Terror group facing cash crunch like never before, say reports.

Isis (Islamic State) is facing an unprecedented cash crunch in its home territory, United States counterterrorism officials say, as months of strikes on oil facilities and financial institutions take a deepening toll on the group's ability to pay its fighters or carry out operations.

For the first time, US officials are seeing clear evidence of the financial strain on the group's leadership, as reports surface of clashes among senior commanders over allegations of corruption, mismanagement and theft.

Cash shortages already have forced the group to put many of its Iraqi and Syrian recruits on half-pay, and accounts from recent defectors suggest that some units haven't received salaries in months. Civilians and businesses in Isis' self-proclaimed homeland complain of being subjected to ever-higher taxes and fees to make up for the shortfall.

U.S. military shows an airstrike targeting an Islamic State group cash and finance distribution center near Mosul, Iraq. Photo / AP
U.S. military shows an airstrike targeting an Islamic State group cash and finance distribution center near Mosul, Iraq. Photo / AP

US officials attribute the economic upheaval to a months-long campaign to destroy the group's financial underpinnings, including weeks of punishing strikes on oil facilities as well as banks and other repositories of hard currency.

Advertisement

The strikes against oil fields, refineries and tankers have cut oil production by about a third, according to several counterterrorism officials, who spoke on the condition of anonymity to discuss sensitive intelligence from the region. Meanwhile, overall revenue from Isis' oil business has plummeted by as much as 50 per cent because of falling oil prices and a diminished capability to make and sell refined products such as gasoline, the officials said.

"For the first time, there's an optimistic tone," Daniel Glaser, assistant secretary for terrorist financing at the Treasury Department, said of the financial war against Isis. "I really do think we're having a significant impact." But, he added, "They still make a lot of money, and we still have a long way to go."

Because of the group's territorial losses in recent months - military defeats have shrunk the size of the self-declared caliphate by about 40 per cent over the past year - the terrorists now have a significantly smaller population to exploit for cash, US officials and analysts say.

Unlike al-Qaeda, which relied on outside donors for revenue, Isis has traditionally generated much of its income locally, through extortion and other criminal enterprises as well as taxes and fees imposed on businesses and civilians.

Some terrorism experts think the recent terrorist attacks in Europe are partly a response to the group's worsening prospects on its home turf. In the short term, pressure on Isis' finances could make the group more dangerous and unpredictable, some say.

"You corner a wild beast and it's going to lash out," said Matthew Levitt, an expert on terrorist financial networks who worked at the Treasury Department and FBI, now a senior fellow at think tank the Washington Institute for Near East Policy.

Counterterrorism officials have seen little evidence of significant financing or material support from Isis' central branch for the recent attacks in Paris and Brussels.

Emergency rescue workers stretcher a person at the site of an explosion at a metro station in Brussels. Photo / AP
Emergency rescue workers stretcher a person at the site of an explosion at a metro station in Brussels. Photo / AP

Indeed, the group appears to be providing little, if any, monetary aid to its new affiliates elsewhere in the Middle East and South Asia, counterterrorism experts say.

However, Hisham al-Hashimi, an Iraqi military strategist, expressed skepticism about US claims of success in inflicting serious damage to the terrorists' financial infrastructure.

"They're not going through a financial crisis that will lead to their collapse," Hashimi said. "They still have 60 per cent of Syrian oil wells and 5 per cent of Iraq's."

For the US and its allies, the task of cutting Isis' financial lifelines has proven to be exceptionally difficult, in part because of the group's economic self-sufficiency but also because of the huge amounts of cash its fighters acquired after capturing several major Iraqi cities in 2014, officials say.

That initial financial windfall - estimated at more than US$700 million ($1 billion) - instantly made the group the world's wealthiest terrorist organisation. That cash is now mostly gone, US officials say, much of it having been either spent on salaries or incinerated in recent weeks in a series of carefully targeted airstrikes.

A scene of carnage inside the departure hall of Brussels airport after 2 explosions ripped through the building. Photo / Twitter
A scene of carnage inside the departure hall of Brussels airport after 2 explosions ripped through the building. Photo / Twitter

Defectors' accounts and social-media postings attest to the impact on life in terrorist-controlled districts. Civilians and foreign recruits fleeing the self-proclaimed caliphate have described dwindling supplies of basic goods, as well as higher fees for violating the group's conservative dress code or breaking taboos against smoking or skipping prayers.

Abu Sara, 33, an engineer from the Iraqi city of Shadadi, said friends and relatives who joined Isis are expressing disillusionment after months of pay cuts.

"Their members are getting quite angry, either they are not getting salaries or getting much less than they used to earn," said Abu Sara, who now lives in Turkey. "All of the people I am in contact with want to escape, but they don't know how."

With travel banned, the only opportunity to escape is after battle, when disillusioned fighters "throw down their weapons and mingle with the civilians", he said.

- Bloomberg