulphur, crude oil that is relatively easy to refine (Butter, 2014).

RAND, a US-based research organizations estimates that ISIS-held area can produce 150,000 bpd, IHS an consulting company based in the USA, as of October 20, 2014, listed on its Web site 350,000 bpd, while The Guardian newspaper elevates this capacity to 400,000 to 500,000 bpd. In any case, in late 2014, ISIS achieved a production of roughly 50,000-60,000 bpd (Hawramy et al. , 2014; Shatz, 2014; FATF, 2015). As a comparison, exports from Iraq for the month of August 2014 were about 2.4 million per day. Furthermore, the aerial campaign against ISIS has diminished even more the groups’ oil capacity.

On the downstream sector, a number of small modular refineries called “teapot refineries” that are being build off-site and can be attached to trucks or to the wells are used to refine crude oil. By their nature, these refineries can be replaced and rebuild by importing replacement parts and machinery. ISIS has also developed more primitive refining techniques, including burning the crude in open pits that produce limited yields of poor-quality product. This makeshift gasoline is used mainly for use in the groups cars, trucks and other energy-intensive parts and machinery (FATF, 2015).

ISIS oil foreign customers include Turkey, Iraqi Kurdistan, Jordan, Iran and even the Syrian regime. Kurdish traders agreed to buy the oil for half of its international price and paid US$1,500 for each tanker to pass through the Peshmerga checkpoint in Kirkuk, Makhmour, Daquq and Tuz Khormato and the transporters who used to smuggle oil, received from ISIS double their fees. The oil was then resold to Turkish and Iranian traders (Hawramy et al., 2014). As of November 3, 2014, listed on its Web site that the Turkey-Syrian border was a fertile ground for smuggling for generations, an enterprise with very lucrative earnings for all the parties involved including the Turkish paramilitary border control force. These black market routes date also back to the 1990s under the Saddam-era oil-for-food program (Leigh, 2014). ISIS is profiting in several ways: from the oil it sold, the fees it charged to middlemen and the taxes it collected at any checkpoint through which the oil passed. But since late summer 2014, Turkey is under increased international pressure and has taken serious measures to contain the phenomenon. Nevertheless, as noted in a Al-Monitor article on September 15, 2014, through the Turkish borders the oil is smuggled through hundreds (about 500) of makeshift pipelines (the kind used for irrigation) passed underground the fields and ending in private houses in the Turkish side of the borders. Villagers in border cities with Syria (some 80-90 per cent of the families are involved) see the smuggling of oil as a compensation for the assistant they provided to the flock of Syrian refugees during the multi-year civil conflict. The means of smuggling include also, jerry cans carried by mules and even rafts when crossing rivers.

The group has also established an internal market for its products, thereby ensuring a reliable and independent market for its own fleets of vehicles. Most importantly, it established a relations of dependence with its “citizens” ensuring them cheep oil. Consequently, the destruction of oil wells and makeshift refineries will disrupt the oil flow and thus the blame could be attributed to the “Infidel Crusaders” (Lister, 2014). Moreover, ISIS to counterbalance its reduced refined capabilities and to accommodate domestic demand occasionally transports crude oil into neighboring countries refines it into low quality gasoline and bring it back to urban centers for resale. For example, the two million residents of Mosul buy fuel that is extracted from the nearby field in Qayara, refined in Syria, and transported back to the city (Rasheed, 2014). Moreover, in July 2014, to meet the demand of the population, ISIS allegedly bought gas from Turkey (Lefler, 2014).

Most of Syria’s natural gas fields are located in the central region between Homs and Palmyra which is broadly under the regime control and in Hassakeh, an area controlled by Kurdish groups, while almost all of Syria’s natural gas power stations are located in regime-held areas (Butter, 2014). The strategic al-Shaer gas complex in central Syria, which produces three million cubic meters of gas a year and constitutes the primary gas-powered electricity complex in Syria, was the objective of fierce fighting between ISIS and government forces. Finally, it has been recaptured by the regime for the second time in November 6, 2014 (Atallah, 2014).

