With the end of its territorial caliphate, the Islamic State will almost certainly attempt a comeback. Such efforts will require money. A new RAND report examines the group as an insurgency and a self-styled caliphate, with a focus on how the group managed its finances, drawing from the literature, the group’s documents, and interviews with individuals who lived under the caliphate.
The report recommends that the U.S. government will need to stay involved with counter–Islamic State activities across several lines of effort, including counter-finance and potentially including military action.
The Islamic State has prided itself on drawing from local funding sources rather than external donations. As a territorial caliphate, it could openly levy taxes and fees and sell oil from fields it controlled to cover its expenses. Now that it can no longer rely on such sources, the group will return to activities that it has used successfully in the past, as an insurgency.
“Criminal activities will prove useful, with its members seeking to extort, kidnap, steal, smuggle, and traffic to obtain the money they need to finance the group’s activities,” said Howard J. Shatz, an author of the report and senior economist at the RAND Corporation, a nonprofit, nonpartisan research organization. “On top of this, the Islamic State likely has detailed information on the population it once ruled, and it appears to have sizable assets in reserve.”
As an insurgency, rather than a territorial government, its expenses are far lower than they were at the peak of its power. With the loss of the territorial caliphate, there is no need to provide services to a populace. With a significantly lower operating budget, continued revenue-generating activities and the cash the Islamic State hoarded will provide it with adequate funds to survive as a clandestine terrorist movement with the ability to wage prolonged guerilla warfare throughout Iraq and Syria.
The report suggests that the most important measures in Iraq and Syria to counter any attempted Islamic State resurgence will be domestic intelligence gathering and law enforcement. Authorities will need to identify businesses that have Islamic State investments, the locations of cash storage sites, and money exchange and transfer businesses that are cooperating with the Islamic State.
“The group has an international network of financial relationships. And even though donations have not provided a large share of Islamic State revenue, the group has raised money around the world. International cooperation will thus be needed to address these connections,” said Patrick B. Johnston, an author of the report and a senior political scientist at RAND.
It will also be important for law enforcement entities to protect affected populations in Iraq and Syria as reconstruction progresses, both in the sense of security and in ensuring that funds are not extorted. Authorities will also need to ensure that the Islamic State does not find other means of accessing reconstruction funds.
Finally, better government will help alleviate some of the problems that led to the formation of the group in the first place. This will be more difficult in Syria.
Other authors of the report, “Return and Expand? The Finances and Prospects of the Islamic State After the Caliphate,” include Mona Alami and Colin P. Clarke.
This research was sponsored by the Smith Richardson Foundation and conducted within the International Security and Defense Policy Center of the RAND National Security Research Division (NSRD). NSRD conducts research and analysis for the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the defense agencies, the Navy, the Marine Corps, the U.S. Coast Guard, the U.S. Intelligence Community, allied foreign governments, and foundations.
