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Islamic State faces budget crunch, cuts salaries, energy drinks and Snickers

Beirut: Faced with a cash shortage in its so-called caliphate, Islamic State has slashed salaries across the region, asked residents to pay utility bills in black market American dollars, and is now releasing detainees for a price.

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On the ground in Iraq

Mosul is shaping as the decisive battle in the war against Islamic State. Defence correspondent David Wroe reports from Iraq.

The extremists who once bragged about minting their own currency are having a hard time meeting expenses, thanks to coalition air strikes and other measures that have eroded millions from their finances since the last northern autumn. Having built up loyalty among militants with good salaries and honeymoon and baby bonuses, the group has stopped providing even the smaller perks: free energy drinks and Snickers bars.

Necessities are dwindling in its urban centres, leading to shortages and widespread inflation, according to exiles and those still suffering under its rule. Interviews gathered over several weeks included three exiles with networks of family and acquaintances still in the group's stronghold in Raqqa, residents in Mosul, and analysts who say IS is turning to alternative funding streams, including in Libya.

A stronger US dollar is associated with more severe market anomalies.
A stronger US dollar is associated with more severe market anomalies. Photo: Phil Carrick

In Raqqa, the group's stronghold in Syria, salaries have been halved since December, electricity is rationed, and prices for basics are spiralling out of reach, according to people exiled from the city.

"Not just the militants. Any civil servant, from the courts to the schools, they cut their salary by 50 per cent," said a Raqqa activist now living in the Turkish city of Gaziantep, who remains in close contact with his native city. But that apparently wasn't enough to close the gap for a group that needs money to replace weapons lost in air strikes and battles, and pays its fighters first and foremost.

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Those two expenses account for two-thirds of its budget, according to an estimate by Aymenn Jawad al-Tamimi, a researcher with the Middle East Forum who sources Islamic State documents,

Within the last two weeks, the extremist group started accepting only dollars for "tax" payments, water and electric bills, according to the Raqqa activist, who asked to be identified by his nom de guerre Abu Ahmad for his safety.

Islamic State militants hold up their weapons and wave the group's flags on their vehicles in a convoy in Raqqa, Syria.
Islamic State militants hold up their weapons and wave the group's flags on their vehicles in a convoy in Raqqa, Syria. Photo: AP

"Everything is paid in dollars," he said. His account was bolstered by another ex-Raqqa resident, who, like Ahmad, also relies on communications with a network of family and acquaintances still in the city.

Mr al-Tamimi came across a directive announcing the fighters' salary cuts in Raqqa: "On account of the exceptional circumstances Islamic State is facing, it has been decided to reduce the salaries that are paid to all mujahideen by half, and it is not allowed for anyone to be exempted from this decision, whatever his position."

This image made from a video released by the US military shows an air strike targeting an Islamic State group cash and ...
This image made from a video released by the US military shows an air strike targeting an Islamic State group cash and finance distribution centre near Mosul, Iraq. Photo: Handout/AP

Those circumstances include the dramatic drop in global prices for oil – once a key source of income – air strikes that have targeted cash stores and oil infrastructure, supply line cuts, and crucially, the Iraqi government's decision to stop paying civil servants in territory controlled by the extremists.

A Russian-backed Syrian government offensive in Aleppo province, where IS controls major towns including Manbij, Jarablus and al-Bab, is also putting pressure on IS. Government troops and allied militiamen have advanced towards the town, considered an IS bastion, leading many militants to send their families to Raqqa.

Shiite and Sunni clerics listen to Hezbollah leader Sayyed Hassan Nasrallah, via video link, during a ceremony to honour ...
Shiite and Sunni clerics listen to Hezbollah leader Sayyed Hassan Nasrallah, via video link, during a ceremony to honour fallen Hezbollah leaders, in Beirut, Lebanon, on Tuesday. Photo: AP

An exile from al-Bab said low-level fighters there have begun to grumble, and townspeople have overheard IS officials discussing crippling air strikes on oil infrastructure in Syria and Iraq and the cut-off of supply lines and revenue sources. The resident, who asked only that his first name, Oussama, be used because he still has family in the city, said dozens of residents of al-Bab have fled, ignoring orders from the extremists.

"You can sense the frustration, their morale is down," Oussama said of the fighters.

Supporters cheer as they listen to a speech by Hezbollah leader Sayyed Hassan Nasrallah, in Beirut, Lebanon, on Tuesday. ...
Supporters cheer as they listen to a speech by Hezbollah leader Sayyed Hassan Nasrallah, in Beirut, Lebanon, on Tuesday. Nasrallah said Turkey and Saudi Arabia are using Islamic State as a "pretext" to launch a ground operation in Syria. Photo: AP

A former Raqqa resident now living in Beirut said Syrians abroad are sending remittances in dollars to cover skyrocketing prices for vegetables and sugar. The resident, whose wife and baby still live in the city, did not want his name used for their safety. One of the other ex-residents, now living in Gaziantep, Turkey, said the road to Mosul was cut off late last year, and prices have risen swiftly – petrol is up 25 per cent, meat up nearly 70 per cent, and sugar prices have doubled.

In Iraq, where IS has slowly been losing ground over the past year, the Iraqi government in September cut off salaries to government workers within territory controlled by the extremists.

Snickers bar.
Snickers bar.  Photo:

Iraqi officials estimate that IS taxed the salaries at rates ranging from 20 to 50 per cent, and analysts and the government now estimate a loss of $US10 million ($14 million) minimum each month. Between the loss of that money – and the US-led bombing of cash warehouses – US officials are optimistic that the effect could diminish IS's wealth.

"We are seeing our efforts having some effect on their financial flows. And it's difficult to get a handle on just how much because of the different illicit ways in which they are handling their finances but you've seen the efforts that our military has taken to take out cash-storage sites, and I think it is our hope and expectation that that will have demonstrable effects. On what order of magnitude, I think it's difficult to say," Lisa Monaco, President Barack Obama's counter-terrorism adviser, said.

In the Iraqi city of Fallujah, fighters who once made $US400 a month aren't being paid at all and their food rations have been cut to two meals a day, according to a resident. The account of the resident, who spoke on condition of anonymity for fear of death at the hands of extremists, was supported by that of another family trapped in Fallujah that said inhabitants can leave the city only if they pay $US1000 – a sum well beyond the means of most in the Sunni-majority city that was the first in Iraq to fall to IS in 2014.

IS is also allowing Fallujah residents to pay $US500 for the release of a detainee, the family in Fallujah said, saying that they believed the new policy was put in place to help the group raise money – a system akin to bail.

Mosul residents say IS has begun fining citizens who do not adhere to its strict dress code, rather than flogging them as before. The residents say they believe this is in response to financial problems in part because the group has already confiscated anything valuable, namely cars and other goods that are later resold in Syria.

US officials have said fighters are more constricted in their movements and spending than they have been in months. But the group still controls a vast amount of territory, and they say the Syrian government has made few gains against the extremists themselves. IS, meanwhile, keeps up its deadly combination of threats and payments for anyone wavering in their support.

The Soufan Group, in a January 27 analysis, said the group is looking for alternative funding streams in Libya, where it is under less pressure – and doesn't face air strikes. And fighters still get their food baskets and free electricity – even if, as one of the Raqqa exiles said, they no longer get Snickers bars and energy drinks.

"I don't think this is fatal for IS," Mr al-Tamimi said. "I still don't see internal revolt as what's going to be the outcome. It's more like a scenario of gradual decay and decline."

AP

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