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How the Islamic State Sustains Itself: The Importance of the War Economy in Syria and Iraq

Commentary, 29 August 2014
Centre for Financial Crime and Security Studies, Terrorism, Middle East and North Africa
The spectacular advances made by ISIS have brought focus to the group’s sources of financing, but is the international response and the securing of a UN Security Council Resolution too late given the impressive internal, war economy model the group has developed?

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In his recent RUSI lecture, Sir Richard Dearlove, former chief of the British Secret Intelligence Service, questioned the sources of financing of the recently declared Islamic State. As he reflected on the changing face of national security, he asked ‘How much Saudi and Qatari money – now I’m not suggesting direct government funding, but I am suggesting maybe a blind eye being turned – is being channelled towards ISIS, and reaching it?’. He then went on to assert that ‘For ISIS to be able to surge into the Sunni areas of Iraq in the way that it’s done recently has to be the consequence of substantial and sustained funding. Such things simply do not happen spontaneously.’

A Group With Significant Financial Experience

There is no doubt such things do not happen spontaneously, and indeed ISIS’ the latest iteration of a group that, like many recent jihadi organisations, has its roots in Taliban-controlled Afghanistan in the late 1990s. The group came to prominence in Iraq following the US-led invasion in 2003 and the subsequent pledge allegiancein October 2004 to Osama bin Laden by its Jordanian leader Abu Musab al-Zarqawi, renaming itself Al–Qa’ida in the Land of the Two Rivers (more commonly known as Al-Qa’ida in Iraq or AQI). The group’s popularity expanded rapidly in the face of the coalition occupation, and its increased need for financing was significantly mitigated when affiliation with Al-Qa’ida gave it access to funding (mainly private donors) and materiel.[1]

In late 2006, AQI led the consolidation of a number of other Iraqi insurgent groups to form the Islamic State of Iraq (ISI),[2] and although the movement was significantly degraded and disrupted by a combination of the Iraqi ‘Sunni Awakening’ and US military presence during 2006–07, the networks and financial discipline that were developed during this period remained in place, not just in Iraq but also in neighbouring Syria.[3]  Following the departure of US forces from Iraq in 2011, the disenfranchisement of the Sunni community by the Al Maliki government and the rising violence in Syria created the opportunity for ISI’s resurgence.  The fighter and financing networks that had been developed during the preceding years allowed ISI to re-exert itself quickly, feeding off dissatisfaction and chaos.  It is thus no wonder that despite clashing with other rebel groups, ISIS (as it became in 2013 once it expanded operations into Syria) has been able to mobilise itself rapidly to take advantage of the situation in Syria and establish a power base that offers it territory and, most importantly, the financing needed to support its spectacular resurgence in Iraq.

Securing Internal Financing Sustains ISIS

Insurgent groups such as IS derive funding from two sources: external supporters, be they states or private donors, and the raising of funds from territory they control via taxation, extortion, and benefits of a developing war economy.  To move, as James Adams puts it, from ‘fringe radical to recognised terrorists, all groups first and foremost must acquire some income, along with armaments and recognition, that will help sustain support for the group.’[4] IS has excelled in the art of acquiring income and, critically, whilst it may benefit from some external support, it has developed an impressive internal funding model that notwithstanding the recent passing of a UN Security Council Resolution aimed at its finances, makes restriction highly challenging.  For example, over the past eighteen months, across Northern Syria, IS gained control of oil fields, key arterial roads, and centres of commerce, all of which allowed it to garner valuable financial resources.  Well-funded groups such as IS profit from a reinforcing cycle that gives them the strength of numbers and weapons to target and control financially strategic hubs in order to maximise their income from the war economy, leading to further benefits as they increase their financial resources.

It is certainly the case that the advance of IS has not happened spontaneously and it has indeed received financial support from outside the group’s area of operation.[v5  But in contrast to most groups operating across Northern Syria that rely extensively (and indeed for their very existence) on external donors, it is questionable whether this is the case for IS.  Indeed, documents discovered in Iraq revealed how ISIS’s predecessor group AQI had identified a lack of regular funding as one of the group’s key failures.[6] Even if Doha, Riyadh, and Kuwait – the acknowledged centre of private donor funding for the conflict in Syria – were to decide to stop turning a blind eye this would be unlikely to disrupt ISIS significantly. The group has long moved beyond relying on external sources for any meaningful source of funding.

 

A former investment banker, Tom Keatinge is now an analyst of finance and security and an Associate Fellow at the Royal United Services Institute.

This article draws on ‘The Importance of Financing in Enabling and Sustaining the Conflict in Syria (and Beyond)’ by the same author, recently published in the Perspectives on Terrorism (Vol. 8, No. 4, 2014), which sheds further light on the evolution of insurgent funding in Syria and Iraq, a situation over which the international community has diminishing control as internal financing and the war economy take hold.

 

Notes

[1] Aaron Zelin, ‘The War between ISIS and al-Qaeda for Supremacy of the Global Jihadist Movement’, Washington Institute for Near East Policy, June 2014.

[2] BrianFishman, ‘Dysfunction and Decline: Lesson Learned From Inside al Qa’ida in Iraq’,Combating Terrorism Center at West Point, March 2009.

[3] Peter Neumann, ‘Suspects into Collaborators’, London Review of Books (Vol. 36. No. 7, April 2014).

[4] James Adams, The Financing of Terror (Sevenoaks: New English Library, 1986).

[5] See for example, US Department of the Treasury, ‘Treasury Designates Al-Qa’ida Leaders In Syria’, press release, 14 May 2014.

[6] Fishman ‘Dysfunction and Decline: Lesson Learned From Inside al Qa’ida in Iraq’.

Author

Tom Keatinge
Director, Centre for Financial Crime and Security Studies, RUSI

Tom Keatinge is the Director of the Centre for Financial Crime and Security Studies at RUSI, where his research focuses on matters at... read more

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