Category Archives: Illicit Networks

Foreign Policy, Illicit Networks

Stealth Wealth: ISIL and the Myth of Oil

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The Islamic State of Iraq and the Levant (ISIL) has established itself as an extremely powerful jihadist army in the heart of the Middle East. The group is well armed, commanding a vehicle fleet that includes 2300 High Mobility Multipurpose Wheeled Vehicles (HMMWV) and countless others along with enough weaponry and soldiers to manage a “state” of 300,000 square kilometers (roughly the size of Italy). ISIL is not just powerful, it is well funded. The group is reportedly so wealthy some members of the United States Government, without any apparent fear of hyperbole, repeatedly describe ISIL as the “best funded terrorist group in history” with oil as its main source of affluence.

The narrative is an attractive one. A wealthy terrorist group is novel and alarming. Fighting it requires new methods, new powers, and indeed new budgets. But it seems infeasible for the so-called Islamic State to accumulate wealth by selling functionally useless crude oil or poorly-refined petroleum products a truckload at a time. Survival alone must be very expensive indeed while under constant armed assault by a US-led coalition of 65 countries, along with Syria, Russia (arguably), Iran, and countless rival groups including the very capable Hezbollah. This gives credence to reports that some Sunni Arab states (allies of the United States) look the other way while their prominent citizens support the group.  Whatever the case, the mainstream media seems unwilling to question the narrative of ISIL’s oil riches.  The numbers however, do not support this idea.

Unbalancing the Books

Estimating ISIL’s oil revenue is complex and based largely on assumptions and derived intelligence but is useful for making the point that the group will have great difficulty profiting from the sale of stolen petroleum.

A generous estimate put ISIL’s February 2015 production capacity at 50,000 barrels per day (bpd). With a market price of $10 a barrel according to one Iraqi official, ISIL could theoretically make $15 million a month. But there is more to the story. ISIL does not control a single pipeline from origin to destination meaning they require 181 standard tanker trucks just to move all that oil, a very inefficient and expensive transportation method. Standard trucks of this type would require roughly four barrels of diesel just to make the 800-mile round trip from Kirkuk to Raqqah. That is 724 barrels per day ($217,000 per month) just to deliver to potential customers.

But ISIL needs fuel as well. A large percentage of ISIL’s estimated production would be consumed by 2300 HMMWVs, hundreds of armored vehicles, likely tens of thousands of civilian cars and trucks, heavy machinery for construction and survivability, generators, and heaters. With only about 70% of refined petroleum products useful for those purposes, ISIL’s for-sale inventory is down to somewhere in the neighborhood of 30,000 bpd. Subtract another 10% for likely corruption, loss, fuel contamination due to mishandling, and inefficiencies from distributed and improvised refining, that is 27,000 bpd before accounting for a single action by any of ISIL’s many enemies.

The Myth of ISIL's Oil
“Crude Stills:” A field refinery used by ISIL to process crude oil into useable forms such as diesel and kerosene.

All the same, 27,000 bpd is worth $8.1 million per month; not a paltry sum, but a far cry from the $50 million bonanza the United States estimates ISIL earns monthly from oil sales. It is also only one half of the equation. Though ISIL’s monthly expenditure is beyond the scope of this article, we must remember that its army of tens of thousands of soldiers is a very expensive commodity to operate. Those soldiers must be recruited, fed, paid, housed, equipped, armed, and trained. The wounded require expensive medicines to heal or keep healthy and their families must be compensated upon their deaths. If we compare these priorities with appropriation titles in the budget of the United States Army, we find that similar expenses account for 91.8% of the total US Army budget. Assuming ISIL has similar combat priorities, it is clear $8.1 million will not go very far.

Groupthink, Bureaucracy, and Confusion

If strained production capacity, distributed and inefficient refining, expensive distribution infrastructure, extremely high operating costs, and a questionable customer base are not enough to break ISIL’s bank, enemy action certainly will.  Unfortunately, there is a political rUntitledeason we keep hearing tales of the group’s fabulous riches. Since the Obama Administration began perpetuating the myth of ISIL’s oil wealth in August 2014, bureaucrats and generals have used the idea as a foundation for action. As early as September 2014, the Department of the Treasury sought authorities to target ISIL’s bank accounts and those of its financial backers while the State Department lobbied to block donations to ISIL from  citizens of Gulf Cooperation Council countries. Meanwhile, the Pentagon went after the group’s oil infrastructure, most notably in an effort to retake the Bayji refinery complex. Though this seems a refreshingly comprehensive approach to a complex problem, these agencies carried it out in the context of bureaucratic competition, particularly when diplomacy constrained military options or when bombing annoyed regional allies and complicated negotiations over the Iran nuclear deal. Yet amid the bureaucratic maneuvering, none were willing to question the attractive but invalid assertion that ISIL was making a lot of money…Until Vladimir Putin agreed with them.

