Oil, Theft and Tax – the dubious economics behind Islamic State

Oil, Theft and Tax – the dubious economics behind Islamic State

With a monthly income exceeding $80 million, the so-called ‘Islamic State’ has prospered so much financially since its inception in 1999 that it can almost be thought of as an economy in its own right. Its effective recruitment techniques, in conjunction with its abilities to maintain vast amounts of funding for its activities, are paramount to its success as an organisation. Yet, in years to come, if its leaders want to see continued rapid growth, they must overcome a myriad significant economic problems that will inevitably arise. Modelling the terrorist organisation as a large and bureaucratised firm, we can examine some of the barriers to growth that it will face in the future.

While oil reserves remain its most profitable resource, ISIS also ruthlessly exploits religious beliefs to maximise the income it receives. The organisation hijacks the Islamic ritual of ‘Zakat’, which involves followers of the religion donating around 2.5% of their wealth to the state to help those who are financially challenged. Across many of the Middle East’s towns and cities, those donations now directly fund the terrorist group. ISIS claims the majority of its revenue from levying extortionate taxes on the regions it holds – for example, until its liberation last year, Mosul was subject to a 50% surcharge on all the goods and services purchased within its borders. Such a high tax rate was enforced by the terrorist organisation’s foot soldiers, who would transfer the funds to their leaders in order to purchase weapons and train new recruits.

It would perhaps be strange to offer advice to an international terrorist organisation – but, to spur on success in the future, the leaders of ISIS must ensure that through taxation its followers can never become financially independent. This will guarantee both a supply of money and a base of followers, who become ideologically influenced by the group upon which they are totally reliant. Only then will the organisation see a period of continued prosperity as it has in the past.

Yet, despite having an income which dwarfs those of previous terrorist groups, ISIS will also continue to rely on an expansion of its army and workforce in order to survive. As with the entrepreneur, it must combine capital with labour in order to pursue an ever-increasing growth of its territorial domain.

Where its capital inputs are funded by revenue from taxation, labour is sourced from Africa, Asia and Europe as well as the Middle East with the use of recruitment propaganda. In this way, ISIS as a firm relies on its ‘brand image’ to influence potential recruits in other countries. Western governments do their best to suppress ISIS propaganda, but the freedom of the press in the countries they govern allows the terrorist organisation to reach newspapers daily. However, despite attempts to shift the theme of propaganda away from violence and towards a vision of a utopian ‘caliphate’, the organisation’s true motives are becoming universally known throughout the world.

In the future, the speed at which labour inputs can be accumulated will depend on the reputation of the group – a reputation which, considering recent events, may not be sustainable. This is clearly the case with the world’s most successful corporations, exemplified by Apple, Microsoft and Coca-Cola, who have all used their branding as a valuable resource.

So far we have considered the organisation’s sources of revenue, as well as its capital and labour inputs. If we assume that ISIS does operate in the same manner as a firm or economy, we must therefore also take into account its use of land. Its territory spans over nine countries in the Middle East and Africa, including Syria and Iraq, but recently it has lost control of several cities due to American intervention. ISIS depends on its land for loot, natural resources and followers, so it can be said that land is one of its most important assets. In fact, the group exists for the purpose of creating a ‘caliphate’, where there is both a political and ideological monopoly aligned with the beliefs of certain branches of Islam.

Taking all these factors into account suggests that, as an economy, ISIS will fail to survive. It may have an abundant supply of cash, and through that will be able to acquire capital, but as its reputation fails to yield a steady supply of recruits in the future, it will not gain the optimal levels of each factor of production for growth. It fails to live up to its self-proclaimed title of ‘state’, since it neglects its responsibilities of welfare and instead focuses on the constant expansion of its operations. In this way, it has an insufficient institutional framework for long-term prosperity, so its development will be constrained. Its power as an economic agent will decrease as its inputs become less reliable, and unless the ways in which such inputs are accumulated are significantly changed, the future of ISIS will remain uncertain.

BY: Greg Tucker

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