Agriculture and Raw Materials

The UN Food and Agriculture Organization estimates that ISIS currently controls over 40 per cent of Iraq’s wheat cultivating land. Since June 2014, the group reportedly took control of an estimated 16 wheat silos including the largest silo in Makhmud which houses approximately 8 per cent of Iraq’s annual production. Under the pretext of “Zakat”, it is taking from farmers portions of their wheat and barley crops. Additionally, it confiscates agricultural machinery from local farms, which it then rents back to the farmers from which they were seized. ISIS is intergrading stolen harvest with existing regional agricultural businesses (an act which essentially lauders stolen crops by obscuring its origins), or violently acquiring silos and keeping those previously employed on the payroll to carry out daily business (FATF, 2015). On the other hand, the group occasionally tries to find an arrangement with farmers, selling them subsidized fertilizers and seeds in exchange for the sole right to buy their crop (Solomon, 2015). ISIS, to provide for local population, “subsidize” wheat—that has been stolen and advertised on the black market—and sells it in very low prices, a method that burdens the already overtaxed farmers (Fick, 2014).

The group has also gained control of the Akashat Phosphate Mine and the Al-Qaim manufacturing plant, owned by the Iraqi’s State Company for Phosphate Manufacture which produces both sulfuric acid and phosphoric acid and therefore could generate tens if not several hundred million USD a year. ISIS has also control over five major cement plants in Syria and Iraq. In addition, it may control several sulfur extraction plants in Iraq and the main salt mine of Syria. Unlike crude oil and refined petroleum, for which there are long-established smuggling routes and local black markets, these other recourses and facilities may be more difficult for ISIS to monetize and so it may be difficult to estimate exactly how much revenue can the group generate from these assets (FATF, 2015).

Water and electricity

In January 2015, ISIS had in its control three dams and at least two gas plants in Syria used to run state electricity, a fact that forced Damascus to strike a deal. According to a local engineer:

ISIS guards the factories and lets state employees work. It gets all the gas produced for cooking and sells it. The Syrian regime gets the gas needed to power the electrical system and also sends some electricity to ISIS’s areas. (Solomon, 2015).

On the other hand, the group has used its control of water (held by Fallujah dam) to destroy cropland 160 kilometers downstream, leaving millions of people without water in southern Iraq (FATF, 2015). Additionally, as of July 7, 2014, Al-Jazeera listed on its Web site that the mismanagement by ISIS of the Euphrates dam in al-Tabqa in Syria led to severe shortages of water in the area.


From al-Nubuk alone (an area west of Damascus), they had earned US$36 million, smuggling antiquities up to 8,000 years old (The Guardian, Jun 2014). As of November 10, 2014, , posted on its Web site its estimates for the group earnings in 2014 from ransom, to US$20 million.

Kidnapping for Ransom

ISIS has repeatedly kidnapped individuals local or foreigners with purpose to demand ransoms or proceed to much mediatized ritual killings to send a political message. In certain cases, it has purchased hostages from moderate rebels at borders exchanges. The revenues from kidnappings in 2014, are estimated in the range from US$20 to US$45 million (FATF, 2015). The safe return of many foreign citizens abducted by the group was a result of ransom paid “under the radar” by governments of other organization, despite the UN implemented no-ransoms policy.

Donations Including by or Through Non-profit Organizations

Although the bulk of the group’s revenue derives from self-funding, it has also received funding from wealthy private regional donors. From 2005 until 2010, only 5 per cent of the group’s operating budget originated from outside donors (Allam, 2014). Nevertheless, donors abroad particularly those in the Golf must be seriously taken into account.

Sources of funding have also been identified as some charitable foundations of NPOs. With a variety of pretexts such as humanitarian relief for refugees, distance adoptions, construction of mosques, donors worldwide contribute intentionally or not to ISIS war chest (FATF, 2015). Coalition air strikes in combination with the coordinated effort to halt the advance and reverse the tide will deny from the group the territory/population revenue, and therefore, it will be forced to look outwards for financial support. Cooperation with other terrorist groups like the Jabhat al-Nusra will provide the ISIS the possibility to integrate their external funding network into its broader financial system (Johnston, 2014). At this point, the international pressure and financial isolation will multiply their effect.

