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Terrorism is a concept well known to almost all human beings. It is the use of violence against non-combatant populations for the sake of achieving a political or social goal that the group cannot achieve in any other way. As is well known, it relies on a secret cellular structure, complex money laundering, criminal forms of fund raising, interested foreign governments and the like. The intuitive view is that terrorism, warfare or any sort of instability is a terrible thing for the local and global economy. The destruction of infrastructure, loss of life, diversion of resources and general anxiety can shatter the strongest economy.

However, the Islamic State movement for Syria (ISIS) and for the broader Levant (ISIL) does not follow any of these patterns. They appear more as a guerrilla army than a terror group. They are inexplicably wealthy, invisible to the most sophisticated satellite system, transfer heavy guns in the open and are so loaded with fuel, spare parts and supplies that they have eluded the US, Syrian and Israeli security forces for several years (Boghardt, 2014).

The thesis of this paper is that ISIS does not fall into the normal “terrorist” definition. It is not a “terrorist” group in that it is not opposed to global elites or colonial rule, but is the very creation of that rule. The economics is energy, transport and the control over large areas in an unstable area. It is the economics of oligopsony and oligarchy, not that of markets. A handful of western conglomerates, tiny Israel and a few isolated Sheikhs have to figure out a way to rule the massive cauldron of Middle Eastern politics for the profits of energy. This is the economics of ISIS terror.

ISIS and the West

Recently events have shown beyond reasonable debate that ISIS/ISIL are at least partly financed and directed by western, Israeli and Saudi intelligence. The ultimate purpose is to ensure western dominance over global energy supplies and pipeline routes that are essential for any global economic power to function for the foreseeable future. Instability ensures no strong regime can coalesce. The evidence for this thesis is increasing by the day.

Iraqi and Syrian forces have captured large caches of weapons, including some sophisticated technical aiming systems, sent to ISIS fighters directly by the US or Turkey. It is likely the only thing that could explain the oddities about this movement mentioned above. The FARS News agency reported (along with several European and Russian agencies) that captured ISIS fighters admitted to their Iraqi captors to receiving weapons, training and cash from the US, Turkey or Israel (FARS, October 25 2015). Russian complaints of American refusal to cooperate in bombing ISIS targets are now a daily occurrence. Many more examples of this can be cited. It has to be taken seriously given the amazing ability of ISIS, a large army, to function out in the open for years without a financial, fuel, equipment or military problem.

It is important that the foreign and western origin of these movements be shown credible, since it makes the ISIS issue quite unique. Rather than being a threat to the economy, they are a part of it, used deliberately to keep western dominance over this strategic region as long as possible. In this case, stability is the problem, not the goal. In this case, there is no market, since the energy sector is purely oligopolistic and politicized, and the added variable is that these tiny minorities (whether Israelis or western corporations) must maintain supremacy over a vast sea of hostile Arabs.

In 2006, such a policy was unveiled by then Secretary of State Condoleezza Rice under the moniker “The New Middle East.” It was and is extremely radical in its implications. It envisaged a series of small states of varying ideological and religious identities, perpetually at war and always distrustful of the other. Only then can western and Israeli dominance be maintained (Rice, 2006 and Yinon, 1982 and Peters, 2006).

The point is to keep strong, nationalist Arab states from siding with the Shanghai Cooperation Organization and as a result, de-dollarizing their petroleum sales. Iraq under Saddam Hussein, Libya under Gaddafi and Syria under both Assads were precisely these sorts of states. They maintained strict state control over oil and gas sales as well as petroleum pipelines and refineries. As both Russia and China rise to global super-power status, this may well mean a west in a weaker bargaining position over these mos important resources.

Within Mossad and the IDF, it goes by the term the “Yinon Plan” and was formulated back in 1982. The scenario was identical: instability, weak governments, total privatization and endless division theoretically controlled by elites in the west to maintain a balance of terror. Such a balance keeps any powerful Arab group, Islamic or secular, from taking power and creating an alliance with hostile powers. For Israel’s point of view, it was the only rational way to maintain hegemony in a region where substantial states were growing in wealth and power, as well as the disastrous demographic implications of Islamic family law. Israel’s only option, or so it was theorized, was to maintain a constant state of war, chaos and division among Arabs such that the unified powers of the USA and Israel could dominate the area.

