Islamic State, which now controls an area of Iraq and Syria larger than Britain, may be raising more than US$2 million a day in revenue from oil sales, extortion, taxes and smuggling, according to American intelligence officials and anti-terrorism finance experts.
Unlike other extremist groups that rely on foreign donations that can be squeezed by sanctions, diplomacy and law enforcement, Islamic State's predominantly local revenue stream poses a unique challenge to governments seeking to halt its advance and undermine its ability to launch terrorist attacks that in time might be aimed at the United States and Europe.
"Islamic State is probably the wealthiest terrorist group we've ever known," said Matthew Levitt, a former US Treasury terrorism and financial intelligence official who now is director of the counterterrorism and intelligence programme at the Washington Institute for Near East Policy. "They're not as integrated with the international financial system, and therefore not as vulnerable" to sanctions, anti-money-laundering laws and banking regulations.
In contrast, the late al-Qaeda chief Osama bin Laden was from a wealthy family and enjoyed a network of foreign patrons, and his funding sources were squeezed by financial intelligence officers. Islamic State "makes its money primarily - if not entirely - locally," said Patrick Johnston, a counterterrorism specialist at the Rand Corporation think tank and co-author of a forthcoming analysis of declassified documents on Islamic State's finances.
The money that Islamic State received from outside donors paled in comparison to its income from extortion, kidnapping, robbery, oil smuggling and the like, said a US intelligence official who spoke on the condition of anonymity to discuss classified information.
While al-Qaeda and other groups that the US designates as terrorists, such as Hezbollah and Hamas, have long depended largely on the kindness of sympathisers and state sponsors such as Libya and Iran, some self-financing by militant groups isn't new.
The Afghan Taliban smuggles opium, minerals and timber; Colombia's Marxist Farc rebels export cocaine; and Abu Sayyaf in the Philippines, as well as al-Qaeda offshoots in Yemen and North Africa, have raised millions by taking hostages for ransom.
There are few reliable financial figures for the groups. A United Nations report estimated the Taliban raised about US$400 million in 2011 through local taxes, donations, and extortion directed at drug smugglers, mobile phone operators and aid projects.
The revenue streams available to Islamic State through its control of a vast, oil-rich territory and access to local taxes dwarfs the income of other groups.
With its control of seven oilfields and two refineries in northern Iraq, and six out of 10 oilfields in eastern Syria, the terror group was selling crude at between US$25 and US$60 a barrel, Luay al-Khatteeb, a visiting fellow at the Brookings Institution's Doha Centre in Qatar, said. That reflects a steep discount from world market prices due to the risk faced by middlemen smuggling and brokering the oil.
Based on Khatteeb's interviews with contacts in Iraq, the extremist group controls Iraqi fields with a production capacity of 80,000 barrels a day and is now extracting about half that amount. Islamic State, he said, was likely earning some US$2 million a day from oil sales, paid for in cash or bartered goods as the fuel crosses into the Kurdish regions of Iraq, Syria, Turkey and Jordan.
One important financial battlefield for Islamic State, said the US intelligence official, was the Baiji refinery in northern Iraq, which produces roughly a third of the country's total oil output. It's been shut down since an attack by extremists in June, and remains the scene of heavy fighting between militants and government forces.
The extremists' oil income was going to "keep the war machine running, to maintain institutions" in the territory Islamic State had seized from the Iraqi and Syrian governments, and "the rest of the cash is going to recruiting", Khatteeb said.
Robin Mills of Dubai-based Manaar Energy Consulting and Project Management, said authorities had begun cracking down on oil smuggling into the Kurdish region, meaning more of the crude would be used locally by Islamic State and oil revenues would start to shrink.
A second source of revenue for Islamic State is taxing residents of the densely populated cities such as Mosul in the territory it controls, and controlling granaries and other critical resources. Criminal activity from bank and jewellery store robberies, extortion, smuggling and kidnapping for ransom is also an important source of revenue.
The group may have raised US$10 million or more in recent years from ransom payments alone, said one US official.