Material Support

A relatively small part of funds derives from FTFs. According to information provided by the US government, as of December 31, 2014, at least 19,000 foreign fighters from more than 90 countries responded to the jihadi call, “immigrate and serve!” and joined ISIS. In some cases, FTFs have to pay for their own living expenses and to that end receive funds from their respective home country. Such transfers have been found to vary from [euro]700 to [euro]7,000 per transaction. In this respect, taking also into consideration the porous Turkish borders, FTFs provide for themselves fighting material such as weapons, ammunitions and special clothing (FATF, 2015). Some of them are accompanied by their families, e.g. the Chechen fighters who are reportedly spend big time, and they even opened a Russian elementary school with courses in Russian language.

The military equipment the group is using is deriving either from seized Iraqi military equipment during its collapse, or from spoils belonging to the Syrian Army and the free Syrian army (FSA). The group has in its possession a number of high-end US manufactured material, e.g. high mobility multipurpose wheeled vehicle and M1 Main Battle Tanks as well a soviet-era weapon systems such as Battle Tanks (T-55, T-62, T-72), SA-16 man-portable air defense systems, self-propelled artillery (2S1 Gvozdikas) and a large number of assault rifles and mortars which are both easy to use from untrained personnel. From the capture of Syria’s Tabqa air base in late August 2014, probably acquired a small number of MIG-21 fighter jets (Bender, 2014). Nevertheless, ISIS is unable to effectively use this modern armory for two interdependent reasons: sophisticated equipment, especially fighter jets, requires expertise, a complicated maintenance system and a constant flow of spare parts, elements which the groups lack. The substantial heterogeneity of military equipment constitutes a nightmare even in advanced structured modern armies, in terms of effective combined use and successful operational doctrine. However, besides their propaganda value, some of them could be exchanged or stripped for spare parts. Explosive materials could be used in improvised explosive devises (Bradley, 2014).

Fundraising Through Modern Communication Networks

ISIS uses Western-type media organizations as propaganda tools. Al-Itisam Establishment for Media Production, Al-Hayat Media Center outlet, Al-Kataib Foundation for Media Production (Al-Qaeda-linked in Somalia), and its own publishing house, Al-Himma Library, produce high-quality (from a technical point of view) English language pamphlets and high definition propaganda videos (e.g. The land of the living , Flames of War , Soldiers of truth ). Through Dabiq , its electronic English, fully illustrated electronic magazine, ISIS openly declares, analyses and promote its version of Islam and indoctrinates its followers.

Exploiting the tools provided by social media platforms, ISIS relies also to a great number of low profile, low-level contributors, through numerous accounts that the group maintains. This accounts allowed ISIS to maximize its ability to go “viral” to gain wide range support by generating a “Twitter storm” on June 18, 2014. Hashtags like #ISIS, #AlleyesonISIS or #Islamicfront, a mobile android phone application free for public download called “The Dawn of Glad Tidings” and transactions through Skype and international prepaid cards, multiplied the groups followers and converted international support into tangible funds. Asking sometimes contributions equal to a third of the donors salary, using crowd funding methods, a combination of technology and marketing, ISIS maintains campaign momentum and maximizes its profits. According to the practices of cyber-platformed donations (“perks” and “donation tier”) in its twitter post an ISIS-linked cleric, promised contributors, for a 50-dinars equivalent to 50 sniper rounds, the “silver status”, while for a 100-dinars equivalent to 8 mortar shells, the “golden status donor” (FATF, 2015).

To bypass the sanctions, a rhetoric has been developed around the use of virtual currencies in financing terror activities. The most commonly know virtual currency is the Bitcoin (via the Dark Wallet, a digital on-line wallet) which is decentralized, crypto and flexible (can be adapted to ” sharia only ” compliant transactions). Nevertheless, as noted by Bloomberg in its Web site on March 18, 2014, that Mr Cohen has expressed his doubts on the subject, underlining that “Terrorists generally need ‘real’ currency, not virtual currency, to pay their expenses—such as salaries, bribes, weapons, travel, and safe houses”. As of July 8, 2014,, a Bitcoin news platform on its Web site, while also professing its reserves on the use of digital currency by ISIS, presented the view of Davi Barker an expert of Bitcoin and Sharia compliance, who argues that Bitcoin fulfills four of five of the Islamic law requirements, while Fiat paper money only fulfills two. However, the use of the Dark Web sub-world (Tor, Silk Road x.0, Agora), which according to USA DoD Combating Terrorism Technical Support Office, is a region of the Internet, where activities such as trafficking in drugs, weapons, humans and chemical, biological, nuclear and radiological technologies in support of disruptive, nefarious actions goes undetected (CTTSO, 2014) even in small scale, may at some point provide an alternative for ISIS’s financing.


