Report

Treasury’s War on the Islamic State

The green-eyeshades crew is taking the lead in trying to choke off the illicit millions that fund the terrorist group. But the Islamic State's own overreach may cost it more than sanctions.

Photo by Chip Somodevilla - Getty
Photo by Chip Somodevilla - Getty

The U.S. fight to bankrupt the Islamic State, like the wider military campaign to degrade and destroy the terrorist outfit, will be a long, drawn-out affair, said the Treasury Department’s David Cohen, who heads the unit that tracks terrorist financing. Given that the group is "the best-funded terrorist organization we have confronted," it also offers the United States plenty of opportunities to try to strike at its coffers, which are filled by illicit oil proceeds, ransoms from kidnappings, cash from looted antiquities, and donations from rich sympathizers in the region.

Despite the assembly of a seemingly impressive, 60-country coalition to help fight the Islamic State, also known as ISIL and ISIS, Cohen stressed that some key partners, such as Qatar and Kuwait, aren’t yet pulling their weight.

"I have in the past noted that both Qatar and Kuwait are permissive jurisdictions for terrorist financing," he said after a speech at the Carnegie Endowment for International Peace in Washington on Thursday, Oct. 23. "I think both countries have more work to do."

His criticism contrasted with approval for steps taken by other Persian Gulf states to crack down on the Islamic State’s external donations. "We appreciate the close collaboration and strong steps taken by the Emiratis and the Saudis to combat ISIL financing," Cohen said.

He just returned from a trip to the Persian Gulf, where he pressed countries there to crack down on extremist sympathizers who continue funding Islamist terrorist outfits, despite the U.S. Treasury Department’s designating several high-profile, Qatari-based financiers late last year for supporting terrorism. In September, the Treasury Department labeled a dozen other financial backers of the Islamic State, including a few based in Kuwait, as terrorists.

But the Islamic State, unlike its forerunner al Qaeda in Iraq or other Islamist terrorist groups, has additional sources of financing that make it less reliant on well-heeled donors. As a result, not only is it better funded than nearly any other terrorist group in history, but it is less vulnerable to the Treasury Department’s typical anti-terrorism finance measures, including targeting banks, insurers, and shipping companies.

Kidnappings for ransom have netted the Islamic State $20 million so far this year, Cohen said; extortion brings in "several million dollars a month." The Treasury Department is leading an effort to choke off the different revenue streams, especially black-market sales of oil from fields that the Islamic State has taken over in Iraq and Syria.

Since June, when the Sunni militant group began it rampage through Iraq, it has made about $1 million per day from illicit oil sales, Cohen said. The group controls a number of small oil fields in Syria and Iraq, and it sells both crude oil and refined products to middlemen in Iraqi Kurdistan and Turkey and even to the regime of Syrian President Bashar al-Assad, Cohen said.

That ballpark figure is at the low end of recent outside estimates, which range from $1 million to $3 million per day. In part, that could be a reflection of early U.S. and coalition airstrikes, which disabled a number of mobile oil refineries that the Islamic State used to turn crude into marketable products that its smugglers could carry across nearby borders. A State Department official said on Thursday that the United States is considering military action against pipelines used to carry Islamic State oil, according to the Telegraph, though so far the coalition has avoided strikes on oil fields and large oil installations for fear of causing major environmental damage.

Cohen said airstrikes have "begun to impair" the group’s moneymaking capacity. U.S. Central Command said on Thursday that the latest round of strikes included four attacks on oil-storage tanks in eastern Syria. The International Energy Agency (IEA) said this month that the air campaign had limited the Islamic State’s ability to operate oil fields; although the Islamic State controlled as many as 70,000 daily barrels of oil production this summer, the IEA estimates it now turns out only about 20,000 a day.

Even so, some experts think that Treasury Department officials may still be overestimating the Islamic State’s oil wealth; the already battered oil fields in eastern Syria and northern Iraq have not been adequately maintained under the Islamic State’s stewardship. And black-market sales are heavily discounted compared with regular oil prices.

"With refineries knocked out by the coalition, ISIS is stuck selling crude, and there just aren’t many customers for it," said Matthew Reed, a Middle East specialist at Foreign Reports, an energy consultancy. "Even $1 million a day is questionable after airstrikes and local efforts to crack down" on cross-border smuggling in Turkey and Iraqi Kurdistan, he said.

Cohen acknowledged that local efforts to discourage smuggling, especially in Turkey, are paying dividends. The border area has long been a hotbed of shadowy activity, including smuggling oil and fuel. But the realization that trafficking in stolen oil benefits a terrorist group has changed countries’ approach to behavior they had traditionally tolerated.

"What may have been a willingness to look the other way in the past is something that cannot continue going forward," Cohen said. The United States is redoubling efforts to identify middlemen who deal in black-market oil coming from the Islamic State, and Cohen said the Treasury Department could freeze such individuals out of the global financial system.

The department is looking to blacklist anyone who buys or facilitates the purchase of oil from the Islamic State, no matter how far down the supply chain.

"The middlemen, traders, refiners, transport companies, and anyone else that handles ISIL’s oil should know that we are hard at work identifying them and that we have tools at hand to stop them," Cohen said. He said the Treasury Department’s designations would not only freeze the named person’s assets, but also make it hard for that person to open bank accounts, buy insurance, or obtain licenses.

Although it is difficult to kneecap the Islamic State financially using the Treasury Department’s traditional tool kit, Cohen noted that the group has also taken on vast commitments in Iraq and Syria that severely strain its budget.

"ISIL’s territorial ambitions are a financial burden," Cohen said, since providing services, salaries, and the like to all the people in territory under its control appears beyond the group’s capability. Iraq budgets $2 billion a year to provide for the areas that the Islamic State now controls there. "What this means is that ISIL cannot possibly meet the most basic needs of the people it seeks to rule," he said, vowing to exploit that "vulnerability."

By the same token, however, the Islamic State controls territory with oil fields, agricultural products, and locals ripe for extortion. That means sanctions and airstrikes alone can’t fully cripple the group’s finances.

"Given that ISIL is enriching itself locally, cutting off one key source of funds will require dislodging it from territory in which it operates," Cohen said.

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

 @jtrindle

Trending Now Sponsored Links by Taboola

By Taboola

More from Foreign Policy

By Taboola