Austerity bites as Islamic State's oil income hit by US-led bombing campaign

The US-led bombing campaign against Isil has cut its oil revenues and squeezed its finances to a point where it is cutting fighters’ salaries, according to a new report.

Sixteen months into the air campaign against the jihadists, daily bombing runs have “significantly degraded” Islamic State of Iraq and the Levant's (Isil) capacity to refine oil at the network of refineries it controls in Iraq and Syria, said IHS, a global intelligence firm.

A selection of Isil's internal documents, published separately, also suggest rising paranoia in the group, prompting crackdowns on dissent and smuggling. There has also been a decline in the quantity and quality of its once-notorious propaganda videos and other material.

According to IHS, the terror group now rakes in a monthly profit estimated at £53 million, around half of which comes from taxation and confiscation, with most of the rest from oil.

This figure underscores the extent to which Isil is self-reliant, making most of its money through the establishment of a violent and predatory bureaucracy which imposes a 20 per cent tax on all commercial activities, confiscates land and properties, and runs a side-line in the smuggling of goods including antiquities pilfered from inside its territory.

Although Isil now collects the water and electricity bills of millions of residents, the services themselves are often run by the same administrators who worked for the regime of Bashar al-Assad, the Syrian president.

Internal documents reveal an pattern of coercing these personnel to return to work, according to Aymenn al-Tamimi, a researcher who has compiled an archive of internal communiques.

The documents, published by the Guardian newspaper on Monday, also show how the terrorist group has set about building a state in Iraq and Syria complete with government departments, an economic plan for self-sufficiency, and a programme of indoctrination for the new generation growing up inside Isil’s so-called caliphate.

But as the damage to Isil’s oil network inside Iraq and Syria starts to bite, there are early indications that the group is struggling to balance its budget, IHS said, with reports of cuts to fighters’ salaries, price hikes on electricity and other basic services, and the introduction of new agricultural taxes.

Isil documentation also reveals rising paranoia. According to Mr Tamimi, the last five months has seen a noticeable rise in the number of documents relating to security measures and military mobilisation. This has included a complete prohibition on private Wi-Fi networks and a crackdown on the smuggling of gold, copper and iron.

Activists from Raqqa say that arrests of so-called traitors are on the rise, as Isil cracks down on perceived spies and dissenters in its midst.

Tax revenues are proving a tricky target for the US-led coalition - stopping them will require the wholesale recapture of Isil-held land. Analysts say this will only be achieved in conjunction with a viable ground force drawn from the sort of Sunni Arab communities that Isil has sought to terrorise and co-opt.

Even then, it would require a violent assault on Sunni-majority cities like Fallujah and Mosul which could cause numerous civilian casualties.

A new US intelligence report into the Pentagon’s fight against Isil, previewed by the American news website The Daily Beast on Monday, said the group would continue to proliferate terror abroad unless it suffered a significant loss of territory on the battlefield in Iraq and Syria.

The conclusions stand in contrast to the White House’s assurances that Isil has been “contained” in its Syrian and Iraqi heartland.

They are believed to be forcing a rethink of the administration’s policy towards the terror group, less than a week after it inspired a husband and wife in California to mount lone wolf attacks inside a centre for the disabled, killing 14 people.