Economically speaking, the implications are clear: the rise of terror cells such as ISIS and numerous offshoots and their own offshoots are, at least initially and in part, part of a broader plan to maintain the rule of a minority in a sea of hostile Arabs. It is a means to maintain western corporate control of the oil and gas wealth which, inconveniently, also requires the control of Arab politics and government.

Given the volume of evidence presented concerning the existence of this policy and the clear western sponsorship of ISIS, the economic ramifications are immense. In an oligarchic world, stability is a problem. It creates competition as stable infrastructures cause small firms to rise up,filling gaps that the larger oligopsonic ones find inefficient. There are no markets at work, since the oil and gas resources are so strategic. These are political issues where states must be controlled. Hence, there is no market and no free flow of political ideas. It is the very definition of oligopsony and oligarchy. In short, this is the political economy of empire.

Some General Literature on Terrorism and Economics

Speaking more broadly than this conflict terror of the sort displayed by ISIS has other economic implications as well. In Benmelech et al (2010), the authors show a relationship between successful suicide attacks on civilian targets and the local economy. They are not just speaking of a single attack or several at one brief period of time. The authors use the term “harbor” in the sense that some local power is financing, directing and manipulating such attacks for a political agenda. The authors here find highly significant statistical correlations between such local polities and a sharp rise in unemployment. For each successful attack, there is a corresponding average increase in unemployment of 5.3% (Benmelech, et al, 2010: 340ff).

Even more, the locality where the attacks are being directed and mobilized also sees an average fall in wages of over 20% per successful attack. Concerning Palestinians working in Israel, there is a corresponding drop of Arab employment in the Jewish state of about 7% per attack on average. The authors note that “Importantly, these effects are persistent and last for
at least six months after the attack” (Benmelech et al, 2010: 331-332).

It takes little imagination to extrapolate how an organized, apparently wealthy and well armed terror movement like ISIS can cause in employment and investor confidence in the region. However, if the thesis presented here is true, then ISIS is not to be included in this because it is, in part, precisely to bolster confidence in the free flow of gas and the existence of weak states incapable of bargaining against the oil giants. The difference is the world of theoretical markets and equilibrium and the realities of oligarchy and empire. ISIS and its ideology make no sense to the former, but it does to the latter.

In Czinkota et al (2010), the conclusion of their research is simple: terrorism is terrible for the local economy for obvious reasons, but for the global one as well because of the fear of any substantial capital investment in an unstable area. Apart from the obvious destruction of infrastructure and the like, terror and instability increase transaction costs, create anxiety in capital returns, employee safety and the inefficiencies of high security and the militarization of a plant, shop or factory.

On the other hand, Gaibulloev and Sandler (2011) analyze terrorism in Africa from 1970-2007 with an eye to understanding its long and short term economic effects. Distinct from Benmelech, they find a modest alteration in GDP growth given acts of terror over time. The authors here are admittedly surprised at the lack of real impact of terrorism on African growth. Their immense empirical date ad longitudinal focus show that even well organized terrorism will not affect GDP growth, or national income growth, at all. The assumption is that the destruction of terrorism, its resultant uncertainty and its long term stigmatization of a region will slowly eat away at the economy. This is not the case in this research and no matter what the control variable used, the same insignificant result was received (Gaibulloev and Sandler, 2011: 360-366).

The research of Abadie (2003) seeks to make similar connections between terror and the economy for the Basque Country in Spain. There, a more logical result was found: in general, when the separatist terrorism became widespread there in the late 1960s, the local GDP declined over 10% when compared with the region without terrorism. The authors create “synthetic control regions” which are meant to mimic the conditions of the Basque country in all respects, except that the researchers can manipulate the variables at will. They can then compare them to the real data in the late 1960s and 1970s.

