The Fuse

Oil, Money, and Terror: Interview with Thomas Sanderson of CSIS

by Leslie Hayward | May 23, 2016

Thomas Sanderson directs the CSIS Transnational Threats Project, where he investigates terrorism, transnational crime, global trends, and intelligence issues. He has conducted field research in more than 60 countries and has authored or coauthored 15 reports, as well as opinion pieces, debates, and articles in The Economist, New York Times, Washington Post, West Point Counterterrorism Center Sentinel, and Harvard Asia-Pacific Review. He engages a variety of sources including journalists, terrorists, traffickers, foreign intelligence officials, business leaders, nongovernmental organizations, clergy, and academia. He took the time to speak with The Fuse about how oil revenues finance terrorism and extremism around the world.

Hayward: Give us an overview: How do oil revenues fund terrorism, and which countries are major sponsors of terror using oil and gas revenues? What’s the difference between ideological support and direct funding of terror organizations?

Sanderson: So when you talk about states or individuals within states that are or have been part of the problem—you have Saudi Arabia, Kuwait, Qatar (the latter more often gas revenues). Wealthy individuals, both inside and outside of government, are strongly believed to be involved with support to Sunni militant groups. On the Shia side, the discussion centers almost entirely on Iran with its long-time support of Lebanese Hezbollah and Shiite militias that are designated terrorist organizations.

But first, a focus on the Sunni states in the Arabian Gulf. For years, individuals in these countries have supported violent extremist groups—and in all likelihood, continue to do so. More recently, the Syrian Government’s brutal assault on its own citizens drove many from the Gulf (and, in fact, from across the globe) to support Syrian opposition groups, made up largely of Sunni Syrians. Strong support in particular came from people in Qatar and Kuwait.

Saudi Arabian support to terrorist groups is currently in the news. The U.S. Congress is considering a bill allowing U.S. citizens to sue the Kingdom for alleged support to the September 11 perpetrators. The so-called “missing 28 pages” from the 9/11 report supposedly implicate some in the Saudi Government for enabling al Qaeda’s attack on America. Should any allegation turn out to be true, it would generate tremendous friction between two key counterterrorism allies. When it comes to any support to ISIS today, there may be individuals from inside and outside the government who are backing militant groups—despite Saudi Arabia’s laws forbidding such activity. But I do not think there is official support for ISIS, which is viewed as a threat by Riyadh.

But terror funding is not just about support of ISIS. A wide spectrum of jihadi Salafi groups are fighting across a region where Sunnis have lost political and economic ground. Many Sunnis point to Shia dominated or Shia-allied powers in Lebanon, Syria, Iraq and Iran forming a “Shia Crescent” that has marginalized and imperiled Sunnis populations. This makes support to violent extremist groups appealing and legitimate in the eyes of many.

Terror funding is not just about support of ISIS. A wide spectrum of jihadi Salafi groups are fighting across a region where Sunnis have lost political and economic ground.

From my own work on the Turkey-Syria border over the past two years, I heard frequent mention of Gulf state support to a wide range of groups. The most frequently mentioned included Qatar, Kuwait, the UAE, and Saudi Arabia. These comments came from individuals as diverse as the militants themselves to journalists and human rights activists. Now, do I believe that these countries are officially supporting terrorists groups inside Syria and Iraq? I do not feel it is an official state position to support violent extremist groups—but I have heard often that some government officials are active funders as private citizens. We know that there is support going to some of the more moderate groups—but my best guess is that funding also reaches the more extreme elements.

So although a lot of money flows from the Sunni Gulf states to various terror groups, they aren’t official state sponsors. Let’s talk about Iran: A petro-state which is also a state sponsor of terror.

Yes, Iran is a state sponsor of terror, we know they finance Hezbollah and many Shiite militias—at least one of which is a designated terrorist group (Kata’ib Hezbollah). The money and the weapons for Lebanese Hezbollah go to Syria, and then Syria moves them along to Lebanon. This is one of the many reasons why Iran is so desperate to keep President Assad and the Alawites in power. Maintaining a free flow of support to Hezbollah is essential for meeting Iran’s regional goals, which include protecting broader Shiite interests and supporting groups hostile to Saudi Arabia, Israel, and others.

