While such things are virtually impossible to verify due to the difficulty of getting “inside the caliphate” so to speak, word on the jihadist circuit is that ISIS is running short on money.
Successive rounds of Russian strikes on crude tankers and on the group’s oil infrastructure have crippled the illicit oil trade and tax revenue has also fallen in the wake of Baghdad’s decision to stop paying the salaries of public sector workers in Islamic State-held Mosul and other militant strongholds. Typically, Baghdadi would tax those earnings by 20% to 50%, creating a key revenue stream for the caliphate.
Additionally, ISIS is now reportedly beginning to release captives for as little as $500 and has moved to accept only US dollars as payment for utility bills, a policy we said is somewhat ironic given that it was last August when the group released a propaganda video promising to bring back the gold dinar to replace “a worthless “piece of paper called the Federal Reserve dollar note.”
But perhaps the surest sign yet that the self-styled caliphate is running into financial trouble comes from several on-the-ground sources who told AP last week that ISIS is no longer giving away free Snickers bars and Gatorade to its fighters.
Now, we learn that Islamic State has resorted to a tried and true method of generating “a little” extra profits here and there: currency manipulation.
“The group earns dollars by selling basic commodities produced in factories under its control to local distributors, but pays monthly salaries in dinars to thousands of fighters and public employees,” currency traders in Mosul told Reuters. “It earns profits of up to 20 percent under preferential currency rates it imposed last month that strengthen the dollar when exchanged for smaller denominations of dinars.”
It’s a simple concept. ISIS takes in dollars, pays salaries in dinars, and calls the exchange rate whatever Bakr al-Baghdadi wants it to be.
“At the official rate set by the Iraqi government, $100 is currently valued at around 118,000 dinars,” Reuters goes on to note. “In Mosul, the same amount costs 127,500 dinars when purchased with 25,000-dinar notes, the largest bill in circulation, [and] the rate rise to 155,000 dinars when purchased with 250-dinar notes - the smallest bill available.”
Presto: magic profits at the expense of the populace.
There’s no way around this for Iraqis living under ISIS rule. “Nobody would risk [setting up parallel trading],” traders told Reuters.
This underscores the extent to which simply bombing cash centers and vaporizing currency won't be sufficient to completely cripple the group's finances. ISIS has capitve populations in two large urban centers - Mosul and Raqqa. Those populations can be exploited and extorted to plug the gaps and the group is pushing to capture key oil assets in Libya which they hope will help to replace what's been lost to the Russians in Syria.
Of course the real irony here is that ISIS has learned that when it comes to illicit gains, nothing beats white collar crime. Sure you can rape and pillage and even set out to establish your very own oil trafficking routes, but when it comes to racking up effortless gains, nothing works like rigging rates, a concept those "other" international criminal organizations (banks) figured out long ago.
We're reminded of the rather unfortunate incident that unfolded last year at HSBC when a group of bankers dressed up like Jihadi John and staged a mock execution. It appears the line between investment banks and terrorist organizations is getting more blurry by the day...