Islamic State faces imminent financial collapse, claims new study

March 1, 2017 by Joseph Fitsanakis

The Islamic State is facing imminent financial collapse, according to a new study conducted by a London-based research group in association with one of the world’s leading international accounting firms. The recently launched report is entitled Caliphate in Decline: An Estimate of Islamic State’s Financial Fortunes. The analysis that forms the basis of the report was conducted by scholars at the International Center for the Study of Radicalization, a research center that operates out of the Department of War Studies at King’s College in London. The report’s authors were joined by financial analysts at Ernst & Young, a British-based company that is often referred to as one of the world’s ‘big four’ accounting firms.

The report challenges the widely accepted claim that the Islamic State is the wealthiest terrorist organization in history. Its authors argue that the organization’s wealth is connected to its function as “a quasi-state”, with a geographical territory under its control and a subject population that lives in it. Territorial control, say the report’s authors, allows the Islamic State to amass significant revenue from sources like direct and indirect taxation, extraction of natural resources, and confiscation of property from citizens, among others. Even though much of the Islamic State’s financial activity is hidden, the study uses open sources to make the claim that the group’s income in 2014 was close to $2 billion. Last year, however, the overall income amassed from all sources dropped to less than $900 million, an estimated reduction of 45 percent, say the researchers.

The reason for the drop is that the financial revenue model of the Islamic State is directly linked to its territorial control. In comparison to the peak of its power in the spring of 2014, the Islamic State has today lost control of over 60 percent of its territory in Iraq and nearly a third of its territory in neighboring Syria. As coalition forces are beginning to retake Mosul, the Islamic State is facing the potential loss of the caliphate’s commercial capital. These developments will continue to seriously erode the group’s tax base and severely limit its revenue streams. There are no signs, say the researchers, that the Islamic State has been able to devise new forms of revenue streams that are not connected to direct territorial control. However, the authors of the study warn that a potential financial collapse of the Islamic State will not prevent the organization from carrying out terrorist activities in the Middle East and beyond.

► Author: Joseph Fitsanakis | Date: 01 March 2017 | Permalink