Still, Brian Fishman, a research fellow with the Washington-based New America Foundation, a policy research organisation, and many US intelligence analysts, are sceptical of the oft-quoted figure of US$2 billion controlled by Islamic State.
Similarly, initial estimates immediately after the September 11, 2001 attacks putting al-Qaeda's wealth in the hundreds of millions of dollars greatly exaggerated the amount of money bin Laden had at his disposal, according to later reports by the National Commission on Terrorist Attacks Upon the United States, also known as the 9/11 Commission. The CIA estimates that it cost al-Qaeda about US$30 million per year to sustain its activities before 9/11, an amount raised almost entirely through donations, according to a commission staff report.
The 9/11 attacks cost only US$1 million, so even if Islamic State has a fraction of the purported US$2 billion - and if it can continue to earn US$1 million to US$2 million a day from black market oil sales - that's still a lot of money.
Islamic State's "power is tied to the territories and resources they control and the population they extort money from", Fishman said. "That suggests this organisation is going to be very resilient and it's going to take a long time to crunch them."
Johnston said that a 2010 Rand analysis of financial records seized by the US military from al-Qaeda in Iraq, the precursor to Islamic State, found a direct correlation between funding and terrorist operations.
"Cutting off financing makes them think about which attacks to do, what risks to take, and can we really afford to administer all of this territory as Islamic State?" Johnston said.
The resources flowing into the group's coffers now tended to move out of the door in the form of payments fairly quickly, agreed the US intelligence official. Still, while Islamic State may now be the wealthiest terrorist group on the planet, war-fighting and administering territory was expensive, the official said, and although Islamic State was flush with cash now, a key question was how sustainable its self-financing would be.
Indeed, the flip side of controlling territory that isn't self-sufficient is that the group will be expected to pay for food, salaries, infrastructure and other services.
"That's the tension here," Fishman said. "Presumably, Islamic State has an obligation to use that money for governing, for paying people to clean the streets", and that adds to the burden of paying for recruits and terrorist operations.
Although alarm bells have been rung about private Persian Gulf funding for Islamic State, the money from foreign donors is modest in comparison to self-funding, according to several US officials.
After Germany's economic development minister, Gerd Mueller, accused Qatar of funding Islamic State, US officials said they had no evidence of any government funding the group.
Qatar was credited with helping negotiate this week's release of American journalist Theo Curtis, held for two years by the al-Nusra Front, a rival Islamic militant group in Syria. Qatar, Saudi Arabia and Turkey have aided the armed elements of the opposition to Syrian President Bashar al-Assad, but deny funnelling money to Islamic State.
Private donations from states that have weak intelligence or enforcement mechanisms are another matter. The Obama administration says it is closely tracking private funds collected in Persian Gulf states through mosques or via social media, destined for extremist groups in Syria and Iraq.
Several terrorist leaders and fund raisers have been sanctioned since May, and US State Department and Treasury officials say they're working with their counterparts in the Gulf region to ensure that any private donations are intercepted.
Charitable fundraising networks have raised hundreds of millions of dollars intended to benefit the Syrian people since the armed uprising against Assad began three years ago. Some fund raisers, especially in places such as Kuwait that don't monitor money flows as carefully, have used the humanitarian crisis as a cover for soliciting donations for extremists, according to State Department and Treasury officials who were not authorised to be quoted.
That makes finding choke points to cut off the funding a challenge. While the US military launches air strikes in Iraq against militants and their weaponry - much of it American hardware abandoned by Iraqi forces - other agencies are seeking ways to deplete Islamic State's coffers.
Those efforts include targeting distribution networks for middlemen selling oil from Islamic State, strengthening anti-money-laundering laws, improving financial intelligence and working with other governments to find chinks in the group's financial armour.
"This new model is very different, but there are some pressure points we could apply," said Fishman, former director of the Combating Terrorism Centre at the US Military Academy at West Point, New York. Aside from targeting illicit oil brokers, authorities can go after the bulk of the group's reserves. "It's not totally clear where they're storing all this money, but there may be ways to actually go after it," he said. Whether or not it's in a bank account, "you've got to put it somewhere".