Now that Iran is free from some of the sanctions, it’s likely that both Iran and Hezbollah will have more to spend. Additional spending is likely to be enabled by higher levels of oil production.

In my understanding, biting sanctions on Iran (led by the U.S.) forced Hezbollah to make tough choices on its needs due to more limited support from Tehran. But now that Iran is free from some of the sanctions, it’s likely that both Iran and Hezbollah will have more to spend. Additional spending is likely to be enabled by higher levels of oil production. But when they get back to peak production levels, I would find it hard to believe that favored Shiite extremist groups would not receive more support from Iran.

Given this overview of the problem, let’s also discuss ISIS and how it is funded through oil revenues. What do you know about what’s happening on the ground?

Let’s remember that when ISIS went into Mosul and captured all large parts of Iraqi territory in June 2014, oil was at $104 a barrel. It’s now at $48 per barrel. The massive margins that ISIS once enjoyed have certainly shrunk.

ISIS controls a lot of territory, although they have lost ground in both Syria and Iraq over the past several months. But it is well known that ISIS generates revenue from the oil trade. ISIS controls territory that contains oil which it refines and sells as gasoline and diesel fuel to a web of dealers who distribute it across Syria and Iraq, and over the border into Turkey. Turkey’s high-priced gasoline ensures there will be a market there for some time to come. The Turkey-Syria border remains open in several places, and financial and political goals ensure that product will always make it through. But let’s remember that when ISIS went into Mosul and captured all large parts of Iraqi territory in June 2014, oil was at $104 a barrel. It’s now at $48 per barrel. The massive margins that ISIS once enjoyed have certainly shrunk.

During last year’s April field visit to the Syrian border, we saw evidence of oil trafficking on the Turkey border. In one border town, my local fixer spotted a location where oil was being stored before being transported to customers. Others that we talked to spoke of small pipelines carrying oil and gasoline across the border to dealers. These were very rudimentary pipelines, but they were active nonetheless. There is also corruption—many spoke of officials who made this trade possible.

This points to a compounding factor: A Turkish government that continues to accommodate violent extremists operating on both sides of the border. Given Ankara’s position, it should surprise few that the border remains open to an illicit oil and fuel trade.

So to summarize, oil revenues play a part in funding terrorist groups in two ways. First, groups on the ground, like ISIS, exert control over oil and the trade in fuels. Second, support continues to come from oil-producing states whose citizens (with some likely working in government) funding activities that directly bolster these militants.

The U.S. has been bombing some ISIS oil convoys—how is ISIS coping with that?

We know that the U.S. has refrained from hitting certain flows of diesel fuel to generators because of the humanitarian disaster it would produce.

What ISIS has done more recently, and I believe cleverly, is that they have tied one of their key funding sources to humanitarian needs, which shields them from some airstrikes. I am talking about the diesel fuel market. In many parts of Syria, there is little to no electricity, so hospitals, schools, and IDP camps depend on generators that run on diesel fuel. In Turkey, I met with a trafficker who controls a fuel distribution network that moved diesel from eastern refineries to all of those destinations mentioned above. I later met with one of his in-country Syria representatives who offered more detailed anecdotes of that business. We know that the U.S. has refrained from hitting those supplies because of the humanitarian disaster it would produce. So there you go—ISIS and anyone else supplying fuel to hospitals, IDP camps, and schools has a protected source of revenue. A parallel to this tactic was seen when Saddam Hussein put surface to air missiles in schools and mosques so that the U.S. felt it could not bomb them.

Will the collapse in oil prices generally decrease these cash flows and reduce terrorism? Or will the fiscal strain generally increase instability in the region? How do those two factors balance each other?

The low oil prices do increase instability. Remember that some of those countries that were able to survive the Arab spring—notably Saudi Arabia—bought themselves out of trouble to some degree on the backs of $104 per barrel oil. The Saudis spent more than $125 billion after the Arab spring on goodies designed to keep its citizens happy. Presumably, they are less able to repeat that given the low price of oil—though I suspect that they would find a solution to stave off serious popular discontent.

