A Leaked Budget May Finally Show How the Islamic State Makes Its Money – Avi Asher-Schapiro/VICE News

by Newsstand

While it’s well known that the Islamic State (IS) has developed many of the institutions that define other states — schools, police, professional media, a standing army — exactly how IS has paid for these institutions has often been a matter of blind speculation.

Now, however, newly leaked documents appear to give unprecedented insight into the group’s finances. Originating in the IS-run Syrian province of Deir Ezzor, they indicate that IS doesn’t tax the people living under its rule so much as it steals from them in order to pay its fighters’ salaries and other operating costs.

The documents, which detail expenses and income sources in the province between December 23, 2014 and January 22, 2015, was made public by Aymenn al-Tamimi, a fellow at the UK Middle East Forum who is currently based somewhere on the Syrian border. It’s the first-ever account of IS finances to be made public.

According to the ledger, between December 2014 and January 2015 IS brought in more than $8 million in revenue in Deir Ezzor, an oil-rich province in eastern Syria that’s been under IS control since early 2014. But nearly 45 percent of those funds originated from what IS calls “confiscation,” dwarfing all other sources of income like trade, taxes, and oil sales.

“If you miss prayers three times consecutively, then you are going to get your shop confiscated,” Tamimi explained. “If you transport banned goods like cigarettes, they are going to take the money you are carrying.” The vast majority of these confiscations took place on the borders of the province, where IS fighters appeared to be stripping travelers of their valuables to pay for safe passage.

“This document really undercuts IS propaganda,” Tamimi said. “Seeing that they get the plurality of their income from taking things from people — that doesn’t put the group in a very good light.”

IS tends to portray itself as a miracle of statecraft; the group’s propaganda campaigns regularly celebrate not only military victories but also the strength of the group’s bureaucracy. Over the past year, IS has successfully established mundane services like sanitation as it also built up a standing army. Brigham Young University political scientist Quinn Mecham has even characterized the group as an Islamic “start-up.”

“The notion that ‘We are building something’ — that’s a crucial point for IS supporters,” he said.

But the documents leaked from Deir Ezzor reflect a state-building project on the rocks. About 63 percent of IS expenditures — nearly $5 million — go to supporting its military in the form of salaries and “base expenditures.” It spends another 10 percent on a police force. That leaves only about $2 million to fund the IS bureaucracy, its healthcare system, and the social services.

That makes IS perilously close to a “failed state,” Mecham says, though he cautions against reading too much into the documents. For the past few months, Mecham has been working to quantify IS “state-capacity,” a term political scientists use to describe the effective functioning of government institutions. Mecham estimates that IS is the 16th most failed state in the world.

“It’s ahead of more than a dozen states that actually sit at the UN,” he said. “But still, they aren’t really doing that well.”

The documents from Deir Ezzor help flesh out the details of IS limitations, especially when it comes to capitalizing on oil resources. After IS swept through northern Syria into Iraq last summer, analysts scrambled to estimate the wealth the group would generate from oil fields and seized bank deposits in its new territory. While the bank deposits, which some measured in the billions, were a one-time infusion of income, the oil fields had the potential to be a renewable source of financing that could keep IS afloat for years. Over the past year, a number of estimates put IS oil production at about 44,000 barrels a day in Syria alone, netting up to $4 million in daily profits — though no concrete documents surfaced to verify these estimates.

Deir Ezzor holds the most productive oil fields under IS control in Syria, and it’s ledger shows a much weaker oil extracting capacity than previously thought.

“If IS had capital, manpower, and know-how, these oil fields could be quite profitable,” said David Butter, a leading expert on Middle East energy, economics, and business at Chatham House in the UK. “But that’s a big if.”

Butter says that oil fields in Deir Ezzor peaked in the 1990s, and that exploiting them now would require major investment and serious technical know-how — beyond what IS possesses. He estimates that IS now operates the fields at less than half of their capacity, which indicates a much weaker IS energy sector than previously thought. The documents show that IS draws in just $66,433 a day from oil and gas revenues in Deir Ezzor.

“Popular conceptions of IS income need to have a more sober and realistic perspective on the role of oil and gas revenues,” Tamimi said. “A sounder estimate would put such income at no more than 5 percent to 10 percent of [the $4 million per day estimate].”

Rather than operating a sophisticated oil operation, IS is most likely just siphoning off a small amount, allowing locals to make some extra cash as oil smugglers.

“I wouldn’t be surprised if they are selling off the oil at the pump-head to traders for as little as $5 or $10 a barrel,” Butter said.

Still, if the figures from Deir Ezzor are accurate, it doesn’t mean IS has an immediate cash problem.

“[The Islamic State] has plenty of money,” Daniel Glaser, assistant secretary for terrorist financing at the US Treasury Department, said at a recent roundtable at the Aspen Institute. Treasury is responsible for implementing US sanctions against IS and cutting of its supply of resources. Officials declined to be interviewed by VICE News, or to comment on the Deir Ezzor documents.

Though Treasury has been cagey about how much cash IS brings in, Glaser did speculate at Aspen that it may bring in $500 million a year in oil revenues, a figure that Tamimi disputes.

The question of long-term oil revenues is key because it could determine whether IS economic model is ultimately sustainable — and the snapshot from Dier Ezzor does not bode well. In addition to benefitting from oil revenues and “expropriation,” IS does operate a taxation system, but that brings in only 23 percent of revenue, which is less than even the beleaguered oil industry.

“It’s going to be hard to maintain this budget and maintain a measure of support from the populations they are trying to control,” Mecham said. “This doesn’t have a positive trajectory — eventually they are going to run out of things to seize.”

A Leaked Budget May Finally Show How the Islamic State Makes Its Money | VICE News