The Cable

Pentagon: Islamic State Is Hurting, but ‘Nobody Is Saying They’re out of Schlitz’

The militant group is starting to feel a pinch on its finances.

Peshmerga fighters inspect the remains of a car, bearing an image of the trademark jihadist flag, which belonged to Islamic State (IS) militants after it was targeted by an American air strike in the village of Baqufa, north of Mosul, on August 18,2014. Kurdish peshmerga fighters backed by federal forces and US warplanes pressed a counter-offensive Monday against jihadists after retaking Iraq's largest dam, as the United States and Britain stepped up their military involvement. AFP PHOTO/AHMAD AL-RUBAYE (Photo credit should read AHMAD AL-RUBAYE/AFP/Getty Images)

The Islamic State, which is considered to be the world’s richest terrorist group, is starting to feel the squeeze on its two biggest sources of revenue: black-market oil sales and stolen assets, according to the Pentagon.

Money from oil is down thanks to U.S.-led coalition airstrikes, which have hit Islamic State-held oil refineries and fuel convoys. But the U.S. military has not been able to wipe out the militant group’s oil revenues completely, and the Pentagon acknowledged Friday that the group is still making money in this area.

Before airstrikes began this summer, the Islamic State was believed to be producing more than 80,000 barrels a day. Because it was selling the oil on the black market, the group took a major discount compared to global market prices, but experts still estimated it was collecting between an estimated $1 million and $3 million a day. Now, thanks to airstrikes and falling oil prices, those revenues have significantly diminished, according to a new report from the Paris-based Financial Action Task Force.

“By and large though, this is a group that gets the largest source of revenue from stolen assets, particularly banks,” Pentagon Press Secretary Rear Adm. John Kirby told reporters.

The Islamic State needs to keep seizing new, populated territory if it’s going replace its other declining revenue sources, he said. “That’s where the money is.”

Starting about a year ago, the Islamic State steamrolled into Iraq, violently taking towns and eventually seizing Mosul, Iraq’s second largest city, in June. When it acquired the town, it also looted the city’s banks.

Lately though, the group’s movement is more restricted as big vehicle convoys are sure to be targeted by airstrikes. This is starting to take a hit on their finances.

“They aren’t able to grab new ground, so they aren’t able to rob more banks and steal more cash,” Kirby said. Still, “nobody is saying they are out of Schlitz right now. They still have resources at their disposal, but we know they’re feeling the pinch.”

The Islamic State is also known to collect millions of dollars from ransom payments, the sales of smuggled antiquities, and contributions from wealthy donors in Gulf states. Its assets are estimated to be between $1.3 billion and $2 billion, according to the Soufan Group.

The group also has enormous financial responsibilities, however. It has to pay its thousands of fighters, provide benefits to the families of fighters who have died and maintain its equipment, in addition to running a so-called state that includes hospitals, schools, and even post offices.

While it’s difficult to get a clear picture of the group’s financing, people living under its control say they see fines and taxes going up, as well as Islamic State fighters getting paid less, according to a report in the Financial Times. Where once it used to flog smokers, now it fines them $65.

The Pentagon has also touted the number and types of weapons it’s destroyed through airstrikes, noting the Islamic State, or ISIL, has little way to replenish them. The latest list, released in early February by U.S. Central Command, had 4,817 destroyed items on it, including 62 tanks, 693 logistics buildings, and 39 boats.

The problem with these statistics is there is little context provided with them. For example, how many tanks does the Islamic State own? Is 62 a majority or a drop in the bucket?

Following the list’s release, Kirby told reporters, “The way I would look at a list like that is that those are things that ISIL no longer has. They’re gone. They’re destroyed. They can’t use them anymore. And this is an enemy that has a limited ability to reconstitute strength, at least material strength.”

At the same time, the Islamic State is also starting to make inroads into places like Libya, a country awash with heavy weapons and rich in oil resources that could be stolen. But experts have said it’s not going to be as easy for the Islamic State to replicate its successes there.


Kate Brannen is deputy managing editor at Just Security and a contributor to Foreign Policy, where she previously worked as a senior reporter. Twitter: @K8brannen

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