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U.S. airstrikes succeeding in cutting oil financing for Islamic State

The military campaign is damaging IS finances, but more is needed to end the group's reign of terror.

By Daniel Graeber

WASHINGTON, Oct. 24 (UPI) -- President Barack Obama in early September announced coalition airstrikes would "degrade and ultimately destroy" the group calling itself the Islamic State.

With no boots on the ground, the Pentagon said striking oil installations controlled by the Sunni-led terrorist group would help cut off its revenue stream and thwart its ability to make territorial gains by destroying a critical fuel source.

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In its latest assessment, the International Energy Agency said the military campaign may be working in degrading IS finances.

Destruction, however, may require other efforts.

At its peak, IS was in control of about 70,000 barrels per day in regional oil production, more than half the capacity from the Bakken oil patch in North Dakota. Army Gen. Lloyd J. Austin, commander of U.S. Central Command, said continued airstrikes were undermining the financial base of the militant group.

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"By striking these types of facilities, we reduce their ability to generate the funds and the fuel required to sustain their operations," he told reporters. "And we are having the desired effects."

Before and after airstrike on the Islamic State-controlled Gbiebe modular oil refinery in Syria. (Department of Defense)

Elizabeth Rosenberg, director of the energy and security program at the Center for a New American Security, told UPI in response to email questions that oil is only a part of what's funding the reign of terror across Iraq, Syria and the broader Levant.

"In the overall campaign to cut off funds to IS, it is critical that the United States and its allies work not just to shut down IS control of oil production and sales, but also use financial sanctions and outreach to foreign political leaders and financial regulators to halt the flow of funds in their jurisdictions that empower IS," she said.

Since the coalition-led bombing began in earnest, the group has taken more territory and pushed even farther into Iraq. Rosenberg and others say oil is just part of the revenue stream for what some describe as the best-financed evolution of al-Qaida ever.

David S. Cohen, Under Secretary for Terrorism and Financial Intelligence at the Treasury Department, said Thursday IS has "taken at least $20 million in ransoms this year."

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He said the group also raises "up to several million dollars a month" engaging in a "sophisticated extortion racket" demanding cash from individuals and businesses in the areas it operates, and engages in revenue-generating criminal activities like robbing banks, stealing livestock, and looting antiquities to sell on the black market.

At the height of its campaign, IS controlled as many as seven oil fields and was said to be generating as much as $2 million per day in oil revenue. The IEA estimates the coalition-led offensive is frustrating IS abilities to operate oil fields and refineries in Syria.

But by the time White House rolled out its strategy to defeat IS, now dubbed Operation Infinite Resolve, oil was well on its way to a bear market. With global oil prices off 20 percent from June, IS financing may be cut by dynamics beyond what any military intervention could accomplish.

Matthew M. Reed, vice president of Foreign Reports, a Washington, D.C.-based consulting firm, says the $2 million a day in oil revenue for IS was questionable because of volumes delivered and the discount at which oil and refined fuel products were sold. Indeed, Cohen revised those estimates down Thursday to the $1 million per day mark.

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With IS refinery operations knocked out, Reed says its only customer left may be the regime of Syrian President Bashar Assad. While oil may no longer be the source of revenue for IS it once was, Reed cautioned there may be more long-term consequences for a region collapsing from the strain of war. "There's a major risk of ecological disaster. The refineries hit by the coalition weren't processing much oil, so they're a lesser risk," he told UPI. "But if fields and pipelines controlled by IS were not handled correctly, then some communities will face long, toxic clean-ups -- on top of a raging civil war."

Before and after airstrike on the Islamic State-controlled Jeribe modular oil refinery in Syria. (Department of Defense)

In a quarterly statement in September, Gulfsands Petroleum, one of the few companies still vocal about its Syrian assets, said it's not been able to produce or generate revenue because of sanctions imposed on Damascus, though it has teams on standby should economic pressure ease. In the meantime, the company said facilities in Syria's far northeast remain secure.

"We are kept well-informed about local conditions as we have our own people on the ground and regular feedback from the Syrian authorities," Jon Bey, director of investor relations for GulfSands, told UPI. "There has been no change to our most recent status reports on the safety and security of our project in northeast Syria, which remains under the supervision of Syria's government working with local Kurdish people."

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Recent action from IS has pushed more than 5,000 Syrians out of the strategic border town of Kobane, on top more than 1 million Syrians already displaced by simmering civil war. The U.N. High Commissioner for Refugees expects as many as 15,000 more will flee the uptick in violence to Iraq through Turkey.

Countries like Jordan and Lebanon are overwhelmed by the refugee crisis that spun out of the Syrian civil war. IS only adds another layer to a conflict that's left the international community divided to the point of inaction. The UNHCR said most of the Sunnis in the area had already fled regional violence, and the latest exodus represents "the fourth major wave of displacement in less than a year in Iraq." More than 180,000 people fled the town of Hit in Iraq's western Anbar province when it fell mid-October to IS.

Analysis from IHS Energy finds IS future oil revenue depends in large part on territorial gains or losses in the region. With the airstrikes in full swing, the group's ability to hold onto enough refining capacity to meet its basic operational needs is diminishing.

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