Following the downing of a Russian fighter aircraft by the Turkish Air Force, Russia produced photo evidence accusing Turkey of being the primary consumer of ISIL’s stolen oil.  The Russian photos even implicated the family of Turkish President Recep Tayyip Erdogan in the trade. Despite their ambiguity, the allegations are troublesome for the mantra underpinning the policies of the United States, NATO, Turkey, and a number of other outwardly anti-ISIL stakeholders. The response from the United States came from special envoy and coordinator for international energy affairs, Amos Hochstein, who said that ISIL’s oil sales to Turkey are of “no significance from a volume [or revenue] perspective” and that most consumers are in ISIL-controlled areas of Syria and Iraq. Bizarrely, other US officials even questioned ISIL’s production capacity, pointing out that the group refines its stolen oil in “ad hoc desert pits equipped with crude stills”. Suddenly Washington was further complicating an already confusing policy by qualifying its previously bold statements about ISIL’s oil wealth.

The Cost of the Myth

Maintaining the myth of ISIL oil wealth was always an operational liability, incorrectly informing policy and improperly shaping decisions on the use of national power. It is now clear the tortured logic required to maintain the fiction is an international political liability as well and it is time for the United States and its allies to face facts and abandon the groupthink. ISIL is not enjoying a massive windfall from the sale of oil and instead is waging a successful war with more intractable sources of funding including possible covert sponsorship from some of America’s less scrupulous Sunni allies. Until Washington is willing to face the reality of ISIL’s oil wealth, those “allies” will enjoy political cover to support the Islamic State and Mr. Putin will continue to use America’s own rhetoric against it.

Lino Miani is a retired US Army Special Forces officer, author of The Sulu Arms Market, and CEO of Navisio Global LLC 

Illicit Networks

The Sulu Arms Market: Globalized Gunrunning Since 1521

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In March 2013 a Malaysian Air Force F-18 initiated an assault on a tiny East Malaysian village near the city of Lahad Datu. Its target was the final stronghold of the Royal Sulu Army, armed henchmen loyal to the Sultanate of Sulu, a defunct political entity that at one time spanned the borders of the modern Philippines and Malaysia. In the smoking aftermath of the final battle with the group, 80 people lay dead (including 10 Malaysian soldiers and policemen), over 700 were in custody, and police confiscated a surprising assortment of powerful weapons and ammunition.

Portrayed as misguided terrorists by Malaysian leaders, the ethnic Tausug invaders that confounded Malaysian authorities for over a month armed themselves with assault rifles and ammunition from an illicit arms market that thrives in the poorly controlled border areas of Malaysia, the Philippines, and Indonesia. Although Malaysia dealt decisively with the Royal Sulu Army in 2013, the arms market that supplied them is part of the history and culture of the area and remains a security problem for at least five member states of the Association of Southeast Asian Nations (ASEAN).

The Sulu Arms Market, described in the 2011 book by the same name, is not a market in the physical sense, rather it is an economy of guns where firearms and ammunition are the currency of a thriving international trade in violence. Its 500-year history of competition and conflict is older than most, yet the Sulu Arms Market is quite common in that it is both a source and a destination for smuggled guns. Due to the richness and politically fractured characteristics of the tri-border area, the Sulu Arms Market is intertwined with piracy, terrorism, and the traffic of other illicit commodities. At various points since the Spanish conquest of the Philippines in 1521, European colonialists, Moro (Philippine Muslim) independence groups, Communists, Islamic militants, and criminal gangs all played a major part in the market’s development making it a truly globalized enterprise.

Smuggling routes in the approximate area of the Royal Hashemite Sultanate of Sulu and North Borneo, a defunct political entity. A number of factors have contributed to both abundance of and demand for weapons that are easily trafficked into and out of the Sulu Arms Market. Source: https://bookshop.iseas.edu.sg/
Smuggling routes in the approximate area of the Royal Hashemite Sultanate of Sulu and North Borneo, a defunct political entity. A number of factors have contributed to both abundance of and demand for weapons that are easily trafficked into and out of the Sulu Arms Market. Source: https://bookshop.iseas.edu.sg/

The Players

While the Sulu Arms Market has its origins in colonial struggles between Spain, England, Germany, and the Netherlands its modern foundation was established in the political chaos of Southeast Asia following the Second World War. Communist guerillas across Southeast Asia, trained and equipped by the Allies during the War, turned against their post-war governments and became the primary recipients of arms shipments from abroad. As the Cold War set in, these groups drew direct support from communist China, the Soviet Union, and eventually Vietnam and North Korea. Added to the massive volume of guns remaining from the fighting in the Philippines, this Communist supply spilled over to similar movements throughout Asia including the Khmer Rouge, the Pathet Lao, the communist parties of Indonesia and Thailand, as well as Nepalese and Indian groups.

The Moros also rearmed after the Second World War. Organized initially as a secular nationalist movement, the Moro National Liberation Front (MNLF) waged guerilla warfare against Manila for control of historically Muslim southern islands. Led by an ethnically Tausug leftist agitator and Sulu nationalist named Nur Misuari, the MNLF received political support and clandestine logistics (including arms) from Malaysia.[1] It was not long before Misuari developed direct ties with a number of powerful external sponsors, including Libya’s Muammar Ghadaffi and Pakistan’s president Yahya Khan, both of whom sponsored Islamic causes around the world. MNLF’s secular approach began to fall apart however in the 1980s when a number of its officers established a religiously inspired splinter group: the Moro Islamic Liberation Front (MILF).

