By Andrew Jay Rosenbaum, Mahmoud Barakat and Mohamad Misto
ANKARA
Daesh is struggling to manage the economy, and to obtain funds, in the territories it occupies in Iraq and Syria.
The main sources for revenue of the militant group are being squeezed by challenging economic conditions, by pressure from the opposition and coalition attacks and by poor management, according to research on the ground by Anadolu Agency correspondents and independent analysts.
"Daesh is squeezing the local population with high taxes," an activist from Aleppo who lives in a Daesh-held area told Anadolu Agency.
"Daesh revenue is based on looting and extortion of funds from the local population," Jonathan Schanzer, an analyst with the Foundation for Defense of Democracies in Washington said in an interview with Anadolu Agency.
"The Daesh state is not financially sustainable," agreed Sajad Jiyad, an analyst with the Al-Bayan Center for Studies and Planning, Baghdad, in an interview with Anadolu Agency.
How Daesh economy functions
Research by Anadolu Agency correspondents has shown that economic management by Daesh, largely based on smuggling and extortion, is failing.
The main axes of the economy include:
Oil sales drop off
Oil smuggling constitutes the largest part of the Daesh economy currently. According to sources on the ground, much of it is managed by foreign experts. An immigrant who is a petroleum engineer earns close to $20,000 in several months for his work in oil administration, according to a source in the city of Tabqah in Syria’s Raqqa province.
But in April, Daesh lost control of three major oilfields in Iraq, and airstrikes in Syria are hurting production at the refineries there, according to the Barcelona Centre.
Daesh sells oil at well below market prices, sometimes for as little as $10 per barrel, According to statements by U.S. Treasury officials in July, Daesh sells oil and gas everywhere. It sells within Syria, and to the Syrian regime. It sells in Iraq, and smugglers working with Daesh have been crossing the border into Turkey to sell oil illegally on the black market. Turkish authorities have, since June, cracked down on this activity, according to Schanzer.
But global oversupply of the commodity has hurt demand, Schanzer said, even at the bargain prices that Daesh proposes.
Banks and businesses are squeezed
Daesh has also made money by simply raking cash off banks and businesses. When the group took over the Iraqi city of Mosul in 2014, it raided the city’s banks for close to $1 billion, according to a report by the U.S. Treasury on July 24.
Local sources told Anadolu Agency that the practice has continued at such a rate, that banks are close to failing, and businesses simply have no more to give. But this doesn’t keep Daesh from squeezing harder.
"The result of this pressure on banks and businesses is "economic asphyxiation", according to the Barcelona Centre. There is simply no more money to be squeezed out of banks and businesses, and they cannot operate if most of their profits are extorted.
Tax base eroded
Economic asphxiation is also the result of the high taxes that Daesh imposes on individual citizens.
Local sources said that Daesh is taxing families at the rate of 7.5 percent on their income, and a similar tax is imposed on farm produce. This is higher than the 5 percent rate permitted under Islamic law.
Schanzer pointed out that both people and businesses in the territories occupied by Daesh have been squeezed for as much as they can give. “The only way Daesh can gain more funds in this way is to conquer more territory, thus gaining access to new businesses, banks and families to loot.” He noted that Daesh also sells art and artefacts taken from archaeological sites and museums. "Again, this tactic is failing, as the group has run out of art to sell."
Further, the high taxes on farmers have caused many of them to flee Daesh-occupied areas. “This will make managing the harvest in the fall very difficult for group,” pointed out Sajad Jiyad, an analyst with the Al-Bayan Center for Studies and Planning, Baghdad.
“They have either turned over farms to investors or are forcing laborers to work the farms. They forced some farmers to hand over their sons to fight for Daesh in return for retaining their farms.”
While Daesh is keen to keep the farms in operation, this is hardly a sustainable strategy, Jiyad said.
Kidnapping and ransom doesn’t pay
Extorting money from hostages has also been a lucrative source of income for Daesh, local sources said.
But this is hardly a sustainable business strategy, as Schanzer noted.
Opportunities to seize Westerners are becoming ever more limited, as more precautions are taken.
“Arrests and executions are common, so that Daesh can appropriate the wealth of the accused person, without appearing to act lawlessly,” adds Jiyad.
“Crime of this sort doesn’t pay in the long run. It cannot be continued once it has already been tried in a given location,” according to the Barcelona Centre.
Outlook is grim
The challenge for Daesh is that its expenses are high. According to sources in Syria, a Daesh fighter takes home $400 per month in salary, and if he is married he also get paid $100 for each wife and $50 for each child.
Along with the need to purchase weapons and pay its officials, the total annual bill for Daesh is about $360 million, according to Daniel Glaser, a terrorism expert with the U.S. Treasury.
This has caused economic disruption in the occupied territories. The cost of gas for heating, of food, and of household requisites has gone up nearly five times in the occupied territories, Schanzer said.
A poor harvest in the fall could make grim economic conditions much worse, analysts warned.
Meanwhile, there is increasing pressure from coalition attacks and law enforcement crackdowns on oil smuggling.
“Daesh depends ultimately on territorial expansion to obtain funds, because it loots the territories that it governs,” Schanzer continued. As Daesh fails to conquer new territory, its economy is bound to fail.
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