For the first time, the United States is trying to sever Islamic State's primary financial lifeline – dispatching warplanes to bomb the terror group's elaborate oil-smuggling network.
The U.S. military destroyed more than 100 trucks in Syria believed to be involved in moving IS oil on Monday. The attack comes on the heels of a deadly rampage in Paris on Friday – allegedly perpetrated by members of the terror group – that left 129 dead.
The air strikes – which had been planned well before the Paris attacks – represent the most direct effort yet to disrupt the Islamic State's sophisticated, multimillion-dollar financial network. In recent years, the terror group's revenue-generating mechanisms involved everything from extortion to antiquities smuggling. However the single biggest source of cash has long been the smuggling and selling of oil from IS-controlled territory, particularly in eastern Syria. By most estimates, the illicit oil business provides IS with more than $1-million a day.
Given the relatively small odds of the U.S. and its Western coalition partners dispatching large numbers of troops to the region, financial disruption remains one of the most important ways of combating IS. However Washington has been reluctant to approve widespread bombing campaigns aimed at the group's oil facilities. That's in large part because virtually all of those facilities – while they may be in IS-controlled territory – tend to employ Iraqi and Syrian civilians. Indeed, before the bombing run on Monday, U.S. military jets littered the area with leaflets urging civilians to leave.
Unlike other terror groups – most notably al-Qaeda – Islamic State generates a relatively small amount of its revenue from donations. Instead of wealthy donors, the group has relied on a vast shadow economy.
"Throughout the second half of the 2000s, the group's main sources of revenue included oil smuggling, sales of stolen goods, extortion and other criminal activities," said Howard J. Shatz and Erin-Elizabeth Johnson, analysts with the RAND Corporation, in a recent report on the terror group. "When [the Islamic State in Iraq, the IS predecessor] was on the defensive in 2007 and 2008, one of the group's strategists counseled against seeking money from foreign state sponsors, since those sponsors could ultimately end up controlling the group. He also criticized those who ignored the principle of self-sufficiency, viewing that as a symptom of bad financial management."
The extent to which the bombing affects IS likely won't be seen for some time. However, the bombing comes at a time when other anti-IS forces are also stepping up military pressure on the group. In response to the Paris attacks, the French government has sent jets to bomb the group's self-declared capital of Raqqa in Syria. Perhaps most significantly, Kurdish and Yazidi fighters have made inroads on the ground in recent weeks, cutting off important supply routes and likely disrupting some of the many ways IS moves money and weapons.
As markets opened in Europe on Monday, the economic aftershocks of the Paris massacre were plainly evident. Overall, most of the continent's major stock markets held firm, but myriad companies in the tourism and travel sector – including airlines and hotels – took a beating. On the flip side, oil prices jumped on fears of political uncertainty, as did the price of gold, as investors flocked to the traditional financial safe haven.
"This morning's flow tends to drive home the fact sentiment can turn on a dime," Brenda Kelly, head analyst at London Capital Group, said. "The rise in geopolitical risks is difficult to quantify, but it is easy to witness the response at a glance this morning."