The cracks in Islamic State’s business plan are starting to show

By Ora Szekely
February 20, 2015

Over the last year, Islamic State has presented the rest of the world with a steady stream of atrocities: An attempted genocide against the Yazidi people in Iraq, massacres and bombings of Shi’ite civilians in Syria, and gruesome executions of journalists and aid workers. Last week the militant group murdered — via mass beheading – 21 Coptic Christian Egyptians in Libya. But despite the bravado of Islamic State’s public statements, the Islamist militant group increasingly appears to have painted itself into a strategic corner.

Islamic State’s expansion so far has been based heavily on extortion and theft. Using revenue from the oil wells it captured in eastern Syria in June 2014, along with money raised by looting in Mosul, supplemented by funding from ransoms paid by governments for its hostages, Islamic State was able to hire lots of fighters very quickly by paying top salaries. But revenues from the oil wells have dropped (due both to U.S. bombing and falling global oil prices), and with the tragic death of American aid worker Kayla Mueller earlier this month, Islamic State has executed what is likely its last foreign hostage, potentially eliminating a key source of its funding.

The result may be that Islamic State has reached an important crossroads. The strategy that it has relied on so far to fuel its expansion is becoming increasingly untenable. If Islamic State is going to hold on to its recent gains, it has some policy changes to make.

All militant groups need a range of resources — from guns and money to recruits and political legitimacy — to accomplish their goals. Broadly speaking, the strategies they use to acquire these resources fall into three categories: theft, barter, or gift. Some militias steal what they need, looting farmers’ crops or kidnapping journalists for ransom. Others rely on barter, offering their services as a fighting force to a state in return for money and weapons. Groups employing the gift option try to convince both local constituents and potential state sponsors to voluntarily provide political and material support for its cause. The vast majority of militant groups use a mixture of all three approaches, though many emphasize one approach.

What’s next for Islamic State?

So far, Islamic State has mostly relied on the first approach — theft. But using this strategy will become increasingly difficult; the resources it has already stolen — oil, cash from local banks, even hostages — aren’t easily renewable. And, as the Islamic State leadership is beginning to find, brutalizing civilians makes acquiring broad local support very difficult.

Another way forward would be for Islamic State to transition to a barter strategy, acting as a mercenary force for a state sponsor that has little interest in its overall project. This kind of quid pro quo relationship led Muammar Qaddhafi’s Libya in the 1970s and 1980s, for instance, to provide funding for everyone from the Irish Republican Army (IRA) to the far-left militant Baader Meinhof group in Germany. Today, however, there are fewer and fewer of these rogue states. Islamic State has so alienated most potentially supportive governments in the region that even those opposed to the regime of Bashar al-Assad in Syria — like Jordan and Turkey — are unlikely to view Islamic State as a reliable partner.

Finally, Islamic State could shift to a strategy based on a gift approach, by trying to build domestic and international support for their political project. To a degree, Islamic State already appears to be trying to do so. The movement’s massive public relations campaign on social media has attracted some funding from sympathetic individual donors in Qatar and Kuwait, but these donations represent a relatively insignificant part of their revenue, and few regional governments appear interested in backing Islamic State, for either power or purely ideological reasons. Iran and Syria (which have supported other militant groups in the past) are openly hostile to Islamic State, and the Gulf monarchies feel threatened by Islamic State’s (ludicrous) claims to have reestablished the caliphate, which challenges the legitimacy of their own regimes.

For a gift strategy to work, Islamic State would need to focus inward. This would mean appealing to the local population in the territory it occupies through improved governance and by softening its authoritarian rule, while simultaneously courting regional allies. This would require limiting its expansionist ambitions, toning down its inflammatory rhetoric, and reframing its core mission to appear less threatening to states like Saudi Arabia. In other words, it would have to become a radically different kind of entity than it is now.

Whether Islamic State is willing or able to do any of these things remains unclear. Militant groups have successfully reinvented themselves before. Hezbollah and Hamas both enacted internal reforms in the 1990s and 2000s respectively to better attract support both locally and from powerful patron states. Both of these organizations, however, had fairly rational leadership and a degree of internal cohesion that Islamic State has not yet exhibited.

This is partly a side-effect of Islamic State’s rapid expansion; in a relatively short time period it has had to absorb former Baathists, disaffected members of al Qaeda, random thugs, and rebellious European teenagers, none of whom may be interested in curbing their abusive treatment of civilians or moderating their ideology to appear less threatening to neighboring states and achieve longer term strategic goals.

If Islamic State’ leadership is unwilling, or unable, to make these necessary policy changes it may well continue to resort to the violence and extortion it is familiar with, but with ever-diminishing returns.

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