Originally commissioned October 2015
Smuggling oil, a key source of revenue for ISIS, will be hard to stop because of the embedded nature of smuggling routes, weak rule of law, porous borders and because the group has other options. Increased pressure on the group will help but the problem will likely continue.
Majority of ISIS funding comes from illicit oil revenue, capitalising on weak rule of law, established smuggling routes, porous borders and internal divisions in Iraq.
ISIS sells oil to the Assad regime and other rebel groups, as well as parts of Syria where supplies have been cut off for a premium.
YPG advances against ISIS may pressure smuggling routes in northern Syria but alternate routes options remain.
ISIS continues to receive significant funding from the sale of smuggled oil. ISIS has tapped into pre-existing smuggling routes in Iraq and around the Turkish border. Active since the time of Saddam Hussein, these routes are deeply embedded in the local economy and the smugglers experienced, with routes often passing from generation to generation.
Attempts in the KRG to shut down these routes have been partially successful, with arrests taking place. They continue however due to weak state reach and rule of law. The trade is very profitable, giving smugglers leverage over officials. Syria’s long land borders are porous with the movement of refugees and supplies, including the 400km Turkish border, over which Ankara, despite strong state reach, is unable to exert full control. The central government in Baghdad is currently able to exert little control over the Sunni regions where many of the smuggling routes run and the KRG is struggling with its own internal divisions.
Cross-border smuggling is only part of the picture, as ISIS also generates significant amounts revenue from selling its oil within Syria to areas that have been cut off from supplies for a premium. The Assad regime and opposition groups buy electricity and oil from the group. While ISIS has no access to a refinery such as the Beyji refinery in Iraq that it controlled during its ISI years, it has makeshift refineries on the ground. While these have been targeted by airstrikes, this has done little to dent profits, as refineries can be moved around and easily re-built. The US has not targeted wells, for fear of irreparably damaging the infrastructure, which it sees as crucial to rebuilding the local economy following ISIS’ presumed eventual defeat.
The advances made by YPG forces against ISIS near the Turkish-Syrian border may hamper the group’s efforts to bring in weapons and more ostentatious deliveries. Similarly, the YPG may place pressure on ISIS smuggling routes into Turkey. Attacks on border crossings on the Iraqi-Jordanian border as well as the Iraqi-Saudi border suggest ISIS sees the strategic advantage of these locations. ISIS may switch to new routes, should current ones become unusable. Moreover, smuggling oil is not the only source of funding for ISIS, others include extortion, taxation, kidnapping and selling stolen artefacts. Lastly, ISIS maintains control of key resources in its territory, such as food and water, providing it with leverage over local populations beyond only financial.