Death and Taxes in Islamic State

ISIS is running out of taxpayers.

In January of this year, an internal ISIS memorandum on the group’s finances was leaked to the public. In it, ISIS revealed it was cutting the pay of its soldiers substantially. In 2015, ISIS’s fighters were being paid between $400 and $1,200 per month, depending on their seniority and their job. The leaked memo said ISIS was going to cut its fighters’ salaries in half.

In the months since the memo leaked, there have been reports that ISIS is facing defections over the pay cuts. Reports of ISIS defections are nothing new, and in the past have led to overly optimistic assessments of ISIS’s strength, but this is the first time the reports have been accompanied by hard evidence that ISIS can’t make payroll anymore.

The reports of ISIS’s financial difficulties coincide with significant losses of territory for the group. The Iraqi Army retook Ramadi in February; in March, Syria’s army retook the ancient city of Palmyra. There are a number of reasons for ISIS’s recent losses, including the eighteen-month-old U.S.-led bombing campaign, the increasing competence of the Iraqi Army and the fact that Bashar al-Assad’s forces are finally fighting ISIS rather than ignoring it. But it seems clear from reports on the scene that one of the factors is ISIS’s financial troubles.

ISIS’s newfound financial hardships contrast sharply with its position just a short time ago. ISIS was being described as the best-funded terrorist group in the world, with a wide array of known funding sources. ISIS was so flush with cash that David Cohen, the U.S. under secretary of the treasury for terrorism and intelligence, called ISIS “probably the best-funded terrorist organization we have confronted.” This sentiment was echoed by a CBS News report saying ISIS was “the world’s richest terrorist group ever.”

These statements were true at the time they were made, but now ISIS is facing major budget cutbacks. What explains the change? One explanation is U.S. air strikes against ISIS oil infrastructure, combined with falling oil prices. In August 2014, when ISIS’s territorial reach was at its greatest and the United States was not yet launching air strikes against the group, oil was trading at around $100 a barrel. Today, it trades closer to $35.

The drop in oil prices and the attacks on oil infrastructure undoubtedly hurt ISIS’s finances. But a RAND Corporation study of ISIS’s balance sheet showed that ISIS takes in more revenue from extortion and illegal taxation than from oil. Now, ISIS’s ability to fund its operations from these illegal taxes is under just as much strain as its dwindling oil revenues, because ISIS’s tax base is literally fleeing the territory the terror group controls.

Parts of Iraq that fell under ISIS’s control became severely depopulated while under occupation. Ramadi, for example, was once home to 450,000 people. By the time the Iraqi Army retook the city, only four thousand to ten thousand people remained in the city. The pattern repeated itself in Fallujah, where some estimates are that only about three thousand families remain in a city that was once home to about 250,000 people. Mosul has suffered a similar fate: ISIS has forced about a third of Mosul’s population, over five hundred thousand people, out of the city.