How Islamic State transformed itself into a wealthy and well-organised force

Islamic State militants fighting in Iraq are selling oil from fields and refineries they control to local communities and smugglers, augmenting their existing ample finances, US intelligence officials said.

At least some of the oil was used to fuel a power plant they seized after the radical Islamists captured large tracts of Iraq including the country's second city Mosul, killing thousands and causing hundreds of thousands to flee, the officials said on Thursday.

The officials said the militants, who took over state banks and looted homes and businesses, now had "hundreds of millions of dollars" at their disposal.

"At this point [the group] is overwhelmingly self- financing," one official said. But the officials said the group also had to pay its fighters and finance the operation of public services in territory it controls. At some point, the intelligence officials predicted, the group was likely to find itself overextended.

They said the Sunni Arab movement, which has published images of brutal killings of Shiite civilians, soldiers, Christians and members of other faiths, now controlled much of northwest Iraq. It has transformed itself into a group capable of capturing and holding territory and governing.

The US officials attributed the group's relative coherence to the fact that many of its leaders had spent time together in US detention during the eight years after the 2003 American invasion, when they were part of the al-Qaeda in Iraq (AQI) group.