FP’s Situation Report, presented by Lockheed Martin: U.S. effort to bankrupt the Islamic State isn’t working; Ukraine edges closer to NATO; More needed from the U.S. to counter alleged North Korean cyberattack; and much more.

By David Francis with Sabine Muscat

The U.S. effort to bankrupt the Islamic State isn’t working. Washington and its allies are well aware that it would be nearly impossible to defeat the Islamic State without strangling its finances. Airstrikes have lowered the group’s oil revenue to $1 million to $2 million per day. However, Washington has been unable to come up with strategies to cut proceeds from kidnapping and extortion. Details about the inner workings of the group’s finances also remain a mystery.

FP’s Jamila Trindle: “The unprecedented effort to figure out how the Islamic State money machine works and how it can be stopped is led by an international standard-setter called the Financial Action Task Force (FATF). Now, only two months into the investigation, set to wrap up by February, expectations are already dimming. The head of the task force is the first to admit that his organization may not turn over many new leads. FATF President Roger Wilkins said that though his team is still gathering intelligence, it may not be able to put a dollar figure on the Islamic State’s funding streams.” More here.

More on the Islamic State below.

Ukraine edges closer to NATO. Russian President Vladimir Putin has long warned that any efforts by Ukraine to join NATO would significantly escalate the crisis. Now, with the Russian economy reeling, Ukrainian politicians have ignored Moscow’s warnings. Yesterday, they revived efforts to join the alliance — the hardest line Ukraine has taken against Russia to date.

The Washington Post’s Michael Birnbaum: “The move provoked an angry response from Russia, even though NATO shows few signs of accepting Ukraine as a member anytime soon. But this year’s bloody conflict in Ukraine’s east has altered the country’s feelings about the Western alliance. A plurality of Ukrainians now favor joining NATO, a stark change from recent years when just a small fraction did.” More here.

More on Ukraine below.

With Sony set to screen The Interview, more is needed from Washington to counter North Korea. North Korea continues to experience intermittent Internet outages after a blackout many suspect was caused by a cyberattack. American officials denied a role in the outages, but pressure from the administration caused Sony to reverse course on its decision to pull The Interview, the movie showing a fictional assassination of North Korean leader Kim Jong Un. Now, despite terror threats, The Interview will see a limited release on December 25. However, to stop North Korea from cyberattacks in the future, more is needed from the United States.

Writing for Foreign Policy, Paul D. Miller: “[T]he U.S. should launch a propaganda-offensive inside and outside North Korea. It should airdrop radios across the country and broadcast, in Korean, pro-democracy programs and investigative reports on the regime’s crimes.… At the same time, the U.S. should publicly release every damning and embarrassing detail they have about North Korea’s leadership. The Sony Hack exposed thousands of Sony employees to identity theft and embarrassment as private details and emails were released.” More here.

More on North Korea below.

Welcome to Wednesday’s edition of the Situation Report.

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The Situation Report is taking a break for the holidays. We’ll be back in your inbox Monday, December 29.

Who’s Where When Today

Secretary of Defense Chuck Hagel, Acting Deputy Secretary of Defense Robert Work, and Chairman of the Joint Chiefs of Staff Army Gen. Martin E. Dempsey have no public or media events on their schedules.

What’s Moving Markets

Reuters’s Lucia Mutikani on the U.S. economy posting the strongest growth in 11 years: “The reports further set the U.S. economy apart from the rest of the world, where growth is sputtering or activity shrinking.” More here.

The Washington Post’s Matt O’Brien with more on the surging American economy: “The good news is that the economy grew at a 5 percent annual pace in the third quarter this year, revised up from the 3.9 percent that the Commerce Department had previously estimated.” More here.

The Wall Street Journal’s Saumya Vaishampayan on the Dow Jones hitting 18,000: “U.S. stocks have pushed higher in 2014 with help from a robust U.S. economy, healthier-than-expected corporate earnings and expectations that the Federal Reserve will continue to take a go-slow approach to raising interest rates…. Investors have also gravitated toward U.S. stocks amid a slowdown of economic growth overseas, especially in Europe and China.” More here.

Reuters reports British defense contractor BAE Systems wins a $1.2 billion deal to build a new type of armored vehicle for the U.S Army. More here.

Islamic State

The BBC reports the Islamic State has shot down a coalition airplane and claims to have captured the Jordanian pilot. “The Syrian Observatory for Human Rights said the aircraft, believed to be from an Arab state, went down near Raqqa.” More here.

FP’s Christian Caryl on a dark Christmas for Iraqi Christians: “Iraq’s various Christian communities have been hit especially hard. Of the 1 million Christians who lived in Iraq at the start of the war, only about 250,000 remain in the country today.” More here.

Reuters on the FBI warning of a possible Islamic State attack in the United States: “The FBI has warned local authorities of a threat that Islamic State militants would blow up the Memphis & Arkansas Bridge spanning the Mississippi River, an agency spokesman said on Tuesday.” More here.

FP’s David Kenner on the journalist who just got back from the Islamic State: “When Jurgen Todenhofer crossed out of Islamic State-controlled territory on Dec. 16, he accomplished something that no Western journalist had done before him — he had visited the self-declared caliphate, and survived.” More here.

The Guardian’s Martin Chulov on the battle for Aleppo: “After two-and-a-half years of war, the Aleppo at the end of the makeshift road is a wasteland where only gunmen, soldiers and a few desperate civilians now tread. Those who dare do so tentatively, knowing that the defining fight for one of the cradles of civilisation is now imminent.” More here.

