We have seen this pattern before. In Afghanistan, after the Taliban government lost power in 2002, its fighters took to the mountains and leaned on the heroin industry to finance their insurgency. In Somalia, after Ethiopian-led forces overthrew the Islamic Courts Union government in 2007, al-Shabab extremists tapped the illicit charcoal and smuggling industries to fund its campaign against the African Union. In Mali, after losing control over the northern Azawad region in 2012, al-Qaeda in the Islamic Maghreb (AQIM) cashed in on its ties to the lucrative West African cocaine trafficking networks to pay for its war against French-led U.N. peacekeeping forces.
What can we predict the Islamic State will look like after the fall of Mosul?
To answer this question, we need to delve deep into the heart of Iraq’s underground economy. For decades, powerful smuggling networks connected Iraq to lucrative underground markets across the region and secretly financed armed groups throughout the conflict. As the Islamic State loses territorial control over these key smuggling routes, its fate will depend on whether it can maintain influence over this hidden business world.
Shift from governance to insurgency
As the Islamic State loses its land, its resources and its tax base, the movement is transforming from a proto-state into a cheaper, more flexible insurgency. Whenever militant groups are pushed out of their territories, they tend to transition from ruler to rebel. When the Taliban lost control in Afghanistan, the movement dissolved its so-called emirate and evolved into a guerrilla-style insurgency. After al-Shabab lost the port of Kismayo in Somalia, it stopped trying to govern and started attacking schools and shopping malls in neighboring Kenya. Governance is expensive; terrorist-style insurgent tactics are cheap.
The Islamic State leadership has been preparing for this change in fortune for months and said publicly that it will adapt to any loss of territory. “They’ve lost money and land, but remember that their costs are also lower now because they no longer have to govern,” said Renad Mansour, a fellow at Chatham House who has been tracking these networks in Iraq and Syria for years. “We can definitely expect them to now refocus on targeting civilians and bombing cities.”
For militants, these brutal forms of violence are low-cost, easy to execute and help maintain the illusion of global relevance. As Amarnath Amarasingam, an expert on foreign fighter recruitment, told me recently, “With the loss of land, the Islamic State will move back to [using] guerrilla tactics, which makes for great propaganda.”
Strategic retreat into underground criminal networks
Since the Islamic State no longer has the ability to tax and control illicit trade routes, its leadership is retreating into the underground economy to stay financially afloat. Most important, the group has turned to other mafia-style money laundering methods to hide and protect its large cash resources. “They’re already looking into other economic models, which look very much like organized crime,” Mansour said. “They’re changing money into American dollars and investing in local businesses, such as pharmaceutical companies or car dealerships.”
As its fighters move underground, the Islamic State plans to use these businesses as front operations to conceal and launder its massive cash resources.
By retreating into the underground economy, the Islamic State hopes to work like a mafia, extorting local businesses and biding its time until there is another opportunity to rise to power. Whether the Islamic State succeeds, however, depends on whether the existing criminal networks in Iraq will allow it to operate on their turfs. There are powerful, long-standing smuggling networks in the region that have their own business interests to protect — these criminal elites may prove to be an unexpected check on Islamic State ambitions in the underworld.
The smugglers have good reason to be suspicious of the extremists. As I explain in my new book, before its dramatic rise to power in 2014, the Islamic State forged a secret and powerful alliance with key stakeholders in the underground economy in Mosul, promising them a better deal than the corrupt and rapacious militias affiliated with the government. But that relationship went sour after the Islamic State’s self-proclaimed caliphate betrayed its business supporters and raised taxes exponentially. The fact that the Islamic State bamboozled these well-established smugglers may make its retreat into the underground precarious.
While it is easy to get distracted by their extremist ideologies, the real story behind these jihadist groups is often interwoven with criminal networks and pragmatic interests. In Afghanistan, wealthy smugglers along the Pakistan border financed Taliban power for years. In Somalia, clandestine business elites in Mogadishu were directly responsible for funding the rise of al-Shabab. In Mali, AQIM commanders even married the daughters of the mafia bosses who controlled the cigarette and narcotics trafficking industries, to cement these profitable relationships.
Across the world, Islamists do well when criminal business networks buy into their political projects.
Business-Islamist relationships: Marriages of convenience
As I explain in my book, smugglers could care less about jihadist ideology. They are pragmatists, not ideologues. As the Islamic State falls back, these smugglers are back on the market for a political favorite in the battle for Iraq. They will back the side that offers them the best deal. If the Iraqi government fails to rein in its own corruption and extortion levels, these wealthy elites may choose to maintain their secret alliance with the Islamic State. Those resources would give the Islamist militants the ability to wage a sustained guerrilla war in Iraq, one lasting decades. In war, this is the art of the hustle.