To discern the financial position and strength of an organization, revenue must be examined in conjunction with expenses, to establish the so-called burn rate. According to Patrick Johnston of the RAND Corporation, ISIS will spent its surplus pursuing four objectives: continue to expand its territorial bases in Iraq and the Levant; expand its influence in other strategic parts of the Muslim world (Afghanistan, Pakistan); fund plots for attacks in North America, Western Europe or elsewhere; and fund a sharia-based state in the territory it currently controls (Johnston, 2014). The first and the last appear more likely, with state building being the most recourse demanding.

In early years, the average Islamic State foot soldier earned a base salary of just US$41 per month, while a blue-collar Iraq job such a bricklayer was paid US$150 (Chulov, 2014). Resent reports suggest that ISIS pays on average US$350-500 per month for a fighter, US$1,200 for a military commander and US$400 for an Islamic police officer (Hawramy et al., 2014; Lefler, 2014). In addition to fighters, Dabiq-the group’s online magazine—calls for skilled professional to immigrate, who receive also a salary. With an estimate of 20,000 to 30,000 in the payroll, the salary budget alone elevates to roughly US$10 million per month. By comparison, in 2004, Bin Laden valued the Al Qaeda’s operations in Iraq to US$10.4 million per year (Tupman, 2009). In 2005 and 2006, members of the group were remunerated with US$491 per year, but recently, depending on particular skills and nationality, the amount was between [euro]50 and [euro]1,500 per month. In addition, each fighter receives an additional fixed amount for each wife, child and dependent unmarried adult woman in the household. In 2005 and 2006, the rate was US$245 per year, but lately, the amount was increased to US$50 per month for each wife and US$25 per month for each child. The family continues to receive the salary after the militants’ death or capture. The group also pays rents, bonuses to high-performing members and medical expenses. The legal costs incurred from detained members are also being covered (Shatz, 2014). Reallocation and payroll costs were by far the largest expenses for the group accounting foe as much as 56 per cent of all payouts at certain points of time (Allam, 2014).

Additionally, as a state-aspiring organization, apart from its war effort, ISIS must provide basic necessities (e.g. food, water flow and electricity) and services to local population which is estimated to 5 to 6 millions. The support it receives is largely dependent on the group’s ability to maintain similar “statehood” functions, a complicated and difficult task. As noted in a Economist article on August 25, 2014, in Raqqa—the group’s de facto capital—in 2013, it attempted to take control of the services that paid the road sweepers and kept ambulances on the road, but soon handed back control after it failed to deliver.

ISIS state-building aspirations include a number of resources-draining activities. The “Shar’ia Department” organizes and supervises the institutionalization of the group’s religious beliefs and includes among others, Da’wa events (“education” of the new habitants reading ISIS’ version of Quran), Al-Hisba (Religious Police)—in addition with the local police—and Shari’a institutes. In July 2014, “Shar’ia Department” maintained 43 separate offices in Aleppo province alone, and likely a lower number in Raqqa province. In this frame, the group has established a service of “citizen advocate” in the form of “Court of grievances”, where the population may address its complaints against ISIS fighters or local emirs. The “justice systems” includes police with dedicated vehicles and branded uniforms and seven large detention facilities. The Islamic Administrations of Public Services—which was shut down in January 2014 due to military situation—controlled bakeries, cleanliness and sanitation, electricity and transportation (Caris and Reynolds, 2014).

