Key allies in the US and UK led war on Islamic State (ISIS) are covertly financing the terrorist movement according to senior political sources in the region. US and British oil companies are heavily invested in the murky geopolitical triangle sustaining ISIS’ black market oil sales.

The Kurdish Regional Government (KRG) in Iraq and Turkish military intelligence have both supported secret ISIS oil smuggling operations and even supplied arms to the terror group, according to Kurdish, Iraqi and Turkish officials.

One British oil company in particular, Genel Energy, is contracted by the KRG to supply oil for a major Kurdish firm accused of facilitating ISIS oil sales to Turkey. The Kurdish firm has close ties to the Iraqi Kurdish government.

Genel operates in the KRG with the backing of the British government, and is also linked to a British parliamentary group with longstanding connections to both the British and KRG oil industries.

The relationship between British and Kurdish energy companies, and senior British politicians, raises questions about conflicts of interest — especially in the context of a ‘war on terror’ that is supposed to be targeting, not financing, the ‘Islamic State.’

Kurds, Turks and blind eyes

One of ISIS’ most significant sources of revenue is oil smuggling. The Islamic State controls approximately 60% of Syria’s oil, and seven major oil-producing assets in Iraq.

Using a carefully cultivated network of intermediaries and ‘middlemen’ in the Kurdish region of Iraq, as well as in Turkey, ISIS has been able to produce a phenomenal 45,000 barrels of oil a day, raking in as much as $3 million a day in cash by selling the oil at well below market prices.

But the sheer scale and impunity of this oil smuggling network has caused local politicians to ask whether certain officials in the KRG and Turkey are turning a blind eye to these operations.

Iraqi, Kurdish and Turkish officials have accused both the KRG and Turkish governments of deliberately allowing some of these smuggling operations to take place.

Tensions between the KRG and Iraq’s central government in Baghdad are escalating over who controls production and revenues from oil fields within the Kurdish region. Kurdish officials see the oil within the Kurdish-controlled territory of Iraq as a means to seek greater autonomy, if not potentially total independence, from Baghdad — whereas the Iraqi government seeks to ensure it retains sovereign control over all sales from its own oil fields, which include those in the KRG.

Those tensions reached a crescendo when the KRG began unilaterally selling oil by exporting it to Turkey, bypassing Baghdad.

Complicity

KRG and Turkish authorities vehemently deny any role in intentionally facilitating ISIS oil sales. Both governments have taken measures to crackdown on smuggling operations, and US and UK authorities work closely with the KRG to identify ISIS smuggling routes.

Despite KRG arrests of Kurdish ‘middlemen’ involved in the ISIS black market oil sales, evidence continues to emerge that these measures are largely piecemeal, and have failed to address corruption at the highest levels.

According to a senior source in the Iraqi government’s ruling Islamic Dawa Party, US and Iraqi authorities have developed “significant intelligence confirming that elements of the KRG have tacitly condoned ISIS oil sales on the black market.”

The source, which has direct access to top Iraqi government officials, said that the KRG had originally seen the ISIS invasion of Iraq as an opportunity to consolidate Kurdish control over disputed territory, especially the oil-rich region of Kirkuk. The Kurds had not, however, anticipated how powerful ISIS’ presence in the region would become.

In the early period of the invasion last year, he said:

“Elements of the KRG and Peshmerga militia directly facilitated secret ISIS oil smuggling through the Kurdish province. This was known to the Americans, which shared intelligence on the matter with the Iraqi government in Baghdad.”

The issue inflamed tensions between Baghdad and the KRG, contributing to efforts by Hussein al-Shahrestani, then Iraq’s deputy prime minister for energy affairs, to crackdown on independent Kurdish oil exports.

His successor, new oil minister Adel Abdul-Mehdi, was brought in through a reshuffle in September last year that was engineered under US diplomatic pressure. Unlike Shahrestani, the source said, Abdul-Mehdi has a much more conciliatory approach to the Kurdish oil question, one which also happens to suit the interests of US and British investors in the KRG: “This has meant that Baghdad has also been much more lax on evidence of ISIS oil smuggling through the KRG.”

