The smoke rising from the Iraqi city of Baiji—so dark and thick that it’s visible from U.S. weather satellites—is evidence of one thing: The jihadist conflict engulfing Iraq is fueled by oil. Home to Iraq’s largest petroleum refinery, Baiji continues to be contested between forces loyal to the Baghdad government of Prime Minister Nouri al-Maliki and militants of the Islamic State of Iraq and the Levant (ISIL). Propelled by their successes in the civil war in neighboring Syria, the jihadist guerrillas have now seized some of Iraq’s largest cities—targeting and occupying a number of key oil fields and refineries. Without them, they know an Islamic state—perhaps even the long dreamed-of caliphate—cannot come into being.
In Syria and in Iraq, oil is what helps keep the jihadist machine running. It powers not only the pickup trucks the ISIL fighters drive into battle but also the helicopters, Humvees, and tanks they captured after their dramatic June 9 conquest of Mosul, Iraq’s second-largest city. It buys them more weapons. Distributed free of charge or sold at a discount to locals, it also buys sympathy, loyalty, and new recruits. It pays the monthly salaries—reportedly as much as $500—of many ISIL fighters, says Aaron Zelin, a fellow at the Washington Institute for Near East Policy, “more than any other fighting group inside Syria.”
Gaining access to oil for themselves and denying it to their enemies has been part of the ISIL strategy. In Iraq the jihadists, assisted by other militant groups, forced a key pipeline delivering oil to Turkey to become inoperative in March after repeated attacks. But not before they managed to siphon off a significant amount of crude. A week before training their sights on Baiji, about 150 miles north of Baghdad, the insurgents tried to march on Iraq’s fourth-largest oil field, in Kirkuk. They were repelled by Kurdish troops, who entered the area on the heels of fleeing Iraqi government forces.
In northern Syria, where ISIL controls several petroleum fields, the group has turned into a major oil producer, selling fuel to local consumers, to the regime of Syrian President Bashir al-Assad that it is fighting, as well as to black marketers. At some wells the oil is refined on-site, often using crude and potentially toxic methods, and smuggled to nearby Turkey, where it’s sold. The system in place when I visited the border area last fall was primitive but effective. Near Kusakli, a Turkish village, waves of smugglers, sometimes numbering in the hundreds, would race down from the hills on the Syrian side of the border hauling jerrycans filled with fuel, undeterred by warning shots fired by Turkish patrols. At night, middlemen would arrive in Kusakli by truck and collect the gasoline, by then stored in the villagers’ courtyards. In May the Turkish government erected a 10-foot concrete wall in the area to prevent crossings, but smuggling has continued along other parts of the border. It has also become more sophisticated. The Turks reported on several occasions this year that smugglers have taken to laying plastic pipelines to pump the fuel directly into Turkey.
The jihadist economy is financed by more than these rough-and-ready petroleum sales. It also depends on extortion, robbery, kidnapping for ransom, and, to a limited extent, donations. Iraqi Prime Minister Maliki’s Shiite-dominated government has blamed Sunni-ruled Saudi Arabia for bankrolling ISIL. But most experts believe that the bulk of the jihadists’ income comes not from abroad but from their own activities. “Gulf donors,” says Zelin, “if they are willing to give to actual terrorist organizations, they’re giving to Jabhat al-Nusra [another Islamist group fighting the Syrian government], because many of them see ISIL as too radical, too extreme.” Private donations to ISIL, he says, “pale in comparison” with self-financing.
It is difficult to estimate the ISIL’s assets. In e-mailed comments, Charles Lister, a visiting fellow at the Brookings Doha Center, speaks of “hundreds of millions of dollars.” Revenue from oil sales, he says, is “impossible to accurately calculate, but [it will] certainly amount to significant sums of money.” An Iraqi official quoted in a recent Guardian piece puts ISIL’s wealth at more than $2 billion, higher than any other terror group in the world. Last week the militants walked away with an estimated $430 million after an armed raid on Mosul’s central bank.
In Mosul, where ISIL cells were at work even before the city’s capture, racketeering may have earned the group “as much as $1-2 million per month,” Charles Lister, a visiting fellow at the Brookings Doha Center, said in e-mailed comments. The Council of Foreign Relations believes the amount is at least $8 million per month. “A lot of normal people in Mosul like to give to ISIL,” Atheel al-Nujaifi, the city’s exiled governor, told Bloomberg Businessweek in a recent interview in Erbil, the capital of the autonomous Kurdish region of northern Iraq. “But the people are also afraid of them. Most of the contractors and businessmen are giving them [protection] money.”
“ISIL seems to have established a network that’s very similar to the Mafia in [post-World War II] southern Italy,” says Harith al-Qarawee, an Iraqi political scientist. “In the [Sunni] neighborhoods where they have a presence, they are embedded in every significant transaction or economic exchange.”
While the bulk of ISIL’s budget is allocated to the armed insurgency against Baghdad, the group may be spending millions on food subsidies, public works, and charity, key to winning local support in Sunni-majority strongholds such as Mosul. For all the jihadists’ oil and newly acquired wealth, administering a city of almost 2 million people may yet prove beyond their abilities. In recent days, residents have begun complaining of electricity cuts, plus water shortages. Fuel supplies also appear to be running low. Several Mosul residents reported that ISIL had imposed a 6-gallon limit on oil purchases. On the black market, al-Nujaifi says, gas is now selling at more than double the price in Erbil, the capital of Iraqi Kurdistan, itself an independent petro state in the making.
The oppressive policies of Maliki’s Shiite-dominated administration gave the jihadists an advantage in the contest for hearts and minds, says Governor al-Nujaifi, a Sunni, who fled Mosul along with Iraqi government troops as the ISIL attacked. Over the past eight years, he says, Maliki’s security forces had made life miserable for Mosul residents. Harassment, corruption, and arbitrary arrest had become routine. The police and the army, he says, “looked like a sectarian force, not a local force.”
“Nobody cared about the pressure against Arab Sunnis in Iraq,” says al-Nujaifi. “For 10 years the people held demonstrations, and they announced that they wanted their rights, but nobody listened to them.”
As a result, support for ISIL is widespread. Of the score of Mosul residents interviewed at a checkpoint on the city’s outskirts, only a minority opposed ISIL. Most praised the Islamist insurgents for removing the blast walls that had made traffic in Mosul unbearable, putting an end to petty crime and providing services. “They’ve made the city safe,” says Mus’ab, a student. “They’ve freed us from Maliki,” another man says. A number of people insisted that many if not most of the fighters were local men, not outsiders.
Al-Nujaifi warns that the honeymoon period, however, is bound to end. “ISIL will give people freedom, false freedom, for a few days, but it will finish soon after that,” he says, warning of the beheadings, public floggings, and amputations he is certain will come. “Soon they will try to apply sharia, or what they think is sharia, and the people will refuse.”
Al-Nujaifi is determined to take Mosul back from ISIL, he says, but insists that this won’t be possible if the Baghdad government cannot win over those Sunnis, including remnants of Saddam Hussein’s Baath party, who’ve allied themselves with the extremists. “Until now, they feel that there is no need to fight ISIL,” he says of the tribal leaders with whom he’s held talks over the past week. “They are asking us, ‘If you want us to fight ISIL you must give us [a] future,’” the governor says. “We must give the people confidence that the army that [oppressed] them before will not come back to Mosul.”
Zalewski is a Bloomberg Businessweek contributor.