The MILF brought jihad to the southern Philippines and with it, Islamist arms sources. Powerful new sponsors, inflated by victory over the Soviets, found the religious MILF more worthy of support than the secular MNLF. As Misuari and the MNLF pursued a secular agenda in peace talks with Manila, jihadi suppliers like Al Qaeda shifted their support (mostly in arms and training) to the MILF and Abu Sayyaf Group, another Islamist Moro faction. The MILF’s connection to these jihadi groups was critical to finance the import of weapons from Sabah during the 1990s. Guns poured into Mindanao from every corner of the globe via well-known smuggling routes through the Sulu archipelago. In 1992, the scale of black arms shipments to the Moros attracted suppliers from Afghanistan, Colombia, China, Pakistan, Cambodia, Palestine, Lebanon, Sudan, Libya, North Korea, Thailand, Saudi Arabia and Malaysia (Sabah); with transit points in Singapore, Indonesia, Taiwan, Hong Kong, Vietnam, and Myanmar. As a result of this influx of weapons, the MILF was secure enough to continue fighting independently when Misuari’s MNLF reached a peace agreement with Manila in 1996. With as many as 12,000 men under arms, the MILF sat atop an enormous black arms trade and controlled roughly 10 per cent of Mindanao and large parts of the Sulu archipelago. Control of this territory allowed large arms shipments to become routine and with violence at a low ebb, the Sulu Arms Market once again became a source of guns for the rest of Asia.

http://www.themalaysianinsider.com/malaysia/article/sulu-guerrilla-tactics-wont-work-in-sabah-says-analyst
Violent conflict between Malaysian forces and the Royal Sulu Army around Lahad Datu, Malaysia in 2013 provided proof that a market for illegal arms exists in the Sulu Archipelago. Image Source: http://www.themalaysianinsider.com

Sensing opportunity, Asia’s criminals soon became significant players in the Sulu Arms Market. At the lowest end of the scale are the “ant traders”; Sulu or Sabah natives that benefit from access to both sides of the border. Their opportunistic, few-guns-at-a-time operations thrive in border areas where one country has a legal market and the other does not. As a result, ant trading accounts for much of the arms and ammunition transiting between the Philippines, Malaysia and Indonesia.

At the other end of the scale are transnational organized crime gangs from Japan, China, and Taiwan. Strict and well-enforced gun laws in northeast Asia make high quality handcrafted Filipino counterfeits called paltiks very popular among these gangsters. In an effort to control this dangerous cottage industry, the Philippine government created licensed manufacturers in Cebu with the idea of luring paltik craftsmen into legitimate employment in state factories. Not surprisingly, this move created ideal conditions for parts-smuggling that feeds the very paltik industry it was designed to destroy.

The criminality of arms trading is less clear when it involves wealthy and influential Filipinos. They are primarily arms consumers, stockpiling enormous arsenals that offer them increased prestige and protects them from weak gun laws. When these politicians and businessmen also identify themselves as either leftist, Moro or Christian, the lines between criminality, politics, and terrorism become extremely blurred as we saw in the case of the Maguindanao Massacre in 2009.

Sulu as a Source

The rise and fall of the Royal Sulu Army demonstrates that the Sulu Arms Market is real. It persists despite a multitude of countermeasures against it by governments both in and out of the region. It is a security problem of unmeasured proportions and its deadly products flow increasingly outward as violence reaches a low ebb. Moro weapons have made their way into the hands of separatists and militias in Papua New Guinea, Irian Jaya, East Timor, and the Malukus. But insurgent guns are not the only ones supplying the demand. Legally produced rifles, ammunition, and machine guns also end up in the black market through intentional overproduction, diversion, theft or loss. Known paltik manufacturing operations in Malaysia, Indonesia, and the Philippines reinforce the supply from legal sources. Lastly, leakage from regional military and police sources is famously commonplace. Pilferage of stocks of obsolete weaponry continues to occur as both the Philippines and Malaysia replaced their standard infantry rifles with 45,000 M-16 rifles from the United States in 2009.

It is not hard to imagine that as violence reaches historic lows in Mindanao due to MILF-Manila peace efforts, cash-strapped armorers in those countries will ignore the long-term profit potential of black arms exports. If the governments of the region fail to keep a close eye on the Sulu Arms Market (or perhaps even if they do), peace in Mindanao could come at the cost of the southern Philippines evolving once again into a for-profit illicit gun store for Asia.

[1] Though Nur Misuari served Kuala Lumpur’s interests in 1969, he was widely seen as provoking the Royal Sulu Army’s invasion of Sabah in 2013.

Lino Miani is a retired US Army Special Forces officer, author of The Sulu Arms Market, and CEO of Navisio Global LLC.