By Michael Weiss and Hassan Hassan, “ISIS: Inside the Army of Terror” From Business Insider

In this excerpt from “ISIS: Inside the Army of Terror,” co-authors Michael Weiss and Hassan Hassan explain how ISIS funds its nascent caliphate.

ISIS has married its authoritarian governance with a remarkably successful war economy.

FSA and Islamist groups that controlled oil fields in eastern Syria, for example, did dedicate some of the revenue to run schools and supply electricity, telecommunications, water, food, and other services.

Some villages and towns saw a decline in such services because ISIS distributed oil revenue to other towns under its control in Syria and Iraq, establishing its own pan-territorial patronage system.

As a result, in oil-rich areas, warlordism—a side effect of strictly localized rebel governance— dropped steadily.

ISIS also forced municipality personnel to work, unlike previous groups that had allowed Syrian state employees to continue to re- ceive their salaries (mostly from the regime) while they sat at home and did nothing, no doubt with attendant kickbacks. “The streets are cleaner now; 70 percent of the employees were not working, even though they received salaries,” said a former media activist with the FSA from Deir Ezzor.

“They cancelled the customary day off on Saturday; they’re supposed to make Thursday the day off instead.” Regulations and price control are another area in which ISIS’s governance proved successful. It banned fishermen from using dynamite and electricity to catch fish.

It also prohibited residents in the Jazira from using the chaos of war to stake new land claims, principally in the Syrian desert, where they had tried to build new homes or establish businesses, much to the chagrin of their neighbors. ISIS also limited the profit margins on oil by-products, ice, flour, and other essential commodities.

Before ISIS controlled eastern Syria, an oil well produced around thirty thousand barrels per day, and each barrel sold for two thousand Syrian pounds—eleven dollars at the current exchange rate. Local families that worked in refineries would make two hundred liras (a little more than one dollar) on each barrel they refined primitively. After ISIS took over, a barrel of oil became cheaper because it fixed the price of a liter of oil at fifty pounds (thirty cents).

ISIS also banned families from setting up refineries close to residences under the threat of confiscation, a policy that led some families to quit the oil business altogether. Collectively, price control and regulations balanced the decline in resources and services.

Subsidies from Gulf countries, where many of those who live in ISIS-controlled areas work, also helped some families afford electricity-generating engines and oil by-products.

“Those in the Gulf who used to send once a month now send twice a month because they understand the situation,” said the former FSA media activist. “Also, there is no big difference in value. In 2010 a kilo of chicken was 190 pounds [$1] and is now 470 [$2.60].”

Oil was a major revenue generator for ISIS until the coalition air strikes began. Before that, ISIS was thought to have earned mil- lions of dollars a month from oil in Syria and Iraq—$1 to 2 million a day. The revenue dropped significantly after the air strikes. But oil smuggling to neighboring countries such as Turkey and Jordan, and to other areas in Syria and Iraq, still makes significant revenue for ISIS.

The sharp decline in oil production affected civilians more than it affected ISIS, which could still generate wealth from other sources, but it hampered ISIS’s ability to provide for the local communities, especially much-coveted materials such as gas cylinders. “I estimate that the impact of air strikes was 5 percent,” said the media activist, who still lives in Deir Ezzor. “They affected oil primarily. Food is plenty, and most of it comes from Turkey or Iraq. Borders are open; if you don’t like prices here, you go to Anbar. I see the situation as normal.”

ISIS’s oil market savvy has impressed and shocked many ob- servers, although Derek Harvey isn’t one of them. “I know for a fact that the Saddamists who were smuggling the oil in the ’90s, to evade UN sanctions, are now doing so for ISIS,” he said.

“People are saying that they’re selling it for thirty-five dollars a barrel. What we bombed recently is some of the local refineries. If you’re selling it at that price, it’s fifty to fifty-five dollars off the current market price. But here’s what happens: these middlemen are selling it, and there’s a kickback coming back in to ISIS’s senior leaders. They’re getting another twenty, twenty-five dollars a barrel in kickbacks, but that’s not on the books or being factored in by everybody. It’s going back into the kitty of financiers at the top of the pyramid. The ISIS fighters in Deir Ezzor would not be aware of that.”

Locals in eastern Syria had learned to survive on remittances from the Gulf and local economies even before the uprising.

High oil prices led many to rely less on agricultural products since the energy had to be spent pumping water from the Euphrates or Tigress rivers to their farmlands many miles away.

After the war started, cheaper oil revived the Syrian agribusiness—smuggling and livestock trade markets began booming again.

When ISIS seized control of the Jazira, people were already buying their own oil for irrigation and electricity and didn’t need to rely on subsidized services.

Germany’s foreign intelligence agency,the Bundesnachrichten– dienst (BND), has cautioned against “overblown” speculation about ISIS’s high oil revenue because there is a tendency to discount the massive overhead and spending inside its territories.

But, as per Harvey, ISIS pockets most of this revenue, as it sometimes taxes residents for services supplied by the regime, such as electricity and telecommunication. Unlike Islamist groups that operated regime-established facilities for the local communities gratis, ISIS has developed a surcharge economy to replenish its own coffers.

ISIS also makes millions from zakat (different forms of Islamic alms payable to the state). Zakat is extracted from annual savings or capital assets (2.5 percent), gold (on values exceeding $4,500), livestock (two heads out of 100 heads owned by a farmer), dates, crops (10 percent if irrigated by rain or a nearby stream or river, and 5 percent if irrigation costs money), and profits (2.5 percent).

ISIS also imposes annual taxes on non-Muslims living in its territories, especially Christians (4.25 grams of gold for the rich and half of that for moderate-income individuals). It makes money by stealing dressed up as civil penalties: it confiscates the properties of displaced or wanted individuals or as punishment for fighting ISIS.

This includes, of course, enormous stocks of weapons and ammunition as part of its community disarmament policies. While donations from foreign sponsors constitute a meager percentage of its treasury, deep-pocked individuals, whether foreign donors or members who have joined the group, still contribute to the group.

More significantly, ghanima (war spoils, which in ISIS’s definition encompasses robbery and theft) is one of the group’s largest and most valuable sources of income. ISIS seized millions of dollars worth of American and foreign military equipment after it forced three Iraqi divisions to flee in June 2014, and it has also seized large stockpiles of weapons as well as equipment, facilities, and cash from Syria’s regime and rebel groups.

Artifacts are also lucrative for ISIS—one man interviewed in Turkey said trade in artifacts grew during ISIS rule,with one of his cousins smuggling into Turkey golden statues and coins found in Mari ancient ruins, eleven kilometers away from Albu Kamal.

Michael Weiss is the editor in chief of the Interpreter and a widely published journalist with a focus on developments in Syria, Turkey, and Russia. He is the co-author of “ISIS: Inside the Army of Terror.” Follow him on Twitter: @michaeldweiss.

IMAGES:
michael weiss isis inside the army of terror book cover ISIS: Inside the Army of Terror
isis wheat Regional map and chart of Iraq’s wheat procurement in 2014 as of August, with locations of grain silos under the control of Islamic State. Reuters
iraq isis map Energy Policy Info
isis oil before after A photo showing an ISIS-controlled oil refinery that the US-led coalition bombed. Dept. of Defense/Amanda Macias/Business Insider
isis ppl ISIS militants pose during a video. Screen grab
isis tank syria Militant Islamist fighters take part in a military parade along a street in northern Raqqa province on June 30, 2014 Reuters

For more on this story go to: http://www.businessinsider.com/tafrikinomics-how-isis-funds-its-caliphate-2015-3?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29