By Claude Salhani- Trend:
Running a country costs a lot of money. Running a country at war with all its neighbors and most of the civilized world costs even more.
There are enormous expenses incurred that range from paying fighters, to purchasing food to feed those fighters, to buying arms and munitions needed for the war, to providing health care for the casualties of that war, to paying the families of those fighters who were killed, to stashing "money away for a rainy day". And this day may not be too far away for the supposed Islamic State, IS, a.k.a. ISIL or ISIS.
Running a caliphate costs money. So the people behind the current attempt to take control of Iraq's oil, who collectively call themselves the Islamic State, decided they wound not mess around the way other terrorists have tended to do. Rather than going after the money in a petty manner or having to threaten and harass individual leaders for a few million dollars here, or a few million dollars there, and, since a few kidnappings, collectively worth a few million is considered chicken feed, They went directly to the mother lode: the oil wells.
In essence, what the leadership of IS are doing is very similar to what the Iraqi leadership under Saddam Hussein did in 1990 when they ran out of money after fighting Iran for eight long, bloody years: they raided the closest bank, the country of Kuwait, which Saddam simply declared was Iraq's 19th province. He then helped himself to the oil, the monetary reserves, and all the cash and goods he and his goons could get their hands on. They literally ransacked the entire country of Kuwait. What they could not loot, they trashed, broke, burned or destroyed. That included setting fire to about 550 Kuwaiti oil wells.
Today the IS leadership is following in the footsteps of Saddam, by going after 'the goose with the golden egg': the oil fields of Syria and Iraq. And although IS is selling the oil at $18 per barrel, a price far below the going market rate of $93.45. Obviously IS did not incur any investment in developing the infrastructure, so any monies they may make from selling stolen oil is pure profit.
Refined crude, when available, will sell between $50 and $60 per barrel. This is a crucial part of how the terrorist group Islamic State fills its coffers.
U.S. intelligence officials stated last week that they believe the terror group calling themselves the Islamic State has become one of the wealthiest groups in history. As reported by American intelligence sources, the IS is said to be netting between $2 million and $ 3 million per day.
Most of the trade carried out by ISIS is through illegal trade of Syrian oil, from fields in eastern Syria, like Shahada and others, and more recently from fields captured since June in Iraq. The Islamist terror group is creating its own economy through a series of pragmatic trades, according to a report in Turkey's Zaman newspaper.
The U.S., along with coalition of mostly Gulf Cooperation Council states and Jordan have started to target some of the Syrian field as the U.S. is trying to sever the group's sources of revenue.
IS has been able to get the wells in areas it control to function at only 60 percent of full capacity.
Before the outbreak of violence, Syria produced between 385,000- 400,000 barrels per day. Still running at 60 percent has provided the IS with some 200,000 bpd from the Syrian wells alone. However, due to the fact that they are operated below par, some intelligence reports place the number of barrels being produced closer to 50,000 bpd.
Zaman quotes an unnamed Western oil executive who used to work in Syria as saying that "the Islamic State makes not less than $2 million daily," off-loading this cargo.
In the meantime the IS has managed to deprive Damascus of some serious revenue stream. The Syrian government reports that its production fell to an average of 28,000 bpd in 2013 from 164,000 bpd in 2012. Oil sales made up nearly a quarter of state revenues before the war. The government says it has lost $3.8 billion in stolen oil revenue because of the conflict.
Syria's pre-war production, estimated at around 380,000 bpd, a 2001 estimate, suffered heavily when Kurdish forces took control of some of the fields located in Hasaka province. The IS has taken fields in Shadad, al Omar, Tenak and Ward that were operated by international oil companies such as Royal Dutch Shell, Total, and Petro Canada.
A number of wells were shut down as foreign firms withdrew, equipment was looted by rebels, rendering exploitation of the wells all the more difficult, and few people with technical expertise remain in the so-called caliphate.
Meanwhile in Iraq the same script is being played out. IS has taken control of fields that produced around 80,000 bpd. Again production has been reduced dramatically. But even with joint efforts from the U.S., its allies and the Kurdish forces IS continues to rake in millions everyday.
Claude Salhani is a senior editor with Trend Agency.
You can follow Claude on Twitter @claudesalhani.