Islamic State group's oil addiction is costing it dearly

Islamic State group's oil addiction is costing it dearly
With an economy reliant on hydrocarbons, is the Islamic State group also vulnerable to low oil prices and the global economic downturn?
4 min read
21 January, 2016
IS have been pushed back in Iraq and Syria [Anadolu]

While Gulf states tighten their belts with low oil prices set to continue, bookkeepers in the Islamic State group are also trying to cope with a downturn to their resource-reliant economy.

IS have already slashed local fighters' salaries by half - from $400 to $200 - and other higher paid, foreign fighters will see similar cuts.

Although it is impossible to get a true picture of IS' financial state, there are some indicators that IS could be in serious financial trouble, which would essentially impact on their ability to fight.

"A sizable population of Syrians joined IS because they got better salaries than other organisations," said Michael Stevens, research fellow at the Royal United Services Institute.

"If the downturn continues, IS is going to have some problems which will lead to a retention of troops and recruitment."

Financial troubles

Oil prices have slumped to $30 a barrel on global markets, and some predict them to drop to less than $20.

IS have been reportedly selling oil for as little as $20 a barrel, but likely having to rely on higher costs to reach Aleppo after other border areas were cut.

There is less of a difference between what price IS can get oil out and the middle men
- Michael Stevens

As cheap oil is flooding the market, Stevens believes there will be fewer incentives for blackmarket traders to purchase IS commodities.

"There is less of a difference between what price IS can get oil out and the middle men. This ultimately is going to lead to a serious downturn in their ability to bring finances in," Stevens added.

"It isn't doomsday for them, IS isn't going to crash tomorrow, but it certainly affects their resiliance and staying power."

IS is lucky that many of its enemies - particularly the Kurds - are also suffering terribly from low oil prices, and more susceptible to global market downturns.

On Wednesday, Iraqi-Kurdistan Prime Minister Nechirvan Barzani warned that low oil prices are affecting the Peshmerga's ability to fight IS.

IS has a largely closed economy and most (some would say all) of its oil is sold within its "borders" allowing it to cushion itself from worldwide economic downturns.

"The problem with the Kurdish and Iraqi economies is that they are in death spirals because they are so reliant on hydrocarbon exports," said Stevens.

"Corruption is so high, so I don't know what these entities will do. Unless oil prices go up higher they are in big trouble."

Read: Raqqa's Rockefellers: How Islamic State oil flows to Israel

Low oil prices and fewer revenues could affect both sides' abilities to sustain large scale battles. 

There may be fewer offensives by IS or Iraqi forces over the next year, some analysts say.

However, any signs of dissent or "emigration" from its territories during the economic depression will be dealt with violently and ruthlessly.

"They are not going to be able to present the world with this wonderful vision of there being a brilliant quality of life, abundance and glory [in IS territories] like they did last year. The services they could provide are not what they were."


This could ultimately impact on their ability to recruit foreign fighters, and tighter border controls in Turkey will also have an impact.

Subsidies on basic commodities which kept life relatively cheap for civilians and fighters are also likely to be cut.

Fighters previously got four food rations a month, now they get two
- Raqqa is Being Slaughtered Slowly activist

"Fighters previously got four food rations a month, now they get two," Tim from activist group Raqqa is Being Slaughtered Silently told The New Arab.

US-led bombing of its oil and logistics installations, and central banks, are also causing havoc, Tim said.

"IS is suffering from financial difficulties. They no longer distribute wheat and oil to bakeries and have also increased the price of bread," he said.

Any further economic downturn will likely hit major conurbations such as the "capital" Raqqa and Mosul hardest, Stevens said, and equite massive amounts of subsidised food and fuel to function.

Mass public executions of suspected spies and desserters are said to have taken place in IS cities recently.

Although this is no sign of outright rebellion, it does highlight suspicion, fear and perhaps a growing lack of discipline in the ranks.

Except for its extremist fringes and foreign fighters, there is likely to be even fewer people satisfied with the extremists' economic project in 2016 and more might take the difficult and dangerous road out of the Iraq and Syria.