The source confirmed that under mounting US pressure, “KRG authorities have taken serious steps to curb the illegal smuggling on behalf of ISIS. But the smuggling still continues, although at a more restrained level, with the support of elements of KRG’s ruling parties, who profit from the black market oil sales.”

Turkey also plays a crucial role in the ISIS oil smuggling operations according to the Iraqi source. As the end-point through which much of this oil reaches global markets, Turkish authorities have routinely turned a blind eye to the IS-run black market. “The Turks have an acrimonious relationship with the Americans,” he claimed, but admitted that US intelligence is familiar with Turkey’s role:

“US intelligence is monitoring many of these smuggling operations in minute detail. Some of this intelligence has been passed on to us. The Americans know what is going on. But Erdogan and Obama don’t have a great relationship. Erdogan basically does what he likes, and the US has to lump it.”

The allegations have been confirmed by Turkish government officials and parliamentarians. In particular, a source with extensive connections to the Turkish political establishment including the office of the Prime Minister, said that Turkey’s support for Islamist rebels opposed to Bashir al-Assad’s reign in Syria began long before the emergence of the Islamic State, and was pivotal in the group’s meteoric rise to power.

Turkey, a longstanding NATO member, is part of the US-led coalition fighting IS, and has been integral to the region’s ‘moderate’ rebel training schemes supervised by Western military intelligence agencies.

“Turkey is playing a double-game with its Syria strategy,” said the source.

“Turkey has sponsored Islamist groups in Syria, including ISIS, since the beginning, and continues to do so. The scale of ISIS smuggling operations across the Turkish-Syrian border is huge, and much of it is facilitated with the blessings of Erdogan and Davitoglu, who see the Islamists as the means to expand the Turkish foothold in the region.”

Recep Tayyip Erdogon is the President of Turkey, and Ahmet Davutoglu is the country’s Prime Minister. Asked how this fits with recent Turkish operations to shut-down ISIS smuggling operations and target ISIS strongholds across the border, the source described the actions as too little, too late.

“These actions fit with Erdogan’s strategy of expansion,” he said. “We are not trying to shut down the infrastructure of ISIS, we are attacking it selectively.”

A shadow network in broad daylight

The ISIS oil smuggling route — which encompasses the KRG and ends up at the Turkish port of Ceyhan — was recently investigated by two British academics at the University of Greenwich.

The paper by George Kiourktsoglou, Lecturer in Maritime Security and former Royal Dutch Shell strategist, and Dr Alec Coutroubis, Acting Head at the Faculty of Engineering and Science, attempted to identify suspicious patterns in the illicit oil trade.

Their extraordinary study, published by Maritime Security Review in March, examined the international route used by ISIS, based on “a string of trading hubs” comprising the localities of Sanliura, Urfa, Hakkari, Siirt, Batman, Osmaniya, Gaziantep, Sirnak, Adana, Kahramarmaras, Adiyaman and Mardin. “The string of trading hubs ends up in Adana [in southeast Turkey], home to the major tanker shipping port of Ceyhan.”

By comparing spikes in tanker charter rates from Ceyhan with a timeline of ISIS activities, the University of Greenwich analysis identified significant correlations between the two. Whenever the Islamic State fights “in the vicinity of an area hosting oil assets, the… exports from Ceyhan promptly spike. This may be attributed to an extra boost given to crude oil smuggling with the aim of immediately generating additional funds.”

While the evidence is still “inconclusive” at this stage, the authors wrote that “there are strong hints to an illicit supply chain that ships ISIS crude from Ceyhan” to global markets. Since the launch of the ISIS oil venture in summer 2014, “tanker charter rates from Ceyhan re-coupled up to a degree with the ones from the rest of the Middle East.”

Though they could not be categorical, primary research including interviews with informed sources indicated that this was most likely “the result of boosted demand for ultra-cheap smuggled crude, available for loading” from the Turkish port.

Kiourktsoglu and Coutroubis call for “further research” on ISIS criminal ventures which “can potentially integrate it within the global economy.” The academics have previously given evidence before the parliamentary foreign affairs select committee regarding maritime security off the Somalian coast.

