The Economics of Terrorism: How ISIS Funds Its Campaigns


ISIS has exploded on the scene of Islamic extremist terrorism in an unprecedented way. Seemingly emerging from obscurity, ISIS has jumped to the front of the line of threats in Iraq, Syria and other parts of the Middle East. This rise to infamy has largely been due to the incredible amount of money flowing through the coffers of the terrorist organization. But, where does all of this money come from?

Much of the success of this terrorist group that has created, in effect, a de facto new state carved from seized lands in Iraq and Syria, derived in the early days from other states. For a number of years, wealthy donors in nations like Qatar, Kuwait, and Saudi Arabia kept the organization well funded. Sadly, all three of these nations are US allies, and turned a blind eye to many of these funds transfers.

Apparently, these backers were not so much interested in seeing ISIS take over Iraq and Syria, or threatening American interests, but in funding a group that claimed an interest in overturning the government of Iran. Some of these sponsors were also inclined to support a group that appeared interested in promoting the interests of the disempowered Sunni population in Iraq and Syria.

Still, ISIS has filled its war chest far beyond the bounds of these early contributions, especially as its politics became more radical and less palatable to its early contributors. To do so, ISIS became quite entrepreneurial in its approach to fund raising. It has combined extortion with practical governance of the seized territories (i.e., levying taxes like any other nation). It has also used the assets in seized territories, to generate additional income, such as selling electricity from seized power plants back to the government of Syria. This has given ISIS a sort of autonomy most terrorist organizations have never known before, and explains why they have been able to launch such an effective offensive.

ISIS has also taken a leaf from the economics of American organized crime. Much like the mafia, ISIS takes a cut off the top of all legitimate activities occurring within its territories. Relief aid coming into the nation, shops selling their goods, and professionals offering their services all must pay a percentage of their income to ISIS in a manner similar to the famous protection rackets of the American mafia.

Finally, ISIS engages in flat out theft and extortion. When it invades a territory, it seizes assets in that area. In Mosul, this included robbing all of the banks under its control. ISIS has also famously taken a number of hostages and demanded ransoms. If the ransoms are not paid, the hostages are brutally murdered, often having their dismembered bodies put on display publicly. While many governments have been unwilling to meet the ransom demands or have even forbidden their payment, families and businesses have often circumvented the official state process in an effort to see their friends, family, or employees returned relatively safely.

Consequently, it would be foolish to call ISIS anything but clever when it comes to raising funds for its terrorist activities. If eradication of this terrorist group ever occurs, attacking its funding must happen. Otherwise, the organization will continue to have the capacity to fund its unique brand of asymmetric warfare in a way that could cause hostilities to drag on for years or even decades to come.