A few days ago when we commented [10], somewhat in jest, on the seemingly impressive strategic planning behind the Islamic State jihadists becoming a "commodities trading powerhouse" (when it was revealed that ISIS had sold the grain it had stolen from the Itaqi government back to the government), we described just how well-versed in the ways of the modern world ISIS was: "from quickly taking control of (i.e., robbing) a central bank [11], to capturing the latest and greatest in US military equipment [12], to staging an amazing blitz-campaign that has resulted in the creation of a caliphate and captured the bulk of northern Iraq and a third of Syria including all of the former country's oil fields [13], to even having glossy year end annual reports [14], one would almost be forgiven in assuming that some vastly more strategic minds are behind what on paper at least would be a far more disorganized force."
Now, thanks to Bloomberg [15]we can quantify this particular strategy, and put top-line numbers with the ISIS faces, so to speak: "The Islamic State, which now controls an area of Iraq and Syria larger than the U.K., may be raising more than $2 million dollars a day in revenue from oil sales, extortion, taxes and smuggling, according to U.S. intelligence officials and anti-terrorism finance experts."
In other words, a well-greased government machine, and not only that but one which has an infinitely greater net worth than the US, because with a net worth of some $2 billion [16] (and rising by $2 million daily), the Islamic State has a "worth" of some $17+ trillion more than the United States, which instead of equity is funded entirely through debt, and ever more debt, thanks to the ongoing devaluation of the world's reserve currency.
Some more on how ISIS became the world's first self-contained, and funded, jihadist entity:
Unlike other extremist groups’ reliance on foreign donations that can be squeezed by sanctions, diplomacy and law enforcement, the Islamic State’s predominantly local revenue stream poses a unique challenge to governments seeking to halt its advance and undermine its ability to launch terrorist attacks that in time might be aimed at the U.S. and Europe.
“The Islamic State is probably the wealthiest terrorist group we’ve ever known,” said Matthew Levitt, a former U.S. Treasury terrorism and financial intelligence official who now is director of the counterterrorism and intelligence program at the Washington Institute for Near East Policy. “They’re not as integrated with the international financial system, and therefore not as vulnerable” to sanctions, anti-money laundering laws and banking regulations.
This is bad news for banks such as HSBC, which will be unable to launder "donations" to the Islamic State, which does not need such services:
There are few reliable financial figures for the groups. A UN report estimated the Taliban raised about $400 million in 2011 through local taxes, donations, and extortion directed at drug smugglers, mobile phone operators and aid projects. The Afghan Taliban smuggle opium, minerals and timber; Colombia’s Marxist FARC rebels export cocaine; and Abu Sayyaf in the Philippines, as well as the al-Qaeda offshoots in Yemen and North Africa, have raised millions by taking hostages for ransom.
The money that the Islamic State group receives from outside donors pales in comparison to its income from extortion, kidnapping, robbery, oil smuggling and the like, said a U.S. intelligence official who spoke on the condition of anonymity to discuss classified information.
In short, ISIS would have simply been the latest entrant of the Petrodollar closed loop, if only it had somewhat better diplomatic relations with the US. As for the currency of choice, so far ISIS does not appear to have a particular predisposition toward dealing in greenbacks, which means that in the coming months one should expect strategic "scouting" missions by both Russia and China, deep below the radar of course, in the shadowy alleyways of Reqqa.
The revenue streams available to the Islamic State through its control of a vast oil-rich territory and access to local taxes dwarfs the income of other groups.
With its control of seven oil fields and two refineries in northern Iraq, and six out of 10 oil fields in eastern Syria, the terror group is selling crude at between $25 and $60 a barrel, Luay al-Khatteeb, a visiting fellow at the Brookings Institution’s Doha Center in Qatar, said in a telephone interview. That reflects a discount from world market prices due to the risk faced by middlemen smuggling and brokering the oil. By comparison, Brent crude for October settlement fell 1 cent today to $102.28 a barrel on the London-based ICE Futures Europe exchange.
Nations such as Saudi Arabia and the UAE are hardly enjoying these dumping rates, but one person who will be truly displeased by a marginal seller who gives as much as a 75% discount will be none other than Vladimir Putin, for whom as is widely known, the stock market may go up and go down, but one thing matters critically: to keep the price of Brent as high as possible. And with ISIS impairing the supply and demand curves, one wonders how long before the Kremlin decides to make a move of some sort.
Based on al-Khatteeb’s interviews with contacts in Iraq, the extremist group controls Iraqi fields with a production capacity of 80,000 barrels a day and now is extracting about half that amount. The Islamic State, he said, is likely earning some $2 million a day from crude sales, paid in cash or bartered goods as the oil crosses into the Kurdistan region of Iraq, Syria, Turkey and Jordan.
One important financial battlefield for the Islamic State, said the U.S. intelligence official, is the Baiji refinery in northern Iraq, which produces roughly a third of the country’s total oil output. It’s been shut down since an attack by extremists in June, and remains the scene of heavy fighting between extremists and government forces.
So what about the use of funds from the oil sales: for now these appears to be going to “keep the war machine running, to maintain institutions.” in the territory the Islamic State has seized from the Iraqi and Syrian governments, and “the rest of the cash is going to recruiting,” al-Khatteeb said.
Robin Mills of Dubai-based Manaar Energy Consulting and Project Management, said in a telephone interview that authorities have begun cracking down on oil smuggling into the Kurdish region, meaning more of the crude will be used locally by the Islamic State and oil revenues will start to shrink.
A second source of revenue for the Islamic State is taxing residents of the densely-populated cities such as Mosul in the territory it controls, which is roughly the size of Wyoming, and controlling granaries and other critical resources. Criminal activity from bank and jewelry store robberies, extortion, smuggling and kidnapping for ransom is also an important source of revenue.
Another source of profit: the group may have raised $10 million or more in recent years from ransom payments alone, said one U.S. official.
While the U.S. military launches airstrikes in Iraq against militants and their weaponry -- much of it American hardware abandoned by Iraqi forces -- other agencies are seeking ways to deplete the Islamic State’s coffers.
But the punchline, and where one can be certain the western banks are involved, is the following:
“It’s not totally clear where they’re storing all this money, but there may be ways to actually go after it,” he said. Whether or not it’s in a bank account, “you’ve got to put it somewhere.”
Uhm, just braintsotmring here, but has anyone thought to check HSBC and JPM's "private client" services database? Like we said, just a thought: clearly the world's largest banks would never stoop so low as to fund and launder money for the world's most barbaric and feared terrorist organizations.
