The Islamic State group has made more than $500 million in oil sales on the black market and controls as much as $1 billion in cash from banks it robbed during its initial march across Syria and Iraq last summer, the Treasury Department estimates.

That may seem like a lot. But it only goes so far for the extremist group, particularly amid international military and economic efforts to contain it while it attempts to hold its so-called caliphate and govern a region of 5 million people or more. Analysts believe the group’s leaders need as much as $1 billion per month to keep generators filled, lights on and armored vehicles running.

So where are its resources coming from? That was the key subject of an unprecedented U.N. National Security meeting of 15 finance ministers on Thursday, headed by Treasury Secretary Jack Lew. The group adopted a plan it says will target the Islamic State group's oil production and sales, as well as seize up other sources of income the group collects from looting and selling antiquities and through an increasing emphasis on extortion and ransom rackets against the people within the territory it controls.

The new international law "will require countries to do more than they have been doing,” U.S. Ambassador to the U.N. Samantha Power told The Associated Press, adding the Islamic State group’s source of financing is "a problem we should be able to solve.”

But those with experience studying terrorists’ balance books say the group’s financial system is clearly much more advanced than Western governments previously appraised. It occupies a triangle between northwestern Iraq, northeastern Syria and southeastern Turkey where generations of underworld financiers have mastered the art of selling on the black market, smuggling goods across borders and turning illicit money into the kind of benign currency foreign banks accept. These regional experts working with Islamic State group leader Abu Bakr al-Baghdadi and his lieutenants don’t even need to buy into the group’s hard-line ideology, trading their expertise for the right to continue their illicit practices under the extremists' taxation.

But the model as is cannot last.

Smoking oil dregs are dumped into the ground on Nov. 14 near Derek, in Rojava, Syria.

John Moore/Getty Images

“Overall, they are an insurgent group that is acting like a state because circumstances are allowing them to do that,” says Matthew Levitt, a former Treasury official who tracks terrorist financing with the Washington Institute for Near East Policy. “In the long term, they don’t have a sustainable financial model. In the near term, which could be a decade, easily, they can get by.”

Levitt says he doesn’t see the kind of inflation that would normally exist in a region where money is only circulating around, rather than in and out. That's just one of a series of signs observers who spoke with U.S. News point out suggest a governing body like the Islamic State group would not have been able to survive as long as it has without accessing Jordanian, Turkish or Lebanese banks, trading with buyers outside its borders and – most troubling for countries like the U.S. – enjoying the support of international financiers living in places like Saudi Arabia, which enjoys a close but complicated relationship with Western powers.​​​​

For its part, Saudi Arabia has long denied allegations of funding terror, which extended back to claims the Islamic State group's predecessor al-Qaida received money from within the kingdom.

“There are pockets in those countries where people are sympathetic” to the extremists' cause, Dennis Lormel, a former terrorist finance investigator with the FBI, says of the entities that could support the Islamic State group's finances. “That sympathy certainly helps you be willfully blind. Part of it is a level of indifference and greed. Part of it is a facade that you think you’re dealing with legitimate money, when in fact you’re not.

“And part of it is the underground market,” Lormel says, stressing perhaps the largest gap in efforts to defeat the Islamic State group. “None of us really has a good grasp on that.”

Some of the U.S.-led efforts to cut off financing of the Islamic State group, also known as ISIL or ISIS, have had some success. A ​ military campaign that began in recent weeks dubbed Tidal Wave II has capitalized on intelligence gleaned from a commando raid that killed a top Islamic State group financial minister known as Abu Sayyaf in May​. One result of the campaign was evident last week when the Pentagon announced it killed a replacement finance chief for the extremist group in an airstrike – the third in as many months.

But it has also generated a newfound understanding of how the extremist network produces, moves and sells its oil, allowing coalition warplanes to start targeting oil sources without destroying the energy infrastructure of the country, officials say. This concern has served as the key excuse the White House has offered since the war began last year for why it hadn't targeted oil infrastructure sooner.

“It’s definitely hurting ISIL,” a senior U.S. official said on the condition of anonymity in order to speak candidly. “But let’s be clear: This is their primary source of revenue, and for quite some time. We believe that this is going down by the day.”

He did not offer further specifics since the U.S. is still appraising the Islamic State group's supposedly shrinking income. But at its peak, the Islamic State group was able to generate as much as $1.5 million per day off oil sales, he said, adding that number has diminished significantly.

The official also confirmed the extremist group previously profited from oil smuggled into Turkey.​ Russia has stepped up its rhetoric supporting these claims in recent weeks, ever since Turkey shot down one of its fighter jets that crossed into Turkish airspace without permission. Russian leaders insist top Turkish officials are still buying Islamic State group oil with the complicity of Prime Minister Recep Erdogan, who denies the allegations.​

"We do not believe that there is much smuggling going on from ISIL territory into Turkey,” the U.S. official said, crediting U.S. and Turkish diplomatic efforts for stemming the flow of smuggled oil, but also saying the complexity of the trip and risk of losing oil shipments makes it no longer cost effective for the Islamic State group.

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He would not offer further specifics, but indicated the main buyers are within Syria – likely those under the Islamic State group's control and, as other U.S. officials have indicated, the Russian-backed regime of Syrian President Bashar Assad.

The U.S.-led strategy is not focused on eliminating the Islamic State group’s ability to produce oil, as that would be an expensive endeavor and the network has become adept at deploying mobile refineries available on the Internet to re-establish oil flows following a coalition airstrike. Rather, the emphasis is on targeting elements of the chain of distribution, such as attacking truck drivers or mounting airstrikes that could taint the quality of the product, driving down revenues and making the venture too expensive to continue.

Even if the U.S. were able to dry up all of the Islamic State group’s oil income, it would still receive support elsewhere. The success of Tidal Wave II has already demonstrated the group’s ability to, as U.S. officials have said, turn to other sources of income in recent weeks, like extortion and kidnapping, which are not sustainable in the long term but could tide it over until it finds other income sources.

International donations remain a huge problem, particularly from countries with which the U.S. may be allied.

Analysts​ ​have expressed concerned about Saudi Arabia’s hard-line religious movement, such as the ultra-conservative Wahhabism that originated there. It continues its highly orthodox teachings through thousands of schools and helped inspire the rise of groups like al-Qaida.

A 2009 State Department document leaked through anti-secrecy group WikiLeaks indicated concern among U.S. officials for Saudi Arabia's "critical funding​" of groups like al-Qaida or the Taliban, but those concerns have not been fully substantiated. One of the most widespread explanations is that the kingdom sees these Sunni Muslim extremists as the most effective hedge against their rival Shiite Muslim organizations, such as the Lebanese militant political party Hezbollah, Assad in Syria or the Iranian government itself.



“The U.S. is caught between a rock and a hard place. If they really want to fight ISIS, they have to degrade and destroy their ideology at the source, not to spread any further, and stop those actors [who] promote radicalism with petro dollar funding,” says Luay al-Khatteeb, an energy analyst with the Brookings Institution's Doha Center.​ “Wars on radical ideologies are not fought only by guns but by education and stopping all financing efforts that lead to radicalism. ​

"The U.S. and its Western allies really need to have a candid, frank dialogue with their own traditional partners in the Gulf and any hard-liners, on how to put an end to this ideology.”

Of its $250 billion budget, Saudi Arabia spends roughly 20 percent on education. That's about the same as what it spends on defense.