Implications of IS Conflict for Companies Operating in the Region

By September 4, 2014Business Risk, ISIS

I attended a Brookings/Carnegie event yesterday where Matthew Olson, current Director of the National Center for Counter Terrorism, spoke on the threat posed by “The Islamic State” or IS (aka ISIS, ISIL).  It was timely, as we have been working on a project examining the near term implications of the group’s advance into northern Iraq for a company that operates throughout the region.

Olson’s comments were not altogether surprising, but he was reasonably candid in his assessment and provided more in the way of discussion on “strategy” than President Obama did in his recent press conference that was focused on… the color of his suit.  

Some points that Olson made in his remarks:

1) On the adversary: IS has the most effective propaganda and media presence of any terrorist group in history.  Combined with vast uncontrolled regions of Iraq and Syria and disenfranchised Sunni Muslims who feel they lack options, The conditions were right for IS.  Rooting out their physical and ideological presence is going to be a significant challenge for the international community.  Lack of political progress in both countries will exacerbate these problems.

2) On the strategy: The US is taking a multi-faceted approach in Iraq that includes working with regional and international partners to undertake aerial strikes, provide arms to Iraqi and Kurdish forces, enhance intelligence collection efforts, provide humanitarian assistance to displaced people, assist with political reform, and counter propaganda.

3) On Syria and Assad: The strategy by necessity must include Syria, but IS cannot be defeated with Assad in power.

So what does IS and the US/allied intervention in the region mean for foreign companies operating there?  Obviously, depending on the industry, the implications will be different.  Some things to be thinking about beyond the obvious and most important piece: the safety and security of all of your employees:

  • Supply chain: IS has integrated itself into local economies in varying degrees – in some cases forcing local gas distributors to use the black market fuel produced through the group’s illicit operations – and charging three times the normal price.  They are also charging tariffs to people coming in and out of cities like Mosul.  Could your distributors get caught up in this?  There are security, cost and ethical concerns here.
  • Supply chain logistics: Skirmishes between IS and ground forces, as well as aerial strikes (as of yesterday 121 had been carried out by the US) will at best create no-go areas and may delay deliveries of product to market, and at worst could result in local employees being caught up in violence.
  • Local economics: In some areas IS has replaced the state in the local economic system, redistributing resources and effectively creating a new governance and economic structure.  As IS is driven out of these areas, there may be near term food and fuel shortages, among other fall out until the area recovers some sense of equilibrium again.
  • Extortion: Reporting indicates that IS compels businesses to run through a mixture of corruption and extortion.  On oil fields it pays workers to ensure they stay and provide the product to feed the black market fuel trade and in other cases, business owners and their families are threatened or killed if they do not comply with IS orders.  It also engages in robbery – emptying local banks in towns it takes over, among other things.  This type of activity is most likely to impact businesses that distribute products to small businesses in the affected areas.

There is much more to think about, and it is much more complicated than I lay out here.  But these are some of the myriad issues that must be considered for companies with people, investments, and business in the affected areas of northern Iraq.

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