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Oil and Opium: Exploitation of Natural Resources by the Taliban and the So-Called Islamic State

Oil and Opium: Exploitation of Natural Resources by the Taliban and the So-Called Islamic State

From Al-Shabaab’s exploitation of the charcoal market in Somalia to the Revolutionary Armed Forces of Columbia’s levies on mining activity in Columbia, extremist groups all over the world exploit natural resources as part of their funding strategies. This report will examine the natural resources harvested by the so-called Islamic State (IS) and the Afghan Taliban.

On the IS front, the oil fields of Iraq and Syria have turned into a lucrative funding mechanism for the group. The military victories of IS in the oil fields of Iraq and Syria left the group with an important network of oil-rich territory. Two thousand miles to the east, in Afghanistan, the Taliban has reaped significant payouts from their exploitation of the opium poppy industry. Both groups have a certain set of tradeoffs associated with their resource of choice, along with a portfolio of different buyers for their final product. The following sections will contain details regarding the oil and opium poppy production of each respective group, their buyer markets, issues related to each resource, and finally a discussion on how counter-terrorism strategies affect the local populations involved in the exploitation of each resource.


The Islamic State of Oil

IS has three primary revenue sources :  (1) taxes and fees, (2) confiscations, looting, and fines (3) and oil. Figure 1 illustrates how kidnapping ransom fees account for a small percentage of  IS’ revenue as well.

Figure 1: IS Revenue Sources

Figure 1: IS Revenue Sources

Oil was a smaller part of the group’s portfolio in 2014, but IS military victories secured a larger share in 2015. These temporary gains were short-lived, only to be set back by coalition airstrikes and military operations in 2016-2017. At the height of their success, the group was able to produce and sell up to $550 million worth of oil per year. After coalition air strikes against IS oil positions became more frequent and successful, revenue streams were reduced from upwards of $50 million a month to a meager $4 million.

In order to convert this oil into cash, weapons, or supplies, IS must find regional buyers for their product. The market for IS oil is muddled and contains some surprising partners.

Most of the oil produced is sold domestically. It is sold to IS fighters in order to power vehicles and homes, but also to civilians in areas under IS control. The group has monopolized the market in some areas, such as in Raqqa. While Raqqa was completely under IS control, the group could control a great deal of the goods being exported out of and imported into the city. This left little choice for consumers in the area, making IS the go-to seller for the purchasing of cheap oil.

Oil that cannot be sold domestically is sold to regional consumers. Senior U.S. Treasury official Adam Szubin describes how “a great deal” of IS oil is sold to the Bashar Al-Assad regime.  The rest of the oil is exported to foreign markets including Turkey, Kurdistan, Iraq and Jordan. The oil sold in these foreign markets is less profitable available than selling domestically. The oil must be smuggled and sold at a discount; meanwhile, much of the remaining profits go to intermediaries within the supply chain. Figure 2 illustrates a few of the various routes used to transport IS oil.

Figure 2: Oil Routes

Figure 2: Oil Routes

Using oil as a major source of revenue has its pitfalls for the extremist organization. The fact that IS cannot sell oil openly in foreign markets limits the oil’s profitability. As mentioned before, the oil usually must be sold at a discounted rate, and the act of smuggling is expensive. Even more, coalition airstrikes severely hamper the productivity of the group’s oil industry. Under the airstrikes, the oil fields can only operate at a fraction of their typical capacity. Lastly and perhaps most importantly, IS does not have the technical specialists and manpower required to keep the industry functioning at a sustainable level. Even without the coalition’s airstrikes, productivity would still fall due to maintenance and logistical issues. With oil quickly losing its place among the group’s finances, it is likely that we will see an increase in other areas of funding such as kidnapping, taxes, or increased fines and extortion against populations still under IS control. These funding strategies will likely be more violent in nature since they depend on the abuse of local civilians and foreign kidnapping targets.