“God’s” currency

In November 13, 2013 the Council of the Choura, a consulting body of the organization, announced via the blogosphere that ISIS was preparing to launch a currency “dedicated to God” in gold, silver and copper, and its value will be the purchasing power of its metal. By doing so, the group offers Muslims a way out of the “global economic system that is based on satanic usury”. The circulation of the currency will be controlled by the ” Bayt al-mal “, loosely translated as “house of money”, a distant equivalent of a treasury department which in time will issue instruction explaining how to use the currency (Huffingtonpost, November 14, 2014). The currency will have seven different coins: five and one dinar (gold, 21 carats); one, five and ten dirhams (silver); and ten and twenty floos (copper). The gold dinar is an early Islamic coin which derives from the denarius auri (golden dinar) of the Byzantine era. The name of the silver currency is dirham an Arabic corruption of the Greek drachma, which was the Byzantine currency. Nevertheless, ISIS declared the weight using of the “Infidel” measurement in gram rather the Islamic measure, mithqal. The 5-dinar coin is set to contain 21.25 grams of 21 carat gold, worth about US$694, while the lowest-denominated 10 flous coin would contain 10 grams of copper and be worth about 7 cents. The proposed silver dirham coins would range in value from 45 cents to US$4.50 in November 2015 rates (Financial Times, 2014). The depictions on the coins suggest a strong symbology. One of the gold coins carries the symbol of seven stalk of wheat, mentioned in the Qur’an, while another depicts a map of the world, underlying the global ambitions of the “caliphate”. One of the silver coins shows a sword and a shield in a reference to the holy war or jihad, while another has a minaret symbolizing Damascus mentioned in one of the Prophet Muhammad’s sayings. One of the copper coins carries the symbol of the Al-Aqsa Mosque in Jerusalem, where the Prophet prayed, which is revered as Islam’s third-holiest place, depicting also the site’s iconic gold-topped Dome of the Rock, which enshrines the rock from which Muslims believe the Prophet ascended to heaven.

Nonetheless, the group to mind and circulate such a currency is confronted with tree key challenges: First is the availability of precious metals in adequate quantities. Steven H. Hanke, Professor of applied economics at Johns Hopkins University wondered ” The important thing is: where are they going to get the gold and copper? Isis will have to confiscate more property through theft and the spoils of war”(Financial Times, 2014). Reports reveal that in November 2014, there was a significant increase demand for gold and silver in the Iraq’s city’s markets. Even copper wiring from electric transmissions and military equipment was reported stripping. Second was the feasibility of such undertaking in terms of required infrastructure and institutions. According to Sannat (2014), an economic analyst, in administrative level, ISIS will need to install controls in all levels to avoid the risk of frauds and the circulation of fault coins. This will require the allocation of a large amount of human resources and infrastructure, e.g. customs at the—constantly changing—borders. Third is the stability and viability of a financial system, which is based in a currency whose value derives from its metal with prices floating free, daily in international markets. According to Pascal de Lima, Director of EcoCell a financial and economic think tank:

Like the era of the kings in Middle Ages, it will permit them to fix arbitrarily the value of thinks according their proper moral code, without the possibility to make international comparisons, since no one else uses this currency (France24, November 14, 2014).

Besides, no country or financial institution will want to transact with ISIS currency out of fear of being branded as sponsor of terrorism and subsequently being targeted by international sanctions.

On the other hand, the new coins, if minted, will probably acquire great collective value in shadow markets worldwide. In addition, precisely because the money transactions inside the group organization and in the area controlled by it are taking place mostly in cash, the new coins will maybe facilitate the money circulation by standardizing the use of only one currency instead of three (vide supra). Nevertheless, this fact may prove useful strictly inside ISIS hermit kingdom.

Impact on Regional and Global Economy

The economic effects of this ISIS’s pro-state endeavor are inextricably linked with the prolonged and dire situation in Syria. In this paper, from the direct effects, are going to be examined the economic impact from the humanitarian catastrophe and the financial burden incurred from the security situation, while from the indirect effects, an outlook will be given of the economic implication of illegal border crossing.

As of August 14, 2014, United Nations Iraq listed on its Web site that the humanitarian crisis in the area has been characterized al Level 3, the highest level of humanitarian crisis. As noted in an Economist article on April 25, 2015, the civil war in Syria has driven what the International Organization for Migration calls “the biggest movement of people since world war two “, with 8 million people displaced inside the country and 4 million leaving it. According to United Nations Office of the Coordination of Humanitarian Affairs, humanitarian needs in Syria have increased 12-fold since the beginning of the crisis, with 12.2 million in need of humanitarian assistance, while more than US$5 billion is steel needed. In Iraq, more than 5 million people are in need of humanitarian assistance, including more than 2 million that have been displaced. The situation puts a great strain in local economies. Turkey for example has so far spent close to US$5 billion to serve the needs of refugees (FATF, 2015).

