Going inside the economic war against Isis

Isis starts the new year with a drastically depleted bank account, counter-terrorism officials say, following months of intensified efforts to deprive the jihadists of oil profits and other revenue used to finance military operations and terrorists attacks abroad.

Coalition aircraft in the past 15 months have destroyed more than 1200 tanker trucks - including 168 vehicles struck in a single air raid in Syria in early December - while also using new weapons and tactics to inflict lasting damage on the terrorists' remaining oil fields, US and Middle Eastern officials say.

The military strikes are being paired with new measures intended to shut down financial networks used by Isis (Islamic State) to procure supplies and pay its fighters, the officials say.

Two weeks ago, the US and Iraqi governments announced the first coordinated effort to punish Iraqi and Syrian financial services companies used by the terrorists to conduct business.

The campaign has slashed profits from oil sales, traditionally the biggest revenue source for Isis, US officials say, and deepened the economic pain for a terrorist organisation that until recently was regarded as the world's wealthiest.

One sign of the financial strain, the officials say, is a shrinking payroll: After cutting salaries by 50 per cent a few months ago, Isis now appears to be struggling to pay its workers and fighters at all.

"We are destroying Isis' economic base," Brett McGurk, President Barack Obama's special envoy to the 67-nation coalition arrayed against Isis, said at a news briefing recently.

Just last year, the militants were luring foreign fighters with promises of generous pay, but today "that is not happening," he said.

"Their fighters are not getting paid," McGurk said, "and we have multiple indications of that."

Coalition planes have been bombing the group's oil fields and tanker fleet for more than two years, but the most notable successes in recent months have come from military operations that targeted individual oil wells, including well casings and other underground infrastructure, according to US and Middle Eastern officials familiar with the new strategy.

The new tactics make it all but impossible for Isis to repair the wells or extract oil through makeshift techniques, the officials said.

Previous airstrikes crippled Isis' oil-producing capacity, but the militants consistently found ways to pump and refine oil in smaller batches using primitive methods, said a senior US counter-terrorism official. Now, even the small-scale operations are struggling, he said.

"We can take them back to the 19th century, but people were still able to extract oil in the 19th century - it bubbles up to the ground and they find a way to bottle it and sell it to someone," the official said.

The new approach involves inflicting "the maximum amount of damage with the right weapons so it will not be easy or quick for them to repair," the official said.

The improved targeting comes against a backdrop of ongoing airstrikes on tanker trucks used to haul oil and refined products such as petrol and diesel.

The bombing campaign, dubbed Operation Tidal Wave II, initially focused on large tanker convoys before Isis leaders switched tactics and began relying on smaller vehicles, often travelling alone and hidden or camouflaged by day to elude detection.

Yet, on December 8, US warplanes spotted and destroyed a caravan of 168 tankers near the terrorist-held Syrian city of Palmyra, in the largest raid of its kind since the conflict began. The US pilots dropped leaflets warning the drivers - typically civilians and local conscripts - of the impending attack before A-10 "Warthog"jets swooped in to strafe the convoy.

"While the Palmyra raid was exceptionally large, the attacks themselves are a regular occurrence," said Daniel Glaser, the Treasury Department's assistant secretary for terrorist financing. "This has been an ongoing campaign over the past year to target those tanker trucks."

As the result of such raids, oil revenue for Isis is now a tiny fraction of the estimated US$1.3 million per day the group was earning in early 2015, US and Middle Eastern officials said.

Still, small truckloads of oil, mostly from the Syrian side of the militants' self-proclaimed caliphate, continue to find their way to the black market, aided at times by corrupt officials in Syria and Turkey, two countries that are officially at war with Isis, the officials said.

"Isis is still selling oil to [Syrian President Bashar] al-Assad," said a Middle Eastern official familiar with operations against the militants. "It's an important revenue source, and we see Assad's people continuing to facilitate."

Unlike al-Qaeda, Isis is largely self-financed, deriving most of its income from oil sales and criminal enterprises, as well as from money taken through taxes and fees extracted from local residents and businesses in the territories it occupies.

The terrorist group also benefited initially from the vast hard-currency holdings it confiscated when it seized banks in Iraqi and Syrian cities in 2014. The cash windfall - at least US$500 million initially, according to US estimates - has largely vanished, in part because of US air raids that targeted the bunkers where the money was stored.