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Make Islamic State go broke

Among the many challenges that the terrorists of the Islamic State pose is that they happen to be first-rate moneymen. Mr David Cohen, a United States Treasury Department official, said in a speech last week the Islamic State “has amassed wealth at an unprecedented pace”.

The US and its allies have been working to choke off the Islamic State’s funding, partly by bombing refining equipment such as this oil refinery in Syria’s Raqqa province. Photo: Reuters

The US and its allies have been working to choke off the Islamic State’s funding, partly by bombing refining equipment such as this oil refinery in Syria’s Raqqa province. Photo: Reuters

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Among the many challenges that the terrorists of the Islamic State pose is that they happen to be first-rate moneymen. Mr David Cohen, a United States Treasury Department official, said in a speech last week the Islamic State “has amassed wealth at an unprecedented pace”.

The Sunni extremist group, which has been murdering and raping its way across Syria and Iraq, now collects about US$1 million (S$1.27 million) a day from oil sales. It also earns cash though extortion, ransom, bank robbery, looting and prostitution. And then there are the abundant wheat fields, flour mills and water supplies it controls. All told, Mr Cohen said, the group’s revenue amounts to tens of millions of dollars per month.

Disrupting that cash flow will not be easy. Unlike Al Qaeda, from which it split several months ago, the Islamic State is not heavily dependent on wealthy foreign donors or the international financial system. It collects most of its money locally, in cash, making it much harder to track.

But choking off its funding is essential to stabilising the broader Middle East. The first step is slowing the group’s illicit oil trade. The Islamic State now controls about a dozen oil fields. It sells steeply discounted crude to traders — mostly Kurdish and Turkish — who then sell it to refiners at a markup. There is no shortage of demand for the resulting product: Even Mr Bashar Assad, the Syrian dictator the Islamic State is putatively trying to topple, is a customer.

The US and its allies have been working to upset this economy, partly by bombing the Islamic State’s refining equipment. A longer-term solution will require getting Turkish and Kurdish leaders to crack down on long-tolerated smuggling routes.

Mr Cohen also announced an ambitious effort to identify the middlemen who receive its oil. The goal is to pressure all the institutions the militants do business with — insurance companies, banks, lenders, licensing agencies — to cut them off.

Ending the Islamic State’s other revenue streams may prove harder still. Disrupting its extortion rackets will require uprooting the group from its strongholds, which will in turn require both a persistent allied bombing campaign and a more competent effort from Iraqi security forces. Other countries should be pressured to stop paying ransoms to rescue their kidnapped citizens. And, perhaps most important, if Iraq’s Shia leadership gave Sunnis more of a say in the country’s government, they would have less of an incentive to tolerate the militant group.

In the long term, there are two powerful factors working against the Islamic State’s expansive ambitions. First, its wealth is not enough to sustain even basic services for the population it now rules (Mr Cohen noted that the Iraqi government’s budget for the territory the group controls is more than US$2 billion a year). Second, operating an all-cash Caliphate will only get harder, especially if it hopes to expand internationally.

Crushing the Islamic State’s novel business model may well require more innovative strategies from financial regulators, as Mr Cohen said. It will also require a lot of old-fashioned persistence. BLOOMBERG

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