Cover: Return and Expand?

Return and Expand?

The Finances and Prospects of the Islamic State After the Caliphate

Published Aug 8, 2019

by Patrick B. Johnston, Mona Alami, Colin P. Clarke, Howard J. Shatz


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Research Questions

  1. Does the Islamic State have the financial wherewithal to stage a resurgence?
  2. What expenses has the group had, both as an insurgency and when it had territory?
  3. What revenue sources has it been able to leverage?
  4. What efforts might be necessary to counter the Islamic State's ability to finance its operations, as part of a larger effort to ensure the group's demise?

With the end of its territorial caliphate, the Islamic State will almost certainly attempt a comeback. Such efforts will require money. The authors examine the group's history as an insurgency and a self-styled caliphate, drawing from the literature, the group's documents, and interviews with individuals who lived under the caliphate, with a focus on how the group has financed itself. The Islamic State has prided itself on drawing from local funding sources rather than external donations. As a territorial caliphate, it could openly levy taxes and fees and sell oil from fields it controlled to cover its expenses. Now that it can no longer rely on such sources, the group will go with activities that it has used successfully in the past, as an insurgency. Criminal activities will prove useful, with its members seeking to extort, kidnap, steal, smuggle, and traffic to obtain the money they need to finance the group's activities. On top of this, the Islamic State likely has detailed information on the population it once ruled, and it appears to have sizable assets in reserve. As an insurgency, rather than a territorial government, its expenses are far lower than they were at the peak of its power. Accordingly, the United States will need to stay involved with counter–Islamic State activities across several lines of effort, including counterfinance and potentially including military action.

Key Findings

The Islamic State's caliphate was never just territorial, but the group clearly desires to regain territory

  • It was always a caliphate of the mind, a vision of an Islamic state that the modern group's leaders imagined to have existed in history.
  • Were it to exist in reality as its leaders envisioned, it would be a regional menace to its neighboring states and a nightmare primarily for the world's Muslims.
  • The group has withstood numerous challenges not only to its effectiveness but also to its very survival. It has remained a persistent threat throughout its history and various organizational incarnations — including those without unilateral control over territory.

While far less money is coming in to support its activities, the group's operating expenses have greatly decreased

  • With the loss of the territorial caliphate, there is no need to provide services to a populace.
  • With a significantly lower operating budget, continued revenue-generating activities and the cash the Islamic State hoarded will provide it with adequate funds to survive as a clandestine terrorist movement with the ability to wage prolonged guerrilla warfare throughout Iraq and Syria.

As an insurgency, the group will also maintain a diversified revenue stream, including resorting to criminal activities to raise funds

  • The group's knack for fundraising through criminal activities will prove useful as its members seek to extort, kidnap, kill, steal, smuggle, and traffic to obtain the money they need to survive.
  • Controlling territory would facilitate these activities but is far from a prerequisite.


  • The most important measures in Iraq and Syria will be domestic intelligence gathering and law enforcement. Authorities will need to identify businesses that have Islamic State investments, the locations of cash storage sites, and money exchange and transfer businesses that are cooperating with the Islamic State.
  • Ground operations to seize the money, although riskier than destroying caches through airstrikes, for example, would preserve the money for use by legitimate governing authorities in Iraq or Syria.
  • The group has an international network of financial relationships. And even though donations have not provided a large share of Islamic State revenue, the group has raised money around the world. International cooperation will thus be needed to address these connections.
  • It will also be important for law enforcement entities to protect affected populations in Iraq and Syria as reconstruction progresses, both in the sense of security and in ensuring that funds are not extorted. Authorities will also need to ensure that the Islamic State does not find other means of accessing reconstruction funds.
  • Better government will help alleviate some of the problems that led to the formation of the group in the first place. This will be more difficult in Syria.
  • Military action will still be required; sanctions, for instance, are unlikely to be enough.

This research was sponsored by the Smith Richardson Foundation and conducted within the International Security and Defense Policy Center of the RAND National Security Research Division (NSRD).

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