Iraq’s oil funds ISIS

How The Islamic State Smuggles Oil To Fund Its Campaign

by Deborah Amos, September 09, 2014

In less than three years, the Islamic State has had a remarkable rise from startup militants to a cash-rich and capable extremist organization. The swift expansion is fueled, in part, by a massive oil smuggling operation in eastern Syria that has now expanded to Iraq, according to regional analysts and oil industry specialists.

The Islamic State, also known as ISIS, earns millions of dollars from these ongoing smuggling efforts.

“It’s a tiny amount for a state, but it’s quite a lot for a terrorist group,” says Rafiq Mark Latta, with the Energy Intelligence Group. Latta dismisses exact figures.

“It’s much too complex,” he notes, but he agrees with the widely quoted oil industry estimate that the Islamic State is earning about $1 million to $3 million a day by smuggling oil.

“I suspect, at times, it ‘s been more,” he says of the sophisticated and extensive operation.

Oil As A Priority

When Islamic State fighters stormed across the Syrian border into Iraq and seized Mosul, a city of 2 million, back in June, they arrived in Toyota pickup trucks and dusty sedans. A fleet of oil tankers was also part of the convoy. The group was coming for the oil.

“Yes, 100 percent,” Latta says.
They made a bold grab for some of Iraq’s most valuable assets, lucrative refineries and oil fields. A day after Mosul was taken, the militants moved south, surrounding the Beiji oil refinery, Iraq’s largest.

They also seized at least four oil fields, including Ajeel, one of the most productive, near the Iraqi city of Tikrit. When they got to the Al Kaz field, in Anbar province, “They took all the cash, they took all the vehicles, they gave strict instruction that nothing should be touched, ” says Latta.

By then, the plan was clear, says Ben Van Heuvelen, managing editor Iraq Oil Report.

“In June and early July,” he recounts, “ISIS was stealing oil out of pipelines, out of storage tanks, loading it onto trucks and selling it to drivers for very cheap.”

The cut-rate price of $25 a barrel was an incentive for traders to buy.

“The drivers were then selling to middlemen,” explains Van Heuvelen, “then middlemen would find a way to launder the oil, so to speak, and then sell it on.”

The profits were huge. His calculations, based on interviews with drivers and reports of trucks crossing local borders: “Our estimate – it was about a million dollars a day going across.”

Potential Battles Ahead

The Islamic State was driven out of the Ajeel field at the end of August by the Iraqi military, but that hasn’t dented smuggling from other fields or dimmed their goal to capture even more lucrative fields. They have set their sites on the oil-rich province of Kirkuk, bordering Mosul.

Now, Kurdish fighters known as the peshmerga tightly defend the province and the oil fields, but the Islamic State has gained control of one district in the southwest of the capital city.

“When we see oil tankers coming from areas controlled by ISIS we confiscated those,” says Najmiddin Karim, the governor of Kirkuk. “We have confiscated many oil tankers.”

But there are many open desert roads, and the Islamic State has created alternative routes by bribing drivers and officials for forged papers, ensuring a steady flow of cash.

“In war time, people do anything to make money; that’s why they are called warlords,” says the governor, acknowledging the persistence of smuggling routes.

Islamic State militants learned the ruthless smuggling trade in U.S. prisons in Iraq. They had good teachers, say regional analysts. Young radicals were jailed with experienced al-Qaida leaders before the prisons were shut in 2010.

“We’ve definitely seen this film before in post-2003 Iraq,” says Ali Khedery, a former adviser to U.S. ambassadors and U.S. military commanders in Baghdad until 2010.

He says al-Qaida set up kidnapping rackets, extortion schemes and oil smuggling routes to fund operations.

“That’s how they were able to build up a war chest of hundreds of millions of dollars,” he explains.

Rafiq Mark Latta agrees. “In those days, Beiji, which is Iraq’s largest refinery, was known as al-Qaida’s refinery.”

For years, al-Qaida in Iraq skimmed millions from the facility through the extortion of local employees until the U.S. military stepped in and shut the operation down.

Many Small Refineries

The Islamic State, or ISIS, started a smuggling operation when it captured oil fields in eastern Syria last year, says Latta. ISIS operatives built a more extensive network. They now support hundreds of black-market refineries along the northern Syria border that produce gas and heating oil.

“Syrian local businessmen, they’ve got these ‘teakettle’ refineries, all very small operations,” says Latta. “Most are under 100 barrels a day. And ISIS takes a cut” for sales on the domestic market.

The networks for exporting stolen crude are even more extensive, he says, moving through Turkey and Iran and reaching international markets as far away as Afghanistan and Armenia, earning millions for the militants.

In recent weeks, say Latta, Kurdish and Turkish officials have stepped up efforts to shut down the networks.

“If you cut their money in half, they would still pose a threat, but it’s a start,” he says. Other experts who have been tracking the illicit oil trade say it will take a massive effort to curb the cash flow.

“You would need to have people on the ground to give information,” says Luay Jawad Al-Khatteeb, a visiting fellow at the Brookings Doha Center who has researched the Islamic State’s finances. “You would need hundreds of people in hostile territory.”

Shutting down the illicit oil trade “requires having an entire security structure that is resistant to corruption,” says Van Heuvelen.

 

---

 

By Luay al-Khatteeb, Special to CNN, August 22, 2014

London (CNN) — Luay al-Khatteeb spoke to CNN about the impact of ISIS’ march through northern Iraq, and the militant group’s control of some oil fields. He explained how they used the oil fields to raise funds, and how it could impact global prices. This is an edited version of the conversation.

