What Syrian antiquities reveal about Islamic State’s billion-dollar economy

The Islamic State's pursuit of Syrian antiquities doesn't point to economic weakness but rather the diversity of ways that the group can raise big money.

When the self-described Islamic State (IS) publicly beheaded a Syrian archaeologist last week for refusing to reveal the whereabouts of hidden treasures in the ancient city of Palmyra, it was a measure of how important the illicit sale of antiquities has become to the cash-hungry and predominantly self-financed organization.

But it was not a sign of financial desperation.

The extremist Islamist group that controls more than a third of both Syria and Iraq is awash in cash, experts in terrorist financing say.

The following all add up to bountiful IS coffers, they say, potentially for years to come: extortion and “taxation” of the populations it controls; illicit oil sales; ransom; seizure of bank deposits in the lands it has conquered – as much as $1 billion when it captured Mosul, Iraq, a year ago; and now the sale of small antiquities on a voracious international market.

When the Obama administration last year announced its strategy to “degrade and ultimately destroy” IS, it identified the group’s finances as one of five areas the new anti-IS coalition would focus on.

But what the beheading of Khaled al-Asaad and the fresh attention it brought to illicit antiquities sales told experts is that IS remains adept at diversifying its financial resources – and is managing to adjust to the squeezes that the outside world has put on some of its revenue streams.

“We know from experience that ISIS is not likely to just sit there and watch itself wither on the vine. It has shown it can adapt, and it has lots of opportunities,” says Matthew Levitt, a senior fellow and expert in counterterrorism and intelligence at the Washington Institute for Near East Policy, using an alternative acronym for IS.

“Antiquities is an example of that,” says Mr. Levitt, who has followed the group’s financing since he was a Treasury Department official a decade ago looking at the finances of Al Qaeda in Iraq, IS’s precursor. “For a long time they were not focusing on this stuff,” he adds, “and now it’s become very important to them.”

Indeed, the trafficking of antiquities may have become the second-most-important source of revenue for the group, according to the Congressional Research Service.

What sets IS apart from a terrorist group like Al Qaeda – and what is key to its becoming the wealthiest terrorist organization in history, experts say – is its hold on large swaths of territory with revenue-producing resources (oil, agriculture) and taxable populations.

“People are baffled at how ISIS can make so much money and keep up its revenue streams, but the key is that it is not like Al Qaeda that was always on the run and dependent on deep-pocketed donors somewhere far away,” says Colin Clarke, an expert in terrorist and insurgent financing at the RAND Corp. in Pittsburgh. “It’s the control of territory and its resources, including people, that is really critical.”

Yet as successful as IS has been at exploiting the financial resources of the territories it controls, experts and intelligence officials point out that all is not rosy on the extremist group’s ledger sheets.

Oil revenues, once estimated at as much as $1 million a day, are down, in some cases considerably – primarily as a result of airstrikes by the anti-IS coalition. The United States has taken out many of the mobile oil-refining units that the group deployed to turn crude oil from seized oil fields into marketable products to sell outside its territories.

And some of the other income sources like extortion and ransom that the group has relied on in Syria and Iraq are what officials following the group’s finances call “mature” – meaning that those sources are close to tapped out and cannot be relied upon long-term.

“After a while you can no longer squeeze blood from a turnip,” says Mr. Clarke of RAND. For example, IS levies a “jizya” tax on non-Muslim “infidels” such as Christians in some areas rather than expelling or killing them. But those groups’ resources are not bottomless and are drying up, experts say.

What the US success in cutting IS’s oil revenues has demonstrated is that there are things the international forces arrayed against IS can do to dent the group’s revenue streams.

Next month, President Obama will hold a summit of the anti-IS coalition countries on the margins of the United Nations General Assembly in New York. One item on the agenda will be new ways of “degrading” the group’s finances.

Coalition leaders are expected to take up the problem of antiquities smuggling and sales, say some officials following the coalition’s actions, especially given the heightened attention to the issue. Syrian antiquities are showing up on the London antiques market with growing frequency, with individual items fetching up to $1 million, according to reports.

The US Congress is also zeroing in on the role of antiquities in replenishing IS coffers. Recently a bipartisan group of senators proposed legislation, modeled on a bill already passed in the House, that would give the administration the authority it needs to be able to restrict the importation of artifacts smuggled out of Syria.

The one bright spot that officials working to counter IS finances see is that much of the group’s revenue sources within the territories it controls are not renewable. What that means, they say, is that unless IS is able to conquer new territories and take control of new populations, the terrorist group’s finances are likely to deteriorate.

“As the sources of ISIL’s wealth – notably the money stolen from banks and revenues from oil sales – are either no longer replenished or diminish over time, we expect ISIL will increasingly struggle to finance its operations,” said Jennifer Fowler, Treasury’s deputy assistant secretary for terrorist financing and financial crimes, speaking earlier this year at a Washington forum and also using another acronym for IS.

That could push IS to try to expand its territorial holdings, Ms. Fowler said – or it could prompt the group to look to some of the “wilayats,” or provinces it claims as far away as Libya and Yemen, as sources of funding for its operations. The Libyan wilayat that is headquartered in the city of Sirte is a potential source of revenue that bears watching, some experts say.

But reliance on funds from outside its core territory would open up IS to the kind of international interdiction it hasn’t had to deal with in Iraq and Syria, some say.

“We have been stymied by ISIS’s brand of financing itself in Iraq and Syria because our models don’t apply,” says Levitt of the Washington Institute. “But if they start relying on funds moving across borders, that we do have the strategies and experience to deal with.”

It’s that long-term reality that gives Levitt hope that the IS model of self-financing will eventually run dry. “ISIS over the long run – and by that I mean years – will run up against a wall because it doesn’t have a sustainable model,” he says.

Clarke agrees that IS will increasingly have trouble as its lack of “renewable” revenue sources begins to take a toll. And Fowler of the Treasury Department says the US is already seeing signs that IS is having trouble providing the services that go along with ruling over territory and controlling a large population.

But Clarke warns that the recent rise in the importance of antiquities sales to IS finances is a cautionary tale, underscoring how IS has been creative in coming up with new sources of revenue.

“Antiquities weren’t even on my radar a year ago, and now look where they are,” he says. “So I think we have to keep an eye on potential moneymakers that are out there – drug trafficking would be one – and remember that IS could come up with revenue sources that we aren’t even thinking about.”