U.S.-led coalition blows up $500 million in Islamic State cash

The U.S.-led coalition air campaign has incinerated about $500 million of the Islamic State’s cash stockpiles and cut its oil revenues by an estimated 50%, according to a senior defense official.

The Islamic State has been forced to ration fuel in some areas and cut pay by half to its fighters and government officials in regions it controls, according to the official, who asked not to be named in order to discuss intelligence issues.

U.S. officials have said the air campaign combined with local ground forces in Iraq and Syria have dealt the Islamic State setbacks in recent months, saying the terror group has lost 40% of the territory it once controlled in Iraq. “We've got the momentum,” Defense Secretary Ashton Carter said last week.

The statistics for the first time quantify the impact the air campaign and U.S.-backed local ground forces have had on the Islamic State’s finances and its military capabilities.

Air campaign shifts to ISIL's cash and oil

Two years after the Islamic State swept into Iraq, capturing large swaths of territory and defeating a large portion of the Iraqi army, the terror group remains badly weakened and on the defensive.

At its peak, it moved forces and equipment boldly around the battlefield and established its often brutal rule over towns and cities. The group posted videos of its fighters killing captured Iraqi soldiers. Foreign fighters flocked to the group in Iraq and Syria, where it pledged to set up a caliphate and appeared unbeatable.

Today, the group has to move around Iraq and Syria in small teams to avoid airstrikes and is increasingly shifting to guerrilla tactics.

The Islamic State, which is also called ISIS or ISIL, is struggling to replace its fighters who are now being killed at a rate of 1,500 to 2,000 a month, the official said. Only enough foreign fighters enter Iraq and Syria to replace about 25% of those who are being killed every week.

That has forced the Islamic State to replace fighters by conscripting men in areas they control. As their territory shrinks they have been turning to younger and less experienced fighters and have also had to press some government officials into military service, the official said.

Alarmed by the losses, Islamic State’s leaders in Raqqa met and decided to overhaul much of their military hierarchy, firing some combat leaders and executing others, the official said. Some of those who were executed were combat leaders in eastern Syria, where the Islamic State has suffered recent defeats at the hands of U.S.-backed opposition forces.

New rules allow more civilian casualties in air war against ISIL

The official cautioned that the Islamic State is not defeated and remains a potent threat in the region that is also capable of striking in Europe and elsewhere. The Islamic State still controls Raqqa, a city that serves as its de facto capital in Syria, and Mosul, Iraq’s second largest city. They have dedicated fighters, many of whom would fight without a paycheck.

Analysts agree. “ISIS is getting weaker, but that doesn’t mean their demise is around the corner,” said Stephen Biddle, a professor at George Washington University and an analyst at the Council on Foreign Relations.

The official and analysts said the group has been forced to make some tough decisions about what terrain is worth defending, since it is spread too thin to protect everything it once controlled. "It looks like a strategic choice to marshal resources in areas that have more economic importance," Biddle said.

Last year, Iraqi forces backed by U.S. airstrikes took Ramadi from Islamic State militants, in a major defeat for the militant group. The militants held the city as long as they could and then withdrew when they realized they were doomed.

Iraq’s forces have continued to drive militants out of the Euphrates River Valley west of Ramadi, most recently recapturing the town of Hit.

“Hit was a linchpin for ISIL,” Army Col. Steve Warren, a spokesman in Baghdad, said. “Clearing Hit hampers their ability to move foreign fighters and supplies into the Euphrates River Valley, and sets the stage for future offensive operations.”

Iraq’s U.S.-backed forces face a more formidable challenge in Mosul. They will likely experience a militant force of about 6,000 fighters, 10 times the size of the militant force in Ramadi. Any final assault in the city is likely months away, though initial operations to isolate the city have already begun.

Unlike al-Qaeda and other terrorist groups, the Islamic State has seized and attempted to govern territory and manage resources. This gave the group a propaganda advantage, because it claimed to be restoring an Islamic caliphate, but it also provided the coalition with more opportunities to attack them.

Last year the U.S.-led coalition expanded its air campaign to target the group’s revenue sources. The terror group was hauling in about $80 to $90 million a month last fall, the official said. About 50% of it came from oil revenue.

By targeting the Islamic State’s oil infrastructure, the coalition estimates it has reduced production by 30% and the group’s oil revenue by 50%, since most of what it is selling now is inferior quality, the official said.

It has also targeted the group’s large stores of cash, which is mostly in U.S. dollars. The coalition has targeted cash warehouses and distribution sights about 15 times in recent months. Intelligence estimates range from $200 million to $1.3 billion, the official said. He said the most plausible estimate is $500 million.