The Economics Of ISIS: How A Terrorist Group Gets Enough Funding To Act Like A State

by John Haltiwanger

The Islamic State of Iraq and the Levant (ISIS), a terrorist organization that has now established a de facto state in the Middle East, has taken over a large territory across Syria and Iraq.

A large part of the reason it has been so successful is due to consistent sources of revenue.

Much of the early funding that ISIS received came from other states, some of them US allies. For years, ISIS was funded by wealthy donors in Kuwait, Qatar and Saudi Arabia. All three of which are US allies.

This news is quite infuriating. Accordingly, many have taken to Twitter to bash early ISIS funders:

Qatar? Qatar are funding ISIS and they still get the World Cup. God forbid anything should stop the football eh? — Emma Kennedy (@EmmaKennedy) August 10, 2014
  ISIS funded by Kuwait, Saudi Arabia and Qatar, but we still support these dictatorships and even give them world cup — Ian Robinson (@eyeswideshut75) August 10, 2014
Qataris and Saudi funding ISIS. Same every time. Al Qaeda in the past. And still we'll deal with both. — Cognoscentinovo FYD (@cognoscentinovo) August 11, 2014

Why would US allies fund terrorism? It's a valid question.

These countries wanted to see a group that was inherently anti-Iran (anti-Shia) succeed. ISIS does not recognize Shia as Muslim, thus Iran is a natural enemy given its population is majority Shia.

Gulf states also supported groups like al-Nusrah (Syria's al-Qaeda) and ISIS in Syria, because they wanted to protect the marginalized Sunni population from Assad's regime.

Thus, ISIS got its early funding from states, but would eventually exhibit quite an entrepreneurial spirit in terms of financing as it continued to grow. This is not to say that ISIS should be commended, but that it was quite economically savvy in many of its eventual methods of gaining funding.

It has combined elements of practical governance, as well as crime and extortion, in order to increase its revenue. Thus, it no longer depends on foreign aid to survive, unlike many other terrorist organizations. In essence, ISIS is relatively self-sufficient.

Once ISIS acquired substantial territory in Syria, for example, it began selling electricity to the government from captured power plants. Therefore, while extremism and religious fundamentalism is what drives ISIS, it also understands the important of resources and energy.

Likewise, ISIS has taken over a number of oil fields in Syria.

It has also taken over granaries, and recently seized Iraq's largest dam. This is a huge gain for ISIS, as it will have more control over water and power resources, and access to a river that runs through Baghdad.

As Max Fisher of Vox puts it:

Soak that in: a terrorist group that actively seeks the Syrian government's destruction, and is so extreme that al-Qaeda rejected it, has become so powerful that the Syrian government has to buy electricity from them.

Moreover, when it comes down to it, many states engage in very similar behavior, such as Russia's energy chokehold over much of Eastern Europe. Again, ISIS shouldn't be lauded for this, but it's important to remember that many powerful governments around the world are also corrupt and do exploit people.

Indeed, ISIS might be a terrorist organization, but it has established a de facto state that behaves very much like many recognized states around the world. It collects taxes, and sells electricity and oil.

Much like a mafia, the group takes a cut from all of the commercial and humanitarian operations in its zone of control. In essence, it's running a racket. ISIS is the terrorist version of the Cosa Nostra, only the mob doesn't actively attempt to commit atrocities. 

According to the Council on Foreign Relations:

Even prior to ISIS's takeover of Mosul, Iraq's second-largest city, in June 2014, the group extorted taxes from businesses small and large, netting upwards of $8 million a month, according to some estimates.

Furthermore, it is reported that ISIS took millions of dollars from banks in Mosul when it took the city. Although, the actual amount is still disputed.

Hence, ISIS has been extremely creative in terms of the way it has funded itself. This has led directly to the success it has witnessed in terms of recruiting, as it has been able to pay its soldiers quite well.

If there is any of hope of defeating ISIS, its access to resources must be limited and eventually eliminated, as these factors are directly funding the chaos it's creating across the region at present.