Their study also highlights failures in the US military approach to the ISIS oil operations. Although they commend how US, Turkish and Gulf air raids have “curtailed” the Islamic State’s “oil cashflows” by destroying some “oil manufacturing facilities,” this has not gone far enough. They report that:

“… extraction wells in the area of bombardments have yet to be targeted by the US or the air-assets of its allies, a fact that can be readily attributed to the at times ‘toxic’ politics in the Middle East.”

Despite large convoys of trucks transporting ISIS oil through government-controlled areas in Syria, Iraq and Turkey, “allied US air-raids do not target the truck lorries out of fear of provoking a backlash from locals.” As a result, “the transport operations are being run efficiently, taking place most of times in broad daylight.”

The public record

Evidence already in the public record corroborates the allegations of the Iraqi and Turkish sources, showing that corruption is endemic at both the origin and end-points of the ISIS smuggling route.

Informed observers inside and outside Turkey have accused the Turkish government of turning a blind eye to the smuggling of oil across the Syrian-Turkish border in its commitment to bringing down the Assad regime.

Prosecutor and witness testimony in Turkish courts revealed that in late 2013 and 2014, Turkish military intelligence had supplied arms to areas in Syria under Islamist rebel control, contributing directly to the rise of ISIS.

Turkish opposition MP Ali Ediboglu last year said that some $800 million worth of ISIS oil had been smuggled into Turkey. He also said that over a thousand Turkish nationals were helping foreign fighters join ISIS in Syria and Iraq through Turkish territory. Both, he alleged, are occurring with the knowledge and involvement of Turkish military intelligence.

In July 2014, Iraqi officials revealed that when ISIS had begun selling oil extracted from the northern province of Salahuddin, “the Kurdish peshmerga forces stopped the sale of oil at first, but later allowed tankers to transfer and sell oil.”

Three months later, a KRG Interior Ministry document leaked to the Kurdish media outlet, Rudaw, showed that a former opposition MP, Burhan Rashid, had accused KRG institutions of facilitating the flow of funds and arms to ISIS militants in Iraq.

“A Kurdish political party in Erbil has supplied the ISIS militants with weapons and ammunition in exchange for oil,” Rashid is recorded as saying. The document revealed that the KRG chief public prosecutor had secretly prepared a lawsuit against Rashid for making the allegations.

The lawsuit, which apparently went nowhere, was an obvious effort to silence criticism. By January, however, an investigative committee led by the KRG interior minister and natural resources minister had largely corroborated Rashid’s allegations.

Kurdish parliamentary sources familiar with the final report of the committee, which remains secret, told Rudaw the report had confirmed:

“… a number of officials from the ruling Kurdistan Democratic Party (KDP), the Patriotic Union of Kurdistan (PUK) and the Peshmerga have been involved in the illegal trade.”

Half a year later, the identities of officials investigated remain undisclosed, and no one has been charged, tried or sentenced. The KRG’s UK office did not respond to a request for comment.

The Nokan Group

Instead, a couple of months after the committee had reached its conclusions, evidence emerged that the Nokan Group, a major Kurdish company with close ties to the KRG, had been directly facilitating ISIS oil sales.

In a letter to the Nokan Group, Mark D. Wallace — a former US ambassador to the United Nations under President George W. Bush and CEO of the New York-based Counter Extremism Project — noted credible “reports that some Kurdish entities are in fact facilitating ISIS-related oil trade…

“Specifically, certain Kurdish companies are reportedly contracted to transport refined fuel from the ISIS-controlled Baiji refinery, north of Tikrit, Iraq, for delivery throughout the Kurdish region by Sulaymaniyah province authorities in Iraqi Kurdistan, in the north-eastern region of Iraq.”

Trucks owned or operated by Meer Soma, a “subsidiary” of the Nokan Group, “are being used to transport refined petroleum products from ISIS-controlled refineries to Kurdish entities in or near Kirkuk,” wrote Ambassador Wallace in the letter dated 20th March 2015.

Wallace noted that according to the Kurdish press, Meer Soma is among several Nokan-controlled dummy companies operating on behalf of the group, to avoid public association with the parent firm.