How The Islamic State Smuggles Oil To Fund Its Campaign

Sep 9, 2014
Originally published on September 25, 2014 12:43 pm

Editor's Note: This story was published on Sept. 9. In light of the U.S.-led airstrikes on the Islamic State's oil production facilities, we wanted to showcase it once again.

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 Pesh Merga 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.

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Transcript

STEVE INSKEEP, HOST:

As we've discussed elsewhere in the program, President Obama tomorrow is expected to outline a military strategy to confront the Sunni militant group called the Islamic State or ISIS. There are also calls for a strategy to target the group's financial resources, especially oil. The militants are pretty savvy at smuggling and marketing oil as NPR's Deborah Amos reports.

(SOUNDBITE OF CHANTING)

DEBORAH AMOS, BYLINE: This is ISIS on June 10, rolling into Mosul, a city of 2 million people in northern Iraq. But it's now clear the big prize was oil - a bold grab for lucrative refineries and oil fields across Northern and central Iraq. The group uses violence to hold onto the area and now reaps huge oil profits. The business model is becoming clearer - smuggling networks, attractive low prices and forged papers - first, the takeover. ISIS swept into at least four fields, including Arjeel, one of Iraq's most productive, says Ben Van Heuvelen, managing editor of Iraq Oil Report.

BEN VAN HEUVELEN: ISIS was stealing oil out of pipelines, out of storage tanks, loading it into trucks and selling it to drivers for very cheap.

AMOS: Cut-rate prices - $25 a barrel - and at that price, there are plenty of buyers.

VAN HEUVELEN: The drivers were then selling to middlemen, and then middlemen would find a way to launder the oil, so to speak, and then sell it on.

AMOS: His calculation, based on interviews with drivers and reports of trucks crossing local borders...

VAN HEUVELEN: Our estimate was it was about a million dollars a day going across.

AMOS: ISIS was driven out of Arjeel at the end of August by the Iraqi military, but that hasn't slowed smuggling from other fields or dimmed the aim for bigger takings. The oil-rich province of Kirkuk is under threat. The effort to curb the smuggling there begins with Kurdish fighters known as the Peshmerga. They're the first line of defense, says Kirkuk's Governor Najmiddin Karim. The Peshmerga are doing more than just protecting.

GOVERNOR NAJMIDDIN KARIM: When we see oil tankers coming from areas controlled by ISIS, we confiscate those.

AMOS: So they have actually tried to set up trade by sending oil across the line?

KARIM: Oh, yeah. We have confiscated many oil tankers.

AMOS: But they keep trying to do it?

KARIM: They try to find other ways.

AMOS: Oftentimes they succeed, he admits, bribing drivers and officials to get papers forged.

KARIM: You know, wartime people do anything to make money. That's why they are called warlords.

AMOS: ISIS started their smuggling operation in Syria after capturing oil wells in Syria's Eastern Province, says Rafik Mark Latta with the Energy Intelligence Group. They now control an extensive operation, supporting a large network of refineries built by Syrian businessmen.

RAFIK MARK LATTA: I call these teakettle refineries, all very small, most are under 100 barrels a day.

AMOS: The network for exporting stolen crude is also well-developed, he says, moving through Turkey and Iran reaching markets as far away as Afghanistan and Armenia.

MARK LATTA: The number that gets quoted is anywhere between 1 and 3 million barrels a day. I suspect at times it's been more, you know. It's a tiny amount for a state, but it's quite a lot for a terrorist group.

AMOS: And it depends on local corruption, says Van Heuvelen. Unraveling those illicit networks won't be easy.

VAN HEUVELEN: If you can pay off even a low-level official to give you the piece of paper that he took from somebody else, then you can get your oil out.

AMOS: By the time he gets to Turkey or Iran, it looks like it's official oil?

VAN HEUVELEN: That's correct.

AMOS: It's a system that's made ISIS the richest militant organization in the world. Deborah Amos, NPR News, Istanbul. Transcript provided by NPR, Copyright NPR.