27 December 2015
Coalition air strikes targeting the Islamic State group's oil trade are pointless as long as it has other sources of income and regional borders remain porous.
It appears that the so-called Islamic State group (IS, or ISIS/ISIL) is following the tradition of so many Middle Eastern regimes in relying heavily on oil revenues to maintain its oppressive rule. A report by the Financial Times shows that oil remains the number one source of income for the Islamic State group. Revenues from oil production possibly amount to as much as $450 million for the past year alone.
The Islamic State group's heavy reliance on oil has made the production and distribution infrastructue a prime target for the terrorist group's international enemies. To continue fighting its war on multiple fronts, while at the same time trying to build a state in the areas that are already under its control, oil revenues are an indispensable source of income for the Islamic State group.
But, as the FT report points out, the oil trade is just one of multiple revenue streams filling the jihadists' coffers - the combined profits from taxation, extortion and confiscation equals that of the oil trade. Moreover, the trading network that sees the oil transported from its source in Islamic State group-controlled territories unto the global market includes local traders, foreign officials and international companies. Whether these parties knowingly deal in Islamic State group oil or not, it is essential to involve them in any attempt to deprive the group of its oil revenues.
Islamic State group's oil trade
Contrary to the impression one gets when glancing at international media headlines, the jihadists are in fact only minimally involved in the oil trade. The Islamic State group controls the wells and pumps of the oil, but from that point onwards the trade and distribution is largely taken over by middlemen, local traders, smuggler gangs and transnational corporations that, in most cases, have no ideological links with the terror group.
The Islamic State group controls 60-80 percent of the oil reserves in Syria and several key oil fields around Mosul in Iraq. Once the oil is out of the ground, local middlemen arrive at the sites to purchase the crude from the group. These middlemen work either under contract from regional refineries, or they sell the crude to small traders.
Relying on pre-war trade and smuggling networks, the oil is then moved across the region. The oil is consumed in Islamic State-group territory, as well as in parts of Syria and Iraq under regime rebel and government control, including Iraqi Kurdistan (KRG), Jordan, Turkey and Iran. The oil trucks easily cross international borders by bribing border guards, or by refining it slightly so that it can be labeled as local produce in the case of the KRG-Turkey trade.
A large share of the oil is in fact consumed locally, mainly as fuel for vehicles and generators by the approximately five million people living under Islamic State group rule. The terror group controls a few markets inside Syria, where traders from rebel-held territories are also welcome to do business, but most of the small fuel markets throughout Islamic State-controlled areas are run by local entrepreneurs.
The bombing campaign of the U.S.-led coalition - occasionally joined by Russia - against the Islamic State group has been focusing primarily on the extraction and distribution of the oil, rather than on the wells itself. The Islamic State group's reliance on oil revenues was previously underestimated, but renewed efforts to cut the terrorist group off from its financial lifeline have started in October.
The aim is to shut off the oil flow without destroying the entire oil-producing infrastructure. So far this has meant that the Islamic State group vehicles involved in moving the oil, as well as machinery crucial to the extraction process and mobile refineries, have been among the legitimate targets. Local markets and tankers driven by non-Islamic State group middlemen have so far been off limits to the air strikes - save for a few exceptions, with a notable case in mid-November when the U.S. destroyed 116 oil trucks.
The airstrikes appear to be reasonably successful in disrupting the extraction process: in December production fell by 30 percent at the two largest oil fields under Islamic State group control. The question is, however, who is most effected by this loss of income?
According to FT's Erica Solomon most of the oil revenues go "straight to the group's top leaders." At the same time, her claim that the terror organization could have saved up to $1 billion to see it through the next few years indicates that neither the leadership, nor the organization as a whole will suffer from the loss of revenue any time soon.
The people that are most likely to suffer from the disruption of the oil trade are the local Syrians and Iraqis living under Islamic State group rule. Less oil production means higher fuel prices, which can have a devastating effect in those regions where the people are dependent on generators for their electricity provision. Local traders who do most of the distribution are also among the first affected when production drops.
Most importantly, however, is that the Islamic State group will most likely attempt to make up for its loss of oil revenues by more aggressively exploiting its other sources of income: taxation, exploitation and confiscation.
Everybody is involved
Airstrikes aimed at disrupting the oil trade will have an impact on Islamic State group oil revenues, but it will have little effect on the group's abilities to wage war and its state building efforts. More important for an entity like the Islamic State group, which is trying to present itself as a viable and stable alternative to the region's failing states, are its connections to the outside world.
Cars, weapons, heavy machinery, food products, ammunition, electronics, cash - all these are vital bits and parts that are key to the power and control of the Islamic State group but very few are produced locally. They are either smuggled in or looted.
The hundreds of millions of dollars in cash used to pay for the oil isn't produced by the Islamic State group either. It has been brought in by smugglers and traders that have been able to cross in and out of Islamic State group-held territory with little problems over the past year.
Without underpaid border guards and malicious officials, international corporations' greedy CEOs and corrupt politicians who are running countries as if they were their private, profit-oriented companies, the Islamic State group would have long since been isolated and deprived of recruits, cash and arms.
Key allies of the anti-Islamic State group coalition like Turkey and the Kurdistan Regional Government have played important roles in facilitating the caliphate's oil trade. Islamic State group oil enters Turkey mostly via Iraqi Kurdistan, and then enters the global market via a number of ports on Turkey's south coast.
Ever since Turkey shot down a Russian plane that allegedly entered Turkish airspace, Russia has been trying to draw international attention to the connections between Turkey and the Islamic State group. Although a number of these accusations undoubtedly bear some truth in them, Russia's ally Bashar al'Assad also stands accused of brokering deals with the so-called Islamic State group. It seems that everyone is pointing fingers at everyone, while everyone is secretly involved.
As long as the campaign to disrupt the Islamic State group's oil trade is not combined with a serious effort to cut its ties to its regional partners, whether they be individuals, organizations or states, the only ones bound to be hurt are the local people living under the group's control.
The U.S.-Russian resolution that was approved by the UN Security Council on December 17 aimed at excluding the Islamic State group from the international financial system is a step in the right direction. But since the success of this resolution still relies on the cooperation of the very same countries that have thus far failed to take meaningful actions against the terrorist group, the outcome remains to be seen.
Joris Leverink is an Istanbul-based political analyst and writer with an MSc in Political Economy. He is an editor for ROAR Magazine. You can follow him on Twitter via @Le_Frique.