The long lasting instability in the region and the constant security threats maintains armaments spending in countries and areas torn by civil conflicts. Funds urgently needed for humanitarian relief and basic state-provided services are tunneled to the war effort. Between 2011 and 2014 defense spending in Middle East and North Africa increased by 29.6 per cent from US$108 billion to US$140.3. Military budgets in the area now account for 8.8 per cent of the global compared with 6.9 per cent in 2009 (IHS Jane’s, February 25, 2015). In 2013, Iraq’s military expenditure was at 3.6 per cent of the country’s GDP, with the rest of the area having one the highest in the world. Oman with 11.3 per cent in 2013 scores the highest globally (SIPRI, 2014). The numbers are inflated also due to the wide spread corruption. According to Iraq’s new prime minister (since August 2014), the estimated number of ghost soldiers in the Iraqi military’s payroll were 50,000 with an annual cost of US$380 million (IHS Jane’s, December 17, 2014). Furthermore, the US-led military campaign against ISIS since August 2014 translates into a considerable cost to the coalition parties. In that frame, the Obama administration seeks US Congresses approval to extend the Authorization for Use of Military Force first voted in 2001 by the Bush Administration as a financial tool in the <<war against terror>> (IHS Jane’s, February 18, 2015).

As noted in the Economist article on April 25, 2015, UN’s estimates of migrants crossing the Mediterranean in 2014 was at 219,000, nearly four times larger than the figure for the year before. According to the UN, shipping migrants toward Europe from Libya is a US$170 million industry. Italy, in October 2014, ended Mare Nostrum, a sea rescue mission in place since October 2013. The cost of Mare Nostrum, initially at [euro]1.5 million a month has increased at [euro]9.5 million a month (The Economist, July 5, 2014). This operation has been replaced with an EU border agency Frontex mission, called “Operation Triton” with monthly budget initially at [euro]2.9 million a month, but due to the dramatically increased toll of immigrants deaths in the Mediterranean, European Union leaders decided on April 23, 2014, to triple the funding and funnel an additional [euro]120 million. German Chancellor Angela Merkel underlined: ” For Germany I can add: if it turns out that the funds are not sufficient we will have to talk about it again. Money should be no object here ” (Sridharan, 2015). Greece, another entry point, despite its alarming financial situation, in 2013 spend [euro]63 million to prevent illegal immigration. According to Hellenic Police statistics published on its Web site, in 2014, irregular migrants that entered Greece were 77,163, while only in the first four moths of 2015, this number reached 36,172. According to a study conducted by the Hellenic Foundation of European and Foreign Policy, the cost of temporary hosting an irregular migrant in a detention center in Greece, is [euro]14 a day (Ageli and Triadafilidou, 2014), while in Italy is [euro]45. Although the average number of days that irregular immigrants spend in detention facilities could not be determined, the financial burden is considerable, especially for countries like Greece and Italy with turbulent economies.

Having the name “ISIS” as a brand could be also bad for business. Many firms were forced to rebrand their products named after the ancient Egyptian goddess Isis (a big variety from Belgic Chocolate, lingerie or even the name of his Lordship dog in the popular UK TV series Downtown Abbey).

Fighting the Terror Fighters

According to Mr Cohen, the Undersecretary of Treasury Department:

This is not going to be a case of, we flip a light switch and all of a sudden all of their financial resources have disappeared […] we have no silver bullet, no secret weapon to empty ISIS coffer overnight […] I will expect that we will have impact on ISIS’s financial situation long before 36 months (Davis, 2014).

Philip Hammond, the minister of foreign affairs of Great Britain underlined that we need “one year, two years to drive away the Islamic State fro Iraq ” (Le Figaro, January 22, 2015).

Because only a modest share of ISIS’s funding comes from external donors, sanctioning sponsors and external facilitators should be a secondary objective, while countering the group’s internal financial structures and operations must constitute the main effort. Regarding the existing donors/sympathizers—primarily in the Golf states—the focus should be on their domestic legislation (and its strict enforcements). According to Mr Cohen, Saudi Arabia and the United Arab Emirates appear to comply satisfactory, while in Kuwait and Qatar remain ” permissive jurisdictions that both countries have more work to do” (Lister, 2014).

