Financial Futures of the Islamic State of Iraq and the Levant: Findings from a rand corporation Workshop

Introduction    5

rately reflects what transpired within the workshop itself. In Chapter Two, we present an overview 

of ISIL finances. Chapter Three then presents major points of agreement and disagreement in 

workshop discussions, and Chapter Four presents implications for counter-ISIL actions. Appen-

dix A provides a detailed analysis of the workshop discussions for each scenario. Appendix B 

reproduces the financial backgrounder exactly as it was provided to all workshop participants.

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7

CHAPTER TWO

ISIL’s Finances

On October 17, 2016, troops from federal Iraq and the Kurdistan Region of Iraq, backed by 

less-formal fighting forces and a U.S.-led multinational coalition, started their military cam-

paign to reconquer ISIL-held Mosul, Iraq’s second-largest city. Winning this battle could cause 

great damage to ISIL not just practically, but symbolically as well; in July 2014, ISIL leader 

Abu Bakr al-Baghdadi used a mosque in Mosul to call on all Muslims to obey him as leader 

of a restored caliphate.

1

 

Shortly after ISIL stormed onto the world stage in summer 2014, overrunning major 

cities in western and northern Iraq and taking over Mosul, the group’s actions and achieve-

ments were characterized by superlatives and hyperbole. However, the claim that ISIL was the 

richest terrorist group in the world after its seizure of resources throughout Iraq—including at 

least $500 million from various banks in northern and western Iraq—was not wholly inaccu-

rate. Even as of October 2016, some estimates stated that ISIL was raising $4 million in taxes 

per month in Mosul.

2

 

Today, there are concerted efforts to counter ISIL financial activity. U.S. government 

agencies, the multilateral Financial Action Task Force, and the multinational Counter-ISIL 

Finance Group are among several organizations responsible for preventing ISIL from raising, 

transferring, and spending money in support of its war aims. 

Understanding ISIL finances is important because the group’s revenues allow it to con-

duct military operations to defend its borders and grab new territory, security operations to 

quash opposition, media operations to attract new followers, and state-like activities to provide 

at least some services to the population and present an image of a functioning state. Previous 

research has shown that the pace of military operations can be tied to expenditure patterns.

3

 

These multiple counter-ISIL finance efforts lead to an important question: How can poli-

cymakers know what effects degrading ISIL finances will have under a variety of scenarios? In 

order to predict these effects, we must understand ISIL finances. 

This chapter presents an overview of ISIL finances through summer 2016, with some 

modest updates to take account of more recent events. It is a slightly revised version of a back-

1 

Hannah Strange, “Islamic State Leader Abu Bakr al-Baghdadi Addresses Muslims in Mosul,” The Telegraph,  

July 5, 2014.

2  

Vivian Salama, “As Territory Shrinks, ISIS Looks for New Money Sources,” Seattle Times, October 19, 2016.

3  

Benjamin Bahney, Howard J. Shatz, Carroll Ganier, Renny McPherson, and Barbara Sude, with Sara Beth Elson and 

Ghassan Schbley, An Economic Analysis of the Financial Records of al-Qa’ida in Iraq, MG-1026-OSD, Santa Monica, Calif.: 

RAND Corporation, 2010.

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8    Financial Futures of the Islamic State of Iraq and the Levant

ground memo sent to all workshop participants in advance of the workshop (the actual back-

ground memo is reproduced verbatim in Appendix B).

How ISIL Makes Its Money

ISIL’s ability to earn vast sums of income from numerous revenue streams has contributed to its 

successful financing. Two sources of revenue have provided ISIL with the lion’s share of its war 

chest: oil and “taxation” (the latter includes what we would consider extortion). ISIL’s overall 

2015 revenues have been estimated to range from $1 billion to $2.4 billion.

4

Oil 

A significant portion of the money raised by ISIL comes from oil. The group captured key oil-

fields and refineries in northeastern Syria and northern Iraq between June 2014 and September 

2014, and it also controls key roads and other centers of commerce.

5

 In mid-2016, ISIL still 

controlled approximately 60 percent of the oil wells in Syria and 5 percent of the oil wells in 

Iraq.

6

 ISIL sells oil, oil products, and gas to a range of buyers, including dealers in Syria and 

Iraq, who resell to the local market and the Assad regime.

7

 ISIL derives most of its oil revenue 

from local sales, which are taxed multiple times along the supply chain from oilfield to refinery 

to local markets. Estimates of ISIL oil revenue from late spring 2016 ranged from $250 mil-

lion per year to nearly $365 million per year.

8

 These revenues are estimated to have declined, 

although without specific dollar figures being cited.

9

 The decline has been especially steep in 

Iraq; as of September 2016, ISIL reportedly no longer controlled any oil wells there at all.

10

Taxation and Extortion

ISIL extorts between 2.5 and 20 percent of revenue from businesses in its territories and oper-

ates other “mafia-style” rackets that help the group earn money. These taxes have included 

fines collected by ISIL morality police.

11

 ISIL couches its extortion-related activities in terms 

of zakat, the traditional Muslim tax on capital or wealth, and jizya, which is traditionally a tax 

4  

Daniel L. Glaser, testimony before the House Committee on Foreign Affairs Subcommittee on Terrorism, Nonpro-

liferation, and Trade and House Committee on Armed Services Subcommittee on Emerging Threats and Capabilities,  

June 9, 2016b; Center for the Analysis of Terrorism, ISIS Financing 2015, Paris, May 2016.

5  

Tom Keatinge, “How the Islamic State Sustains Itself: The Importance of the War Economy in Syria and Iraq,” RUSI 

Analysis, August 29, 2014b.

6  

Joby Warrick and Liz Sly, “U.S.-Led Strikes Putting a Financial Squeeze on the Islamic State,” Washington Post, April 2, 

2016.

7  

Daniel L. Glaser, remarks delivered at Chatham House, London, February 8, 2016a; Jay Solomon and Benoit Faucon, 

“An Energy Mogul Becomes Entangled with Islamic State,” Wall Street Journal, May 8, 2016.

8  

Yeganeh Torbati, “Islamic State Yearly Oil Revenue Halved to $250 million: U.S. Official,” Reuters, May 11, 2016; 

Benoit Faucon and Margaret Coker, “The Rise and Deadly Fall of Islamic State’s Oil Tycoon,” Wall Street Journal, April 24, 

2016. 

9  

Loaa Adel, “ISIS Revenues from Smuggled Oil Decline After Sharqat Liberation,” Iraqi News, September 24, 2016.

10  

“ISIS No Longer Controls Any Iraqi Oil,” Rudaw, September 27, 2016.

11  

Patrick B. Johnston, “Islamic State’s Money Problems,” USA Today, March 4, 2016.

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