As ISIS sees its territory shrink to half its original size and its dreams of a caliphate evaporate, the extremist fighters are losing access to the sources of revenue that once gave them their power, prompting them to turn to extortion, kidnapping or foreign donations like their predecessors, the militant group al-Qaida.
The Islamic State group had a unique ability to capitalise on the natural resources of its territory in Iraq and Syria and swiftly implement a system of taxation and governance that allowed it to rule an area that once was the size of Switzerland.
As the battle gets underway to retake Mosul, the group's largest stronghold in Iraq, the Islamic State group is being denied access to revenue sources such as oil and gas and cash reserves that once amounted to more than USD 1 billion in 2014, said Daniel Glaser, the Treasury Department's assistant secretary for terrorist financing.
With those resources slipping away, the Islamic State group is expected to revert to "traditional methods we see al-Qaida using whether it's deep-pocket donors, whether it's charities, whether it's NGOs, whether it's criminal activity," Glaser said in a recent discussion at the Washington Institute for Near East Policy.
Beyond oil and gas sales, the Islamic State group also generated some USD 30 million per month in Iraq from taxation and extortion in 2015.
Hisham al-Hashimi, an expert on IS who advises the Iraqi government, said the militant group currently makes about USD 4 million per month from taxes in Mosul alone.
Al-Hashimi said the group charges a 4 per cent income tax on salaries less than USD 600 per month, and 5 per cent on monthly salaries between USD 600 and USD 1,000.
Bank robberies made up the Islamic State group's third biggest source of revenue, mainly in Mosul, where there was more than USD 500 million in state-owned bank vaults when they captured the city in June 2014, but that was "a one-time take for them," Glaser noted, and they are quickly burning through that cash.
Glaser says the Islamic State group is under financial duress. Fighter salaries have been cut in half in some areas, including in Raqqa, Syria, its de facto capital. The group also set up an internal corruption agency, suggesting corruption may be a factor, Glaser and al-Hashimi said.
To compensate, there's been a noticeable spike in the IS group's revenue from criminal activity, such as extortion the Paris-based Center for the Analysis of Terrorism says extortion accounted for a third of its revenue in 2015, compared to 12 per cent in 2014.
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