In a meeting held on December 3, 2014, the coalition of 60 nations and international organizations announced that their “defeat and degrade” strategy would focus on five lines of effort: supporting military operations; capacity-building and training; stopping the flow of foreign fighters; addressing humanitarian relief; and exposing the militia group’s ideology and cutting off ISIS’s access to financing (IHS Jane’s, December 10, 2014). Regarding the last line, Mr Cohen outlined the US strategy to undermine ISIS’ financial foundation in three core elements: cutting off ISIS’s access to revenue; restricting its access to the international financial system and targeting sanctions against ISIS’s leadership and facilitators.

Cutting Off Islamic State of Iraq and Syria’s Access to Revenue

The key element of disrupting ISIS’s financial activity is the recapture of the ground it controls.

The oil wells, the permanent refineries and the infrastructure in general cannot be targeted and destroyed. They constitute the primary source of revenue for the population and the legitimate government, which will eventually succeed ISIS, must use them to maintain to its legitimacy and boost the oil and gas production in the hydro carburant-richest area in the world. This is one of the reasons that oil infrastructure constituted only 8 per cent of the targets during the aerial campaign (IHS Jane’s, January 14, 2015). On the other hand, the group’s ability to improvise and repair the damages is notable. A single mobile refinery can be rebuild by ISIS in 10 days for US$230,000, provided that the necessary equipment is available. Nevertheless, it is estimated that 16 mobile refineries were destroyed by the end of 2014.

UNSC resolution 2,161 (2014) confirms that the prohibition on providing funds to individuals and entities on the Al-Qaeda Sanctions List, including ISIS, also applies to the payment of ransoms regardless of how or by whom the ransom is paid. These restriction apply not only to the ultimate payer of the ransom but also to the parties that may mediate such transfers, including insurance companies, consultancies and any other financial facilitators. The indirect approach constitutes also the detection of large deposits into bank account followed by immediate foreign cash withdrawals in areas located near to territories where ISIS operates (FATF, 2015).

To understand the financial structure and eventually disorganize it, a more effective FININT must be developed and intelligence cooperation with local actors, e.g. Kurdistan Regional Government, Turkey, the Iraqi Government and most importantly Iran, must be enhanced. Coordination with financial institutions and large information-exchange operations in a larger scale must be pursued to: identify the facilitators; monitor the flow of goods into and out of ISILs territory; monitor the quantities and prices of smuggled items mainly oil and monitor all contracts with entities in ISIS territories.

Restricting Access to the International Financial System

In ISIS-controlled territory, there are approximately 90 Iraqi bank branches and more then 20 Syrian financial institutions located. Central Bank of Iraq issued instructions to financial institutions incorporated in Iraq to prevent wire transfers to and from those banks (FATF, 2015). Following UN, EU and US sanction, the regulated international system has severed its ties with those institutions in an effort to block ISIS access to global financial markets. However, a number of banks, out of choice or fear, are unlikely to comply with international mandates. In addition, the group uses also informal networks of funding such as networks of hawalas. According to Saeed Al-Hamiz:

Havala can simply defined as an alternative or parallel remittance system that exists and operates outside the traditional banking system. Typically, a hawala transaction transfers the value of money from one country to another without the corresponding movement of cash or cover across borders (IMF, 2005).

Targeted Sanctions Against Islamic State of Iraq and Syria’s Leadership and Facilitators

The UN Security Council following a series of resolutions regarding terrorist financing, mandated among others the asset freeze, travel ban and arms embargo of individuals, groups, undertakings and entities associated with ISIS (S/RES/2170/2014, S/RES/2199/2015).

It is much more difficult to detect and block root-level individual contributors rather that target deep pocket contributors. Saudi Arabia authorities, in January 2015, lured possible ISIS sympathizers calling for donation for the Syrian people over the Internet. After investigation, 29 foreign bank accounts in four different countries representing 20 beneficiaries were identified as suspects, and measures have been taken (FATF, 2015). Distinguishing between legitimate and illegitimate donation is also a challenging task.

To pinpoint the illegal routing, the middlemen, buyers, carriers, traders and routes of illegal trade of any sort, must be identified. At some point, oil or the illegally traded items will reach a person or an organization within the financial system and at that point red flags must be raised.


