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Oil Smuggling Highlights Challenges in Shutting Down IS Finances

FILE - Members of the Kurdish Peshmerga forces and the Iraqi security forces patrol on a road as smoke billows from the Khubbaz oil field, some 25 km west of the northern city of Kirkuk, Feb. 2, 2015.

In the span of one year, Islamic State militants made more than half a billion dollars by seizing government banks, illegal oil sales, kidnapping and extortion, making them one of the wealthiest terrorist organizations in the world.

The United States, its allies and the United Nations are making efforts to shut down the money flows. Airstrikes in Iraq and Syria have knocked out oil fields and refineries. The United Nations Security Council has adopted strongly worded resolutions to prevent oil smuggling.

Pentagon spokesman Rear Admiral John Kirby said Friday that the Islamic State "certainly continues to get revenue from the oil industry black market" but that airstrikes have made a dent.
Michael Lynch, president of Strategic Energy and Economic Research, says oil is still being smuggled into Turkey and even being refined in Iraqi and Syrian backyard distilleries for local sales.

"I think it's almost impossible to control unless you have essentially the rule of law in that area, and you just don't have that," he says.

Funding Sources for Islamic State Groups
Funding Sources for Islamic State Groups

An underground network of smugglers was first built up in the region when the world imposed economic sanctions against Saddam Hussein's Iraq in the 1990s. And the Islamic State is following the same pattern, using Iraqi, Kurdish, Syrian and Turkish smugglers to move truckloads of oil from Iraq to Syria and Turkey's Ceyhan port, where brokers blend it with other oil and ship it out.

Located relatively close to the Syrian border, Ceyhan is a major trans-shipment point for oil.

'Blood oil'

Unlike blood diamonds - diamonds that are mined in war zones then sold to fund insurgencies in West Africa - the Islamic state "blood oil" is not being tracked, Lynch says.

"With blood diamonds you can kind of do tests to figure out where the diamond came from. With oil you can theoretically do the same thing, but somebody has to want to do it. So if the oil is being shipped off to some place like Greece, or Cyprus, for refining, or Italy, they are probably not trying to see if there are any chemical signs that the oil came from northern Iraq.”
According to the U.S. Treasury department, in 2014 the Islamic State group may have earned as much as several million dollars per week, or $100 million in total from the sale of oil and oil products to local smugglers.

Lynch says the majority of payments are in cash. And because smugglers are not shipping big tanker loads on the ocean but individual truck loads, the payments are simply passed between the truck driver and the producer, and then the truck driver and the person to whom it is delivered.

On February 12, the U.N. Security Council passed a resolution condemning any direct and indirect trade, in particular oil and oil products, with IS and other terrorist groups.

Expressing concern that vehicles coming and going from al-Qaida and IS-controlled areas of Syria and Iraq could be carrying everything from oil to gold and electronics, the resolution calls on states to step up their efforts to prevent and disrupt the trade.

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    Sharon Behn

    Sharon Behn is a foreign correspondent working out of Voice of America’s headquarters in Washington D.C  Her current beat focuses on political, security and humanitarian developments in Iraq, Syria and Turkey. Follow Sharon on Twitter and on Facebook.