Ukraine

The New York Times’ David M. Herszenhorn with more details on Ukraine’s vote: “The Parliament, firmly controlled by a pro-Western majority, voted overwhelmingly, 303 to 8, to rescind a policy of ‘nonalignment’ and to instead pursue closer military and strategic ties with the West.” More here.

ITAR-TASS on Russia’s NATO envoy warning of an increase in tensions between Russia and Europe: “An attempt has been made to position Ukraine as ‘a frontline state’ in need of protection, Russia’s permanent representative to NATO Alexander Grushko said Tuesday in comment on the decision by Ukraine’s parliament, the Verkhovna Rada, to give up the country’s non-aligned status.” More here.

North Korea

The New York Times’ David E. Sanger on the limits of cyberattacks: “The counterstrike, if there is one, is equally hard to discern and often unsatisfying. The damage is largely economic and psychological.” More here.

FP’s David Francis with details on The Interview: “The film’s release will allow Sony to recoup some of the $44 million it spent to make the film, but it’s still likely to be a steep loss for the studio. It originally planned to screen The Interview on 2,000 to 3,000 screens. Now, it will be shown on a few hundred.” More here.

Bloomberg’s Josh Rogin and Eli Lake on North Korea’s nuclear program: “While the world’s attention focuses on North Korea’s cyberwar with Sony, the Hermit Kingdom is rapidly increasing its stockpile of nuclear weapons material, with little real pushback from the United States.” More here.

Pakistan

Time magazine’s Omar Waraich on Pakistan’s change of strategy against the Taliban: “The Pakistani leadership is finally taking a more clear-eyed view of the militant menace. They aim to destroy not only the Taliban, but, Defense Minister Asif told me, extremism altogether.” More here.

Russia

Stars and Stripes’ John Vandiver on a possibly dangerous Putin: “The question now vexing security analysts is whether Russia’s economic crisis will force Putin away from the type of aggressive moves carried out in Ukraine this year or push him into a corner from which he could lash out in unexpected ways to protect his power base.” More here.

Bloomberg’s Olga Tanas, Anna Andrianova, and Ye Xie on Russia’s credit rating on the verge of junk: “There’s at least a 50 percent chance that Russia will be lowered to junk within 90 days, S&P said in a statement as it put the country on negative credit watch. Moody’s Investors Service and Fitch Ratings rank Russia one step higher than S&P, which lowered the rating one level in April to BBB.” More here.

Israel

The New York Times’ Stanley Reed on Israel and natural gas: “Israel’s fledgling natural gas industry was rattled on Tuesday over a threat by the country’s antitrust regulator to break an American-Israeli group’s hold on the country’s gas resources.” More here.

Sydney

Writing for Foreign Policy, J.M. Berger on lone wolf attackers: “When a gunman took hostages and displayed an Islamic flag at a coffee shop in the heart of Sydney last week, supporters of the Islamic State (IS) online were slow to cheer.” More here.

The Herald Sun’s Ellen Whinnett on new warnings in Australia: “Australia’s spy chiefs have detected an increased level of ‘chatter’ among terrorists, sparking a grim pre-Christmas security warning from Prime Minister Tony Abbott.” More here.

The Sydney Morning Herald’s Megan Levy and Emma Partridge on a new arrest: “A man has been charged after he allegedly was found with documents designed to facilitate a terrorist attack against potential government targets in Sydney, police say.” More here.

Cuba

Writing for Foreign Policy, William Inboden on the Cuba deal: “In its negotiations with Cuba, the Obama administration made two fundamental mistakes.” More here.

Afghanistan

The BBC on Afghanistan and Pakistan: “The military chiefs of Afghanistan and Pakistan have agreed to coordinate military operations along their border.” More here.

TOLOnews’s Shakeela Ibrahimkhail on NATO’s frustration with the delays in forming a cabinet in Afghanistan: “NATO’s civilian envoy in Kabul, Maurits Jochems, told TOLOnews that while forming a qualified, competent cabinet is a time-consuming task, the nearly four months of delay for the national unity government’s cabinet has disappointed the international community.” More here.

Osama bin Laden

The Daily Beast’s Shane Harris on a new investigation: “The former Navy SEAL who ignited a controversy when he publicly claimed credit for killing Osama bin Laden is under investigation for possibly leaking official secrets.” More here.

Iran

Writing for Foreign Policy, Raymond Tanter on Iran and terror tunnels: Iran “is accelerating support for terror tunnels in Gaza aimed under Israel; rockets and missiles pointed toward Israel; as well as tunnels in Iran designed to hide cheating on nuclear obligations that could scuttle negotiations in Vienna.” More here.

Libya

Reuters’s Stephanie Nebehay says the U.N. is reporting hundreds of civilian deaths and possible war crimes amid continued fighting in Libya. More here.

Revolving Door

Defense News’s Pierre Tran: “Thales has appointed Henri Proglio as chairman and Patrice Caine as chief executive, with the appointments to be confirmed at a shareholders meeting in February, the defense electronics company said Tuesday.” More here.

And finally, happy holidays! The Associated Press’s Dan Elliott on NORAD and Santa: “Volunteers at the North American Aerospace Defense Command are getting ready to monitor Santa Claus as he makes his storybook Christmas Eve flight.” More here.