ISIS runs a dysfunctional, super-regulated and counterproductive “economy” of fear in a context of total stagnation in local level and over-taxed population. Across its “territory”, one needs tree different currencies: Iraqi dinars, USA dollars and Syrian pounds. It tries to enforce a fully regulated model by setting prices on everything from bread, whose price was nearly doubled to almost a dollar, about a third of the daily income for Syrian civilians-to caesarean sections, which go for US$84 (Solomon, 2015). The group’s economy in operating entirely on cash, which is inconvenient, complicated in terms of logistics and transport and corruption-inclined. “State” huge expenses (salaries, military apparatus and operational costs) must be counterbalanced with no legitimate exports, no foreign investments while being subject to the most rigorous international sanctions. It also runs an economy at war. ISIS is not just fighting an insurgency and guerilla war but a muti-front, semi-conventional war against two governments, a 60 member coalition air strikes and a number of rival groups. Furthermore, according to Mr Cohen ” We should not confuse funding with financial strength ” (Carnegie Endowment for International Peace, 2014).

The strategy of containing and eventually defeating ISIS should be based on an indirect economic approach. The main effort should be to neutralize its financial operations, and therefore, the main objective is the control of territories from which the group finance derives (taxes and resources). Furthermore, the “caliphate” vision necessitates territorial authority, which is interlinked with its legitimacy. According to Wood (2015), a Canadian journalist:

[…] with every month that it fails to expand, it resembles less the conquering state of the Prophet Muhammad than yet another Middle Eastern government failing to bring prosperity to its people.

ISIS’s proto-state does not have actual borders, but only the ground that it controls. Besides, accepting any border constitutes an anathema for ISIS and an ideological suicide for its “caliph”. Its interpretation of the Islamic law permits only temporary peace treaties, lasting no longer than a decade (Wood, 2015). The important element is the control over border crossings; therefore, ISIS advances along the main routes axis and occupies strategic locations, bypassing the rest of the area (presenting little economic interest). ISIS’s failure to capture the city of Kobani was a major setback because it failed to take under its control a key border territory with Turkey

The networks of FININT must be coupled with coordinated efforts in State-level. Iran’s authorities, probably the most influential actor in the area should not, by any means, be excluded. The official government and the Shia network and organizations in the Iranian Area of Influence are indispensable parts of every action or arrangements.

Largely Sunni population in areas ISIS controls were feeling oppressed under Asad’s regime in Syria and under central Shia-dominated Iraqi government, and as a result viewed ISIS’s rule not necessarily negative. But its ability to maintain basic state-services has been deteriorated provoking a growing discontent from local population. The air strikes on oil refineries and the crackdown on crude oil smuggling has led to price rises for fuel and petrol in Mosul, deteriorating the already fragile local economy.

ISIS faces an expansion impasse in Syrak (Syria-Iraq). In the northeast, the territory of the Kurdish Regional Government constitutes the group’s limit of advance. Oil dependent eco-system created by giants like ExxonMobil and Chevron in this de facto state, are not compatible with ISIS. President Obama has specifically indicated its attentions: “The Kurdish region in functional in the way we would like to see […] So we do think it is important to make sure that space is protected.” (The New York Times, 2014). In the north, lie the borders with Turkey, a regional power factor. This frontier may be occasionally porous to smugglers and contraband, but it is impregnable to military expansion. In the west, lies the heartland of the Syrian regime, while on the south the heartland of the Iraqi state and its main oil-productions areas strongly protected by the West. According to an Intelligence Summary of the Institute for the Study of War, a US think tank, ISIS is executing a complex global strategy across tree geographic rings: Interior (Syraq), Near Abroad (North Africa, Saudi Arabia, Turkey and Afghanistan) and Far Abroad (Western Europe, India, Japan, the Philippines and Australia). The recent group’s activity in Libya, Egypt and Tunisia confirms that ISIS advance and expansion is taking place almost exclusively in its Near Abroad via “terror-franchising” organizations. Consequentially, coordinated international efforts to hinder ISIS further territorial expansion are successful. Less ground means diminished resources and therefore reduced revenue. Foreign donors support importance will increase as other sources of funding diminish and consequently the pressure—especially in Gulf states—to comply with international mandates regarding terrorist funding, must be maintained and increased.

In every aspect, ISIS wants to turn back the clock. If anywhere else, in the economy and in a global context of the globalized world, that is next to impossible. The threat is there, real and near but as Thomas Friedman suggests, “If ISIS starts losing, and can’t offer jobs, power or sex, this group will shrink” (The York Times, February 25, 2015).