Figure 3: Russian Air Strike Destroys IS Oil Trucks, Along with a Civilian Family in Their Car

Figure 3: Russian Air Strike Destroys IS Oil Trucks, Along with a Civilian Family in Their Car

Opium and the Taliban

The Afghan Taliban benefited from opium poppy production and the opium trade for decades. By the end of the height of the Islamic Emirate of Afghanistan, when the Taliban controlled a significant portion of the country during 1996-2001, opium production decreased significantly due to a ban by the Taliban regime in 2001. 

Figure 4: Opium Production in Afghanistan

Figure 4: Opium Production in Afghanistan

Despite these drastic reductions, the Taliban still earned significant sums from the opium production that remained. This was due to soaring prices caused by the supply shock. After the U.S. invasion of Afghanistan, poppy production returned to normal levels.

More recent studies show (although exact figures are elusive) that the Taliban may receive up to a third of their funding from opium poppy production. The UN Office on Drugs and Crimeestimates that the Taliban earned anywhere from $450 million to $800 million during 2005-2009. The extremist organization has developed a sophisticated taxation system on the production, processing, and transportation of opium. This taxation system includes direct levies on opium poppy farmers, tolls on transports, and protection fees for transports moving through Taliban controlled areas. The taxes range from a 10% tithe or ushr (a zakat on agricultural goods) on opium poppy, to a 20% zakat (a form of Islamic alms-giving, one of the five pillars of Islam)  on trucks transporting the harvested good. As previously mentioned, even when production is decreased, the taxes remain. This means that the Taliban still reaps significant sums from the industry due to the corresponding price increases associated with supply shocks.

The poppy plant accounts 13% of Afghanistan’s GDP. Since the plant sells for much more than the cost of the cheap labor required to produce it, it is popular amongst Afghan farmers. Afghan farmers and smugglers sell opium poppy and opiate narcotics all over the world. Figure 5 shows the typical trade routes of the crop.

Figure 5: Afghan Opium Poppy Trade

Figure 5: Afghan Opium Poppy Trade

The destinations for Afghan opium poppy are much more widespread than the market for IS oil. This is likely because even the Afghan Government has a hands-off approach regarding opium poppy production. The Afghan Government taxes production in their territory as well, and these tax revenues are a significant source of income for local governments.

 

Civilians Caught in the Middle

The fight against IS and the Taliban includes cutting off their revenue streams. The coalition battling IS has been very effective in destroying sources of oil revenue for the extremist group. Destroying revenue from opium poppy production has been less effective, both due to the Afghan Government’s need for opium poppy revenue and the reliance on the crop by local Afghan farmers.

As one of the world’s poorest countries, shifting the Afghan economy from opium poppy production to another revenue source will take much more careful planning and strategy than simply destroying opium poppy fields in the same way that coalition forces have struck IS oil fields. The reliance of farmers on this crop will have to be replaced with a more favorable crop that is not detrimental to consumers around the world and also continues to bring in revenue for local farmers and local governments.

Even the fight against IS oil revenue leaves some civilians stuck in the middle. Since IS cannot maintain the oil fields on their own, many of them are operated by civilians. In fact, civilians are responsible for much of the refinement, transportation, and final sale of the oil leaving IS held territory. The Washington Post has reported that coalition attacks on the small makeshift refineries that Syrian and Iraqi civilians set up in IS held territory has contributed to the poverty in these areas by leaving civilians without any income and raising the price of oil.

Whatever the manner in which these two groups are stopped, it is important to remember that these wars take place in extremely poor areas populated by many more vulnerable civilians than enemy fighters. The same strategies that cut off the revenue streams of these groups may also harm the income of already poor local populations. In Iraq and Syria, returning control of oil fields taken from IS to civilian workers is vital to rebuilding the economy after the fight is over. In Afghanistan, cutting off the flow of funds from opium poppy to the Taliban would be a huge thorn in the side of the group, but equally important is maintaining the welfare of the Afghan farmers who rely on this crop for survival. A slow replacement of opium poppy with a more sustainable and less controversial crop, along with measures to cut the link between the Taliban and their revenue from agriculture in general would leave Afghanistan with a much more stable and prosperous agricultural industry, and in turn decrease the total supply of opiates flooding world markets.

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