Further, when the trice was signed in 1998 into 1999, new data was collected to see its impact. The results were that businesses in the area strongly recovered and showed a great deal of confidence varying on whether or not the cease-fire was widely viewed as serious. When it was not taken seriously, there was little recovery (Abadie, 2003: 114-116).


The problem with Benmelech is that he will not deal with the obvious fact that much of the economic downtown is the result of Israel’s policy of massive retaliation against Palestinian rioters and is not directly related to the terror act. It is also possible that the problem with Gaibulloev and Sandler is that so much of the economy in Africa is at such a low level of development that acts of political violence would not have much effect. Subsistence agriculture, for example, would not likely be affected. Any non-monetized economy would not be affected by terror. Investment in Africa begins with the assumption of instability, and is considered a part of the general investment cost in a way that investment in New Hampshire would not. Similarly, the Basque country is already part of the developed world with first world expectations.

The usefulness of these articles is questionable given the strangely obvious problems with them relative to their regions. In fact, the ISIS issue in Syria is not an economic matter at all since neither markets nor normal investment rationality apply. It is simple to believe that a strong state promising order is great for “conservative big businesses.” It is too simple. Rather, to be able to control a certain level of chaos keeps self-expression in check; anxiety creates suggestibility and makes prohibitive the entry cost for any form whatsoever. Stability is god for small and medium sized businesses. At the level of Chevron, Goldman-Sachs or Boeing, the opposite is the case. The conclusion then is that when a small, Spartan elite must rule over an immense mass of hostile helots, the only way to rule is to confuse, divide, instigate and ensure a balance of violence that will do the following:

Keep competitors away by making the cost of entry absurdly high;
Maintain endless confusion over coalitions, factions and movements;
Place local governments in a very weak position; dependent on foreign assistance and approval;
Tempt all factions to “cut a deal” with the rulers for short-term advantage;
Demoralize the population at large;
Make the west seem like the salvation over this sea of humanity incapable of ruling itself.

At the level of oil and empire, psychology is more important than economics.

  • Abadie, A (2003) The Economic Costs of Conflict: A Case Study of the Basque Country. The American Economic Review 93(1): 113-132
  • Benmelech, E, Claude Berrebi, Esteban F. Klor (2010) The Economic Cost of Harboring Terrorism. The Journal of Conflict Resolution 54(2): 331-353
  • Boghardt, LP (2014) Qatar Is a U.S. Ally. They Also Knowingly Abet Terrorism. What’s Going On? The New Republic
  • Czinkota, MR, Gary Knight, Peter W Liesch, John Steen (2010) Terrorism and International Business: A Research Agenda. Journal of International Business Studies 41(5): 826-843
  • Gaibulloev, K and T Sandler (2011) The Adverse Effect of Transnational and Domestic Terrorism on Growth in Africa. Journal of Peace Research 48(3): 355-371
  • FARS News Agency (October 20 2015) US “Protects” ISIS Terrorists in Ramadi, 22 Iraqi Troops Killed by US-Led Airstrikes as US Planes Drop Weapons for ISIS.” reprinted by The Center for Research on Globalization
  • FARS News Agency (October 25 2015) ISIS Leaders Arrested by Iraqi Forces Confess to Receiving Intelligence and Logistical Support from US. Reprinted by The Center for Research on Globalization
  • Peters, Lieutenant-Colonel Ralph, ret (2006) Ralph Peters, Blood Borders: How a Better Middle East Would Look. Armed Forces Journal (AFJ), June 2006
  • Rice, Secretary of State Condoleezza (2006) Special Briefing on the Travel to the Middle East and Europe of Secretary Condoleezza Rice (Press Conference, U.S. State Department, Washington, D.C., July 21, 2006)
  • Yinon, Oded (1982) A Strategy for Israel in the Nineteen Eighties. Association of Arab-American University Graduates, Inc, Belmont, Massachusetts (Special Document No. 1, translated by Israel Shahak, 1982)