Inside the economic war against the Islamic State

Smoke rises during clashes between Peshmerga forces and Islamic State militants in the town of Bashiqa, east of Mosul, during an operation to attack Islamic State militants in Mosul, Iraq, November 7, 2016. REUTERS/Azad Lashkari

 

The Islamic State starts the new year with a drastically depleted bank account, counterterrorism officials say, following months of intensified efforts to deprive the Islamists of oil profits and other revenue used to finance military operations and terrorist attacks abroad.

Coalition aircraft in the past 15 months have destroyed more than 1,200 tanker trucks — including 168 vehicles struck in a single air raid in Syria in early December — while also using new weapons and tactics to inflict lasting damage on the terrorists’ remaining oil fields, U.S. and Middle Eastern officials say.

The military strikes are being paired with new measures intended to shut down financial networks used by the Islamic State to procure supplies and pay its fighters, the officials say. Two weeks ago, the U.S. and Iraqi governments announced the first coordinated effort to punish Iraqi and Syrian financial services companies used by the terrorists to conduct business.

The campaign has slashed profits from oil sales, traditionally the biggest revenue source for the Islamic State, U.S. officials say, and deepened the economic pain for a terrorist organization that until recently was regarded as the world’s wealthiest. One sign of the financial strain, the officials say, is a shrinking payroll: After cutting salaries by 50 percent a few months ago, the Islamic State now appears to be struggling to pay its workers and fighters at all.

“We are destroying ISIL’s economic base,” Brett McGurk, the Obama administration’s special envoy to the 67-nation coalition arrayed against the Islamic State, said at a news briefing recently, using one of the common acronyms for the militants. Just a year ago, the militants were luring foreign fighters with promises of generous paychecks, but today “that is not happening,” he said.

“Their fighters are not getting paid,” McGurk said, “and we have multiple indications of that.”

Coalition planes have been bombing the group’s oil fields and tanker fleet for more than two years, but the most notable successes in recent months have come from military operations that targeted individual oil wells, including well casings and other underground infrastructure, according to U.S. and Middle Eastern officials familiar with the new strategy.

The tactics make it all but impossible for the Islamic State to repair the wells or extract oil through makeshift techniques, the officials said.

Previous airstrikes crippled the Islamic State’s oil-producing capacity, but the militants consistently found ways to pump and refine oil in smaller batches using primitive methods, said a senior U.S. counterterrorism official, who spoke on the condition of anonymity to discuss military operations. Now, even the small-scale operations are struggling, he said.

“We can take them back to the 19th century, but people were still able to extract oil in the 19th century — it bubbles up to the ground and they find a way to bottle it and sell it to someone,” the official said. The new approach involves inflicting “the maximum amount of damage with the right weapons so it will not be easy or quick for them to repair,” the official said.

The improved targeting comes against a backdrop of ongoing airstrikes on tanker trucks used to haul oil and refined products such as gasoline and diesel. The bombing campaign, dubbed Operation Tidal Wave II, initially focused on large tanker convoys before the Islamic State leaders switched tactics and began relying on smaller vehicles, often traveling alone and hidden or camouflaged by day to elude detection.

Yet on Dec. 8, U.S. warplanes spotted and destroyed a caravan of 168 tankers near the terrorist-held Syrian city of Palmyra, in the largest raid of its kind since the conflict began. The U.S. pilots dropped leaflets warning the drivers — typically civilians and local conscripts — of the impending attack before A-10 “Warthog” jets swooped in to strafe the convoy.

“While the Palmyra raid was exceptionally large, the attacks themselves are a regular occurrence,” said Daniel L. Glaser, the Treasury Department’s assistant secretary for terrorist financing. “This has been an ongoing campaign over the past year to target those tanker trucks.”

As the result of such raids, oil revenue for the Islamic State is now a tiny fraction of the estimated $1.3 million per day the group was earning in early 2015, U.S. and Middle Eastern officials said. Still, small truckloads of oil, mostly from the Syrian side of the militants’ self-proclaimed caliphate, continue to find their way to the black market, aided at times by corrupt officials in Syria and Turkey, two countries that are officially at war with the Islamic State, the officials said.

“ISIL is still selling oil to [Syrian President Bashar] al-Assad,” said a Middle Eastern official familiar with operations against the Islamic State, who also spoke on the condition of anonymity to discuss sensitive intelligence. “It’s an important revenue source, and we see Assad’s people continuing to facilitate.”

Destroying the Islamic State’s financial underpinnings has been a primary objective for the U.S.-led coalition since 2014, although progress at times has been halting.

Unlike al-Qaeda, the Islamic State is largely self-financed, deriving most of its income from oil sales and criminal enterprises, as well as from money taken through taxes and fees extracted from local residents and businesses in the territories it occupies.

The terrorist group also benefited initially from the vast hard-currency holdings it confiscated when it seized banks in Iraqi and Syrian cities in 2014. The cash windfall — at least $500 million initially, according to U.S. estimates — has largely vanished, in part because of U.S. air raids that targeted the bunkers where the money was stored.

A more challenging target for U.S. and Iraqi officials has been the network of small, loosely regulated exchange houses traditionally used by Iraqis and Syrians to wire funds and exchange local dinars for Western currency. U.S. Treasury officials have been working with Iraqi counterparts for more than a year to identify and shut down key exchange houses used by the Islamic State to make purchases, collect oil receipts and pay its fighters and employees.

In the coordinated action by U.S. and Iraqi officials in early December, Baghdad banned one Iraqi exchange house from accessing Iraq’s financial system and froze the company’s assets. Treasury officials simultaneously slapped sanctions on the firm, identified as Selselat al-Thahab Money Exchange, and on a Syrian businessman accused of acting as a banker and financier for the Islamic State in that country.

“ISIL relies heavily on exchange houses and transfer companies to move and gain access to funds,” said Treasury’s Glaser, “and these designations represent the opening of another front in our effort to combat ISIL’s tentacles into the formal financial system.”

Keeping up the pressure on the group’s financial networks is particularly critical at a time when the Islamic State is suffering military defeats and territorial losses in Iraq and Syria, counterterrorism officials said.

Even in a depleted condition, the Islamic militants’ financial assets are judged to be more than sufficient for carrying out terrorist operations abroad. Indeed, the Islamic State’s signature terrorist strikes — including the attacks in Paris on Nov. 13, 2015, that killed 130 people — are believed to have cost no more than a few thousand dollars each.

“Yes, we’re hurting them financially,” the Middle Eastern official said. “But I’m not yet seeing such impacts on their covert activities.”

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