The economy of ISIS has been a subject of fascination and fear. The group’s extraordinary access to oil fields has been primarily presented as a strength. However, the reality is that ISIS’ reliance on oil could hold the key to its fragility, and the so-called caliphate could already be close to economic collapse.

 

According to reports at the beginning of the summer, ISIS had been making anywhere between $2 million and $3 million per day in illegal oil sales. This was a shockingly high figure – but experts at the Iraqi Oil Report, and others, have already started to doubt it – telling the Washington Post earlier this month the actual earnings could now be as low as $250,000 per day.

 

The Qaiyara and Najmah oil fields, situated just south of Mosul and now under ISIS control, were considered of such poor quality that when the Iraqi government opened them up for bidding in 2009, the only company to place a bid, the Angolan Sonangol, was awarded around $6 per barrel, one of the highest extraction fees awarded in Iraq. Security considerations also contributed to the high price, and Sonangol pulled out this year when the oil fields became too dangerous to operate. ISIS has taken its place, pumping oil whose quality is reportedly close to bitumen.

 

Nearby, the Ain Zalah and Butmah oil fields have now been retaken by Kurdish fighters. ISIS torched the Ain Zalah oil field last month when it retreated from there.

 

While ISIS still retains fields in Syria, the overall price per barrel is deteriorating. There will always be a smuggler or shifty oil distributor happy to buy ISIS oil at $40 per barrel, or even as low as $25. However, such prices are $50-65 below the market rate. ISIS is also selling oil which comes with a hefty risk attached, making the job of the middlemen much harder.

 

Finally, the skilled engineers required to pump oil aren’t as readily available. Over the summer, they had either been coerced or paid to stay and operate the oil fields. But as Western attention has zeroed in, and the brutality of ISIS has increased, they are leaving – and with it their much-needed expertise. Iraq itself, of course, is hurting from the loss of those oil fields, as is Syria. But unlike ISIS, the Iraqi and Syrian governments are able to tap into emergency funding from international donors, and to some extent global financial markets.

 

ISIS does not have these options. If it wants to function as a proper state, it will need to exist solely on the relatively small sums provided by private Gulf funders, or raise money internally. Iraq’s government last year spent nearly $120 billion, a figure that ISIS would find impossible to match. The group may be a rich terrorist organization, but it is a poor nation. Recognizing this fundamental weakness is key to understanding how it could fall.

 

Already we’re starting to see cracks showing. The existence of a taxation, or extortion, system isn’t a sign of a nation being born; it’s a sign of a cash-flow problem. Kidnappings and ransom payments are on the rise. For a new country that’s supposedly so rich, appealing for funds on social media isn’t a mark of financial confidence. The economic fragility of the ISIS entity is balanced against its political fragility – its reliance on the Sunni tribes and Baathists. ISIS is policing a population of up to 5 million with just 25,000 of its own combatants.

 

Sure, those Sunni tribes have political axes to grind with Baghdad, and ISIS can rely on their support, for the time being. But how enthusiastic will they be once they realize that ISIS can’t provide for them, on top of the eroding civil liberties they are enduring? How loyal will they remain if the economy collapses completely?

 

A political solution from Baghdad looks a long way off. The Sunnis are rightly cynical of any settlement being presented to them by what is still a Shiite dominated government.

 

Equally, airstrikes may be ineffective or they may even make the situation worse – little more than military whack-a-mole, the same charade the Americans have been pursuing in Afghanistan, Pakistan and Yemen with their endless drone strikes. Alongside this, the risk of civilian casualties, playing directly into ISIS recruiting narratives, is all too apparent.

 

The latest airstrikes have also been taking out oil infrastructure, with the Pentagon saying the targets are being disabled but will be “easy to repair.” Yet when Baiji refinery was attacked by ISIS fighters using far less firepower than the U.S.-led coalition is using, reports suggested it could take over a year to get it back online. So we need smarter forms of economic warfare.

 

There are numerous smuggling routes and all need to be shut down. Turkey has legitimate concerns about the impoverished border economies which may require support in the event cheap black market oil disappears, especially given that the communities there are hosting large numbers of Syrian refugees. In Iraqi Kurdistan, and to some extent Iran, security forces need to disrupt the smuggler mafias transporting oil from ISIS. If each of these key markets can be cut off, ISIS will be left with just one customer: Bashar Assad. Revenues from the Syrian regime won’t be enough to sustain its war efforts. Without much expertise to operate the pipelines and pumping stations, ISIS is transporting much of its oil by trucks, which are easy to spot.

 

Finally, tracking down those Middle Eastern and European companies that are buying ISIS oil, knowingly or unknowingly, must lead to high-profile prosecutions and punitive fines. As oil companies are threatened with tougher sanctions, the selling price for ISIS oil is likely to erode further, and with it the group’s financial, political and military future.

 

The West recognized early in the Cold War that communist ideology could not be beaten with weapons. Perhaps the same is true with ISIS. Airstrikes may provide a quick fix, but the collateral damage would make matters worse. Economic warfare may take a few months, but it could take down ISIS for good.