Thursday, October 23, 2014

Global Ipact: The Increasing Magnitude of the Islamic State (IS)

According to Yahoo News, the US has ramped up a campaign to reportedly squeeze IS' capacity to amass millions and perhaps even billions of dollars, an ever-increasing net-worth since mid-June 2014, rendering the group a much greater return on investment (ROI) than even al-Qaeda. 

IS has amassed a fortune through the sale of smuggled Iraqi oil, hostage-taking for ransom, extortion and crime in its sphere of influence. 

“With the important exception of some state-sponsored terrorist organizations, ISIL is probably the best-funded terrorist organization we have confronted,” Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen said on Thursday (October 23) in a speech to a Washington,DC think tank. 

At a subsequent briefing at the White House, Cohen declined to provide an estimate of the group’s net worth today. Perhaps even the White House may not have an accurate figure.

Rough estimates suggest that IS has racked up at least $1 million a day from smuggled oil, Cohen said at the Carnegie Endowment for International Peace. He declined to say how much the airstrikes, which began on September 23, have impacted on the group.

The oil operation, which has drawn the most scrutiny, relies on long-standing smuggling networks operating in oil-rich parts of Iraq now under IS control. IS extracts the petroleum and sells it to smugglers, some of whom use “relatively sizeable tankers” to get it onto the black market.

At the official world market price of about $100 per barrel, IS at its peak would have been generating approximately 10,000 barrels. Cohen said IS was selling “at substantially discounted prices,” the quantity was likely much greater.

Cohen said IS sold oil to middlemen, including some from Turkey. It also sold to Kurds in Iraq, who re-sold it to Turkey. Even Syrian strongman Bashar al-Assad, whom IS aims to overthrow, arranged to buy oil from the group, he said.

“At some point, that oil is acquired by someone who operates in the legitimate economy and who makes use of the financial system. He has a bank account. His business may be financed, his trucks may be insured, his facilities may be licensed,” Cohen said. “All that makes IS oil facilitators vulnerable.”

IS has also made a fortune from kidnappings for ransom: an estimated $20 million in 2014.

Official US and UK policy forbids paying ransom on the assumption that doing so encourages future abductions. 

Yet, a large number of European countries, are really not inhibited by such policies, as long as they get their citizens back.

COMMENT: The down-side of IS is that Iraq and Syria both are legitimate governments and as such, have billions of Iraqi dinars (1,000 dinars = $6.13) and Syrian pounds (1,000 pounds = $ 0.84), which aren't particularly valuable on the international market, although presumably IS has the resources and skill-sets to sell either currency on the world market.

“The president has, on a number of occasions, made the case to other world leaders about the benefits of the position that’s taken by the United States,” White House press secretary Josh Earnest told reporters on Thursday. “As painful as that policy decision is, it is clearly in the best interests of the global community.”

IS’s third-largest source of revenue has been extortion, plunder and crime in the vast stretch of territory it controls in Syria and Iraq, according to Cohen, who placed the revenue at “several million dollars per month.”

IS fighters demand money from business owners and travelers, sometimes reportedly “going home to home, business to business, demanding cash at gunpoint,” he said.

“Make no mistake: This is not taxation in return for services or even for real protection,” Cohen said. “The money IS pilfers is being exchanged not for a guarantee of safety, but for the temporary absence of harm.”

IS has also robbed banks, looted antiquities, and sold women and girls as sex slaves, Cohen charged.

It also aims to win over the hearts and minds of the local populace by providing services like water or electricity, and “that is expensive,” Cohen said.

Planned Iraqi government spending this year for the areas now under IS control “was well over $2 billion,” he noted.

“I don’t mean to suggest that IS is intending to deliver anything like the services the Iraqi government was intending to deliver, but that gives you an idea of sort of the scale of the expenses,” Cohen said.

So what is IS' preferred currency as it amasses and spends wealth? Like most of the economies around the world, the US dollar reigns. That withstanding, IS does have access to billions of Iraqi dinars and Syrian pounds.

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