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ISIS’s economy smaller and shabbier than Iraq’s

September 8, 2015

Given the territory it controls, the economic prospects of the Islamic State of Iraq and Syria (ISIS) are crummy, researchers have argued.  Oil notwithstanding, the economies of northern Syria and western and northern Iraq weren’t so great to begin with before the rise of ISIS (also known as Daesh).  The economy in areas of ISIS control has probably worsened given the number of people who have fled or who otherwise lost their jobs when ISIS took control.  On top of that, ISIS spends its money on aggression, not on public service delivery.

This is a persuasive argument.  It has a bit more substance to it than the usual happy talk from than speeches from U.S. Treasury Department officials.  Kudos to Jamie Hansen-Lewis and Jacob N. Shapiro for their research, which was published in the journal Perspectives on Terrorism (hat tip to El Grillo).  A salient excerpt from their article follows:

…Daesh has limited economic activity to draw on. Daesh area’s total economic activity according to G-Econ was at most one-fifth of the rest of Iraq’s and one-third of the rest of Syria’s. Using the more refined DMSP-OLS data the group’s poverty is equally stark, with 2012 illumination in the regions it now controls amounting to no more than one-third of the rest of Syria and one-eighth of the rest of Iraq.

And these methods almost surely overestimate Daesh’s current revenue base. First, we included areas of Daesh support from which their economy might draw in part, but it is not clear how much authority the group has to extract in these areas. Second, we use pre-war data, but the massive population movements that accompanied the Daesh takeover means these areas surely have less economic activity than they did in 1990 (for the GEcon data) or 2012 (for the DMSP-OLS data).[39]

Assuming Daesh is able to transform that economic activity into military spending at rates similar to comparably sized states we should not expect it to be able to sustain large defense expenditures. Worldwide defense expenditures peak at 10.2% of GDP in South Sudan, with many conflict-affected countries spending only 3% of GDP on defense.[40] Countries close to Daesh’s Gross Cell Product had a 2014 GDP of approximately $30B or $4,700 per capita. Combined with the range of observed expenditures this suggests the group could support defense expenditures in the range of $900M to $3B per year. While Daesh’s potential spending totals are large compared to its economic neighbors, they pale in comparison to Iraq’s 2014 spending of $9.5B, Turkey’s $20B, UAE’s $22.6B, or Saudi Arabia’s $80B.[41] While spending clearly translates only indirectly into military power, the gap between what is monetarily feasible for Daesh over the long-run and what its neighbors spend is striking.

Moreover, if we turn to the population under Daesh’s control it is fairly sparse…

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