How much of Iraq’s oil market do ISIS control?

ISIS control just a few marginal fields in Iraq’s north, but they are enough to fund the terrorist group’s self-sufficiency.

A month ago, the ISIS–controlled oil market in Iraq was reported to be worth $1 million a day. Now, with expansion, further control of oil fields and smuggling routes, the market is believed to be raising at least $2 million a day.

This could fetch them more than $730 million a year , enough to sustain the operation beyond Iraq.

ISIS have been battling over Baiji and the refinery is still under siege. However, if ISIS succeed in capturing it, the refinery would be very difficult to operate without capable and technical staff.

One important factor for the stability of global markets: ISIS is not yet in the south of Iraq, where the country’s true oil bounty lies. Capturing the southern assets of the country would be mission impossible for the group.

ISIS smuggle the crude oil and trade it for cash and refined products, at a reduced price. They also have their own small and rudimentary refineries in Syria.

ISIS controls smuggling routes and the crude transported by tankers to Jordan via Anbar province, to Iran via Kurdistan, to Turkey via Mosul, to Syria’s local market and to the Kurdistan region of Iraq, where most of it gets refined locally.

Turkey has turned a blind eye to this and may continue to do so until they come under pressure from the West to close down oil black markets in the country’s south.

At present, ISIS are trying to establish a self-sufficient state and a capital in what is known as the “Sunni triangle” (west and north Iraq), and oil production will be part of this.

They want to be self-sufficient, expand their territorial control, recruit more jihadists — with focus on extremists with foreign passports — and extend their operations, to eventually launch attacks on Western countries.

ISIS declared its Caliphate by turning Iraq and Syria into a hub to attract extremists. They are aiming to take over the Arabian Peninsula as their epicenter to launch attacks globally.

If this happens, they will be in control of a region that holds 60% of world’s conventional energy reserves and produces 40% of global oil and gas production.

there are enough rich assets in the midlands and the north part of Iraq that ISIS could reach out to, a potential capacity that could ramp up to a million barrels a day — from its current 30,000 barrels a day — should they seize control the oil-rich city of Kirkuk and its surrounding districts.

If they succeed in controlling those assets, cash inflow could stretch their empire of terrorism beyond imagination. But so far, ISIS oil trading has remained local with buyers in Jordan, Turkey, Syria and Iran via middlemen network and truck owners.

However, the instability created by Iraq effectively being broken up would have a ripple impact, in terms of hindering investment prospect in the country.

In turn, that could prevent Iraq from reaching its 2020 target of 9 million barrels of oil production per day, which is three times Iraq’s current oil supply and 10% of global demand.

 

---

 

ISIS controls 40% of Iraq’s wheat, selling it back to govt on black market
Published time: August 14, 2014

The Islamic State, the jihadist group formerly known as ISIS, has seized around 40 percent of Iraq’s wheat as its look to tighten its economic grip on the country. They are also looting government grain silos to sell crops on the black market.

The group, who came to prominence in June, has taken advantage of many thousands fleeing their advance, fearing their strict interpretation of Islam, to take control of large areas of farmland. The Islamic State now controls five of Iraq’s most fertile provinces and the United Nations food agency believes they now have around 40 percent of wheat grown in the country under their control.

Not all the farmers who have come into contact with IS have fled, however, as they fear losing their livelihoods, according to Hassan Nusayif al-Tamimi, who is the head of an independent union of farmers cooperatives in Iraq. He says that those who have stayed are coming under a lot of pressure to give up what they own.

“They are destroying crops and produce, and this is creating friction with the farmers. They are placing farmers under a lot of pressure so that they can take their grain,” he told Reuters, adding that farmers had reported fighters were also wrecking wells.

Iraq’s Trade Ministry says 1.1 million tons of wheat is currently being held in silos owned by the government in the five provinces where IS has established large-scale control. This is around 20 percent of the Iraqi people’s annual intake, which the US Department of Agriculture says is in the region of 6.5 tons. Around half the wheat consumed in the country is imported.

While there are no imminent food shortages, the seizure of the wheat and fields could be a problem in the long run. The Iraq harvest took place in May, before IS started their advance through the north and west of the country. Many farmers have not been paid for their crops, meaning they do not have the money to purchase seeds and fertilizers to grow next year’s crop.

Fadel El-Zubi, the UN Food and Agriculture Organization (FAO) representative in Iraq, warned: “Now is the worst time for food insecurity since the sanctions (under Saddam Hussein) and things are getting worse.” The FAO is working to try and get seed and essential materials to farmers to make sure they manage to get their crops in the ground.

The Islamic State already controls five oil fields in Iraq, as well as the country’s largest dam. Until now, they have sold oil and gas to raise funds for their military campaign. However, Hassan Ibrahim, director general of the Grain Board of Iraq, says that IS is trying to sell the grain it has seized back to the government. “For this reason, I stopped purchasing wheat from farmers last Thursday,” he said. His organization is responsible for buying wheat from Iraqi farmers.

Ibrahim added that IS has seized 40,000-50,000 tons of wheat from the town of Nineveh, near Mount Sinjar, where local Yazidi people fled after being told they would be killed by the militants if they did not convert to Sunni Islam.

Tens of thousands of people were left stranded on the mountain range with little food or water. US airstrikes against the IS have helped to create a corridor for the Yazidi people to move to safety.