There is also some impact from low prices on unemployment. I don’t know how many have lost their jobs—it could be that governments continue to employ workers even though revenues are sharply down—but clearly some jobs have been lost. Unemployment is a key factor in regional instability and militant group recruitment.

So perhaps low oil prices are furthering recruitment for disenfranchised populations, since their situations are that much more dire?

Here’s what ISIS and the Al Nusrah Front and Ahrar al-Sham and Hezbollah offer them: A mission, an on-ramp to manhood, respect, a salary, guns, etc.

The reality is that most of the recruits and fighters are men—young men, from marginalized communities where they live amidst deprivation, repression, a lack of dignity, have few or no opportunities for jobs or marriage, and where there’s no sense of purpose. Here’s what ISIS and the Al Nusrah Front and Ahrar al-Sham and Hezbollah offer them: A mission, an on-ramp to manhood, respect, a salary, guns, etc. When terror groups have enough money to offer salaries for fighters—that’s a tremendous draw for them. And oil revenues, whether from Iran or from ISIS, certainly helps support their fighters.

ISIS has lost revenue due to the drop in oil prices. I think it’s obvious that they would be better off if oil prices were high again: Their own revenues within Syria would rise, while anyone in the Arabian Gulf (or elsewhere in the world) that is supporting them through energy-related revenue would have more to offer.

If you were to list the top 5 funding sources for Islamic terror, what would be on the list?

When you look at all the groups and all of the funding, there’s quite a bit of overlap. We don’t really know the numbers, but this is my best estimate:

  • Extortion/taxation: For the Haqqani network, for ISIS, and for al-Qaeda, extracting value from territory they control and those populations within it is a major source of funding. They can demand money from anyone travelling through that territory.
  • Oil and refined gas/diesel
  • Donation/zakat: Gifts from wealthy donors, including those who are connected to the oil and gas sectors. To suggest otherwise is simply ignoring reality.
  • Kidnap for ransom
  • Licit and illicit trafficking

The bottom line is that oil plays a central role in supporting violent extremist groups by putting money in the pockets of individuals who support them, while also serving as a source of revenue for terrorist groups that control some energy production and distribution.

Do we have any ability to track how the oil revenues themselves—especially from Western states—is involved in terror funding?

The short answer is I do not know. But given the high volumes of oil and gas that are moved each day, it would be hard to do unless you tie a specific, terror-sponsoring individual or office to a position in the energy business. The amount of money needed to support some of these groups is relatively small, especially when compared to the hundreds of billions of dollars in oil and gas flowing from countries in the MENA region.

Let’s talk about banking channels: How does the money move? What can the international community do to intervene?

Money still goes through the formal banking system. There is such high transaction volume and so much attention paid to other threats within the banking system (cyber, in particular) – that money still flows to terror groups.

And then there’s the informal banking system, the Hawala system, which makes it very easy to send money around the world with no record of it happening, no money exchanged at the time of the transaction, and certainly no restraints on the system—it’s absolutely impenetrable. It relies on trusted relationships to transfer money. Say I walk into a hawala broker’s office in Pakistan, and tell him that I would like $10k sent to my cousin in New Jersey. That hawaladar sends a message via any number of channels to a trusted associate who is informed of the local recipient’s identity or timing/location for an exchange. That individual (recipient) engages the hawala broker in New Jersey, and upon meeting certain criteria, takes receipt of the funds. No money is sent electronically—those two individuals settle up later in some other location and time. It a fundamental, unstoppable element of the terror finance world.

Finally, can you recommend anything prescriptive? What can the U.S. do to undermine oil-funded terror?

Frankly, I think it’s unlikely to change much. Even if the oil and gas trade were to be replaced by other energy sources, those two could be manipulated—or new sources of revenue would be found. But cutting back on energy-sourced terrorist funding would be good to do—forcing groups to readjust is important and helps degrade them.

But we have to be realistic—this is a great challenge. We have limited resources when it comes to battling terrorists. Of course we should focus on ways to cut off terror financing, but we have to be modest with our expectations. We will only eliminate a modest percentage of funding that is clandestine, state sponsored, or part of the illicit economy—and which moves without the need for cover given its widespread role in the global economy and daily life.