Who Funds ISIS, and What Does ISIS Teach Us About States in General

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This blog examines the sources of funds of ISIS, to answer the question: Who funds ISIS? This serves as material to illustrate a bit about what ISIS teaches us about the nature of the state.

There are various accounts of the sources of funds of ISIS. The Guardian on Sunday, June 15 reported that detailed information about ISIS was obtained by the capture of 160 computer flash sticks from an ISIS official. The source of this account is release of information by a senior Iraqi intelligence official. He says that ISIS had assets of $875 million prior to capturing Mosul and that the capture added $1.5 billion more in cash and equipment. ISIS gathered funds before Mosul by securing “massive cashflows from the oilfields of eastern Syria, which it had commandeered in late 2012, and some of which it had sold back to the Syrian regime. It was also known to have reaped windfalls from smuggling all manner of raw materials pillaged from the crumbling state, as well as priceless antiquities from archaeological digs.”

“‘They had taken $36m from al-Nabuk alone [an area in the Qalamoun mountains west of Damascus]. The antiquities there are up to 8,000 years old,’ the intelligence official said. ‘Before this, the western officials had been asking us where they had gotten some of their money from, $50,000 here, or $20,000 there. It was peanuts. Now they know and we know. They had done this all themselves. There was no state actor at all behind them, which we had long known. They don’t need one.'”

Other accounts suggest some other sources of funds. The Centre for Research on the Arab World, part of the reputable University of Mainz, has one account. The Director, Gunter Meyer, points to individuals in Saudi Arabia. He too mentions oil revenues: “ISIS was able to get those [Syrian] oil fields under their control. They use trucks to bring oil over the border into Turkey. That’s an important source of funding for them.”

Taxes and extortion are another source of funds:

“The view of Charles Lister at the Brookings Doha Center is that ISIS is largely able to fund itself. ‘ISIS has made an effort to establish networks in society that generate a continuing flow of money.’ As an example, Lister points to the systematic extortion conducted by ISIS in the recently conquered city of Mosul.

“‘The exortion affects small businesses and big companies, construction firms, and if the rumors are true, even local government representatives,’ Lister told DW. ‘In addition, it’s suspected that the organization levies taxes in the areas that it completely controls – for example Raqqa in northeastern Syria.'”

Is there really any difference between taxes and extortion? The case of ISIS suggests that there isn’t. A proto-state behaves like a state by extracting revenues from those in its territory of control. ISIS also behaves like a state in grabbing resources, such as the oil in northern Syria, and in looting. The methods being used are age-old.

How does ISIS spend the money it collects? This too sheds light on how a state embeds itself with a population and creates its own particular equation of sources and uses of funds. Every state (and organization of any kind) by definition has this equation: sources of funds = uses of funds.

“‘It’s assumed that ISIS pays the foreign fighters in its ranks, but perhaps it pays all its troops,’ according to Charles Lister. ‘In the areas under ISIS control, the organization subsidizes bread, water, and fuel, and also finances the maintenance and operation of basic public services. All that costs money.'”

ISIS has three main uses of funds: military + goods to the population + support of government administration. The “population goods” keep its subjects quiet. The military provides the force and threat to be able to extract the taxes and other resources from looting. The support of government pays for the government officials, tax collectors and bureaucracies. Every state, not only ISIS, is the same. The equation, in simplified terms as exemplified by ISIS, looks like this:

TAXES = MILITARY SPENDING + GOODS TO THE POPULATION + GOVERNMENT ADMINISTRATION

(TAXES includes all forms of looting, and I’ve omitted charitable giving as a source because it is typically not a continuing major source for states. It can be a significant startup source.)

Since taxes are necessarily higher than goods returned to the population, the subjects of any state continually incur a loss. They supply the funds that go to the military that keeps them under the rule of the state. That and the resources that go to government administration are a deadweight monetary loss. (There are other losses. There is a loss in utility or happiness because the taxes do not go to goods that the citizens want. There are losses from the disincentive effects of taxes and government rules.)

ISIS, now a proto-state and seeking to become a state, began in violence and conquest. This is how states begin according to Franz Oppenheimer and Albert Jay Nock, among others. ISIS provides further evidence consistent with their theories of the state’s origins.

I’ll add one thing this afternoon, a word about looting. If the state is an expanding state that loots other countries and then uses the loot (slaves, materiel, food, goods) to pay off its citizens and/or to pay for its military, then it can make the state more acceptable to its initial groups of citizens. They won’t have to pay as much in taxes. Eventually when the state (or by then empire) runs out of new victims, the tax burden will then have to rise and/or the goodies being distributed cut back. If the military and administration have by then assumed a large size and absorb a lot of resources, the empire will begin to deteriorate by losing control over its population. The costs of extracting the necessary taxes to maintain the “court” and military and bureaucracy or whatever will rise and fall upon the citizens. They’ll then want to see more conquests and expansion.

7:56 am on June 20, 2014