A COMBINATION of air strikes on the militant Islamic State group-controlled oilfields, recapture of IS-held territory and destruction of the its cash storage sites containing up to $800 million may have destabilised the self-declared caliphate in Syria and Iraq, according to coalition military commanders on both sides of the Atlantic.

Ministry of Defence officials claimed this week that they have seen signs that the IS is increasingly resorting to arbitrary fines, extortion and gangsterism to make up a shortfall in income.

Speaking about the campaign for the first time, Air Vice Marshal Edward Stringer, the senior UK civil servant in charge of undermining IS finances, said: “What we are now seeing is that they are running short of cash and they are looking for more imaginative ways to do things. It is early days, but only in the last week we have heard from the sources that we have that the taxation system is becoming more arbitrary, more looking to fines, and so becoming less progressive and less easy to sell to the population.” The gangsterism was tarnishing the Isis brand, he claimed.

In Baghdad, the deputy US commander for operations and intelligence, Major General Peter E Gersten, said up to $800m held in IS storage facilities had been blown up by coalition air strikes. The number of foreign fighters joining the extremists was down by eight per cent, he claimed.

These assertions are hard to verify, and could be seen as self-delusion, propaganda or disinformation — all designed to reassure public opinion that IS is being slowly degraded. Reliable statistics are in short supply, leaving the coalition reliant on intermittent evidence such as IS bookkeeping documents captured when its territory is retaken.

But the claims chime with documentary evidence published by researchers in the counterterrorism journal, CTC Sentinel, showing that IS is struggling to fund its fighters, which make up about 60pc of the group’s costs.

The documents reveal that even in oil-rich areas, confiscation now represents 40pc of IS income. Confiscations can be from residents who fled their homes, for violation of its regulations or illicit smuggling of goods, such as alcohol and cigarettes.

Likening the anti-IS coalition’s efforts to financially weaken the IS base to the economic warfare waged against Nazi Germany during the second world war, individuals including Stringer have come to regard efforts to understand, and undermine, the group’s funding as equally important to military gains.

“Isis is trying to get more hard cash through extortion of the local population,” Stringer said. “We are starting to see corruption and embezzlement among senior leaders, suggesting we are having success.”

Until recently, the MoD had estimated that 40pc of IS revenue came from oil, 40pc from forms of taxation and 20pc from other sources, including sales of antiquities and profiteering in money markets. Those proportions may have changed due to the strikes on oil wells, leaving the split closer to 20/50/30.

The MoD is reluctant to give an estimate of IS’s annual income. Retrieved spreadsheets show that its natural resource revenues in the six months to February 2015 amounted to $290m, about 70pc of which came from the giant al-Omar oilfield in Deir ez-Zor, previously run by Royal Dutch Shell.

Since then, there have been 1,216 strikes on oil infrastructure targets and tankers, reducing production by 25pc and cutting revenue by 10pc.

The MoD claims that production is about 30,000 barrels a day. Others, such as IHS, put the figure lower.

Stringer said: “We have stopped them getting oil out of the ground and transporting it. We have moved them from moving oil to selling it at the wellhead. The coalition has also targeted additives and chemicals that Isis needs to refine its oil products, and what is now being produced is ‘crude in every way’.”

However, contrary to the claims of some experts, much of IS’s crude oil is not smuggled abroad — it is sold within the extremists’ territory. “It is nevertheless a major source of revenue, since there is a demand from local businesses and homes with generators,” Stringer said.

The ministry refused to confirm any evidence of large-scale sales to Turkey, referring only to micro-smuggling.

There is also a restraint in the way that oil wells are being struck. The coalition has the ability to flatten them altogether, but cost benefit analyses suggest that it is better to disable parts of the oil wells in order to make them impossible to operate until spares are found and infrastructure is repaired.

It wasn’t until this week that the Royal Air Force used the largest bomb in its inventory, the 2,000-pound Enhanced Paveway 111, against IS for the first time.

Aside from oil production, IS’s tax base is eroding as it cedes territory . Last year, the group lost 14pc of its land, and a further 8pc in the past three months. The population under IS control has declined from nine million to six million.

The squeeze has led to pay cuts for foreign fighters. The Pentagon claimed this week that the number of such individuals entering IS territory had plummeted by 90pc in the past year.

Gersten said this week: “When I first got here, we were seeing somewhere between 1,500 and 2,000 foreign fighters entering the fight. Now that we’ve been fighting this enemy for a year, our estimates are down to about 200. And we’re actually seeing an increase now in the desertion rates in these fighters. We’re seeing a fracture in their morale. We’re seeing their inability to pay.”

Until recently, the basic IS wage was $50 a month, with an additional $50 for each wife, $35 for each child, $50 for each sex slave, $35 for each child of a sex slave, $50 for each dependent parent and $35 each for other dependents. There may also be other salary additions such as a daily food allowance, heating costs and bonuses for performing certain duties.

The coalition claims that its intelligence is now good enough to know where IS stores cash, right down to the precise room in a building where the money is kept. “We believe we have removed hundreds of millions from circulation,” Gersten said.

There has also been an attempt to reduce liquidity in the formal and informal banking system.

The Foreign Office said the system allegedly used by IS involved transferring captured money out through regional banks and money services businesses — disguising its source — and then putting the cash back into the Iraqi banking system in Baghdad. The funds were then entered into foreign currency auctions, where IS was able to make a profit on the differential between wholesale and retail exchange rates. Any profit from these activities was transferred back into Isis-controlled areas through the Hawala system.

Nevertheless, it is striking how slow the west has been to understand the sources of IS funds and how understaffed, at least in Whitehall, the effort has been. Stringer, giving evidence to the foreign affairs select committee this week, admitted that much of the evidence is “second order” and that it is very difficult to “get a grip of what was going on [on] the ground”.

—By arrangement with The Guardian

Published in Dawn, May 1st, 2016