Oil, tax and theft: the dubious economics behind ISIS

Islamic State as an economy

Already labelled “the best funded terrorist organisation of all time”, ISIS has prospered so much financially that it can almost be thought of as an economy in its own right. Since its creation in 1999, the enrolment of 20,000 jihadists from Asia, Africa and Europe has been paramount in keeping the organisation alive, along with stockpiles of oil in Iraq, and various other dubious activities which have bolstered its financial success. Yet will ISIS be able to maintain this level of income in years to come?

While readily available supplies of oil remain its most profitable resource (which according to recent studies represents 43% of annual income), ISIS also ruthlessly exploits religious beliefs to fulfil its economic objectives. It effectively hijacks the Islamic ritual, ‘Zakat’ where religious members pay 2.5% of their wealth to the state to help those in need. Those donations now fund the terrorist organisation’s economic activity – in fact, ISIS imposes a mandatory 50% surcharge on all goods and services, which it spends on acquiring weapons and training new recruits.  ISIS coldly employs a small army of tax collectors, who levy extortionate rates on those who do not pay up quickly and willingly, a cynical tactic to secure maximum revenue.

Neglect of the welfare state

With its monthly income topping $80 million, it seems that the Islamic State’s vision of a ‘caliphate’ is within their sights, at least in Syria. Yet viewed in purely economic terms ISIS is lacking in its ability to allocate resources efficiently. In the words of Tom Keatinge, a financial researcher, “As a welfare state ISIS is failing” because it neglects its responsibilities as a central authority. Although soldiers are paid an above-average income, ISIS falls short of providing public services such as rubbish collection, mobile networks, and in some cases, electricity. This misallocation of resources directly contrasts to the promise made by ISIS to feed its population – clearly, it is unsuccessful in living up to its self-proclaimed title of a ‘state’.

Questionable donations

Another problem for the organisation is that a large proportion of its income relies on looting, sales of antique historical items, and illegal sales of drugs. In the long run, to maintain this source of income, ISIS will become increasingly dependent on constant territorial expansion to seize money and valuable items that can be exchanged for large sums on black markets.

Donations from governments and wealthy families in surrounding countries such as Saudi Arabia, which bring in upwards of $40 million annually, are also not sustainable. Despite its efforts to shift the theme of propaganda from violence towards visions of a utopian ‘caliphate’, the organisation’s true motives are becoming universally known throughout the world. In years to come, the withdrawal of donations will play a significant part in leading to ISIS’s failure as an economy.

An uncertain future

Given these shortcomings, ‘economy’ may be too ambitious a term to describe the organisation – as Amaury Hoymans writes on his blog, “ISIS cannot be treated as a State but as a powerful mafia”. With no immediate change in its policies, such as the lack of provision of a welfare state, the power of ISIS as an economic agent will decrease as its revenue falls, rendering its future uncertain.

Contributed by Greg Tucker, Economics Editor

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