Islamic State: The ransoms, oil and looted banks that have made Isis the $1.5bn threat it is

Isis thought to have generated nearly £1bn in illicit activity

Isis published its annual report in March, showing how the group intended to use its resources

Few experts disagree with David Cameron’s assertion that by paying ransoms Western governments end up bankrolling the very terrorism groups they seek to combat.

But whilst Britain and the US might stick assiduously to the principle of non-payment, other countries do not – and ransom cash has come to play a vital role in elevating Isis to an international threat, and a very rich one, in just three years.

The group is estimated to have generated as much as $1.5bn (£900m) in illicit activities, including kidnapping. An ancient instrument of warfare, hostage-taking remains a potent, terrifying and highly lucrative weapon.

An investigation by The New York Times has claimed that Islamist groups associated with al-Qaeda have generated up to $125m since 2008, trading in hostages from Africa to the Middle East and Asia. More than half this figure was paid in the past year alone – the majority of it by European governments, it is claimed.

Austria, France, Germany, Italy and Switzerland all deny making such payments, but the discovery of documents by a journalist in Mali this year revealed the scale of the problem. In the past decade the average “value” of a hostage has increased from $200,000 to around $10m – a bounty which supplements the propaganda and sense of terror generated by each kidnapping.

The documents reveal that governments which are willing to pay up do so in cash. The money is transferred via a series of proxies, and written off as development aid on national budget sheets.

But for Isis, kidnapping is just one arm of an extraordinary money-making machine which has helped make it entirely self-funding. The bedrock of this new economy of terror is oil.

Luay al-Khatteeb, a visiting fellow at the Energy Security Initiative run by the Brookings Doha Centre, has described Isis as “the world’s wealthiest terrorist group”. He argues that far from being a bunch of “nihilistic extremists”, the organisation has created a sophisticated black-market economy over the territories it holds in Syria and Iraq.

The self-appointed caliph Abu Bakr al-Baghdadi (AP)

Once it was dependent on foreign donors’ money, with several hundred million dollars coming through social media fundraisers, private supporters in Kuwait, and – allegedly – Saudi Arabia. Now it is able to generate spectacular levels of cash as a result of its control of 60 per cent of Syria’s oil assets and seven production facilities in Iraq. Oil is traded with a network of middlemen and criminal gangs, generating an estimated $2m a day. Some 30,000 barrels a day are sold on to neighbouring countries including Jordan, Kurdistan and Turkey.

It is also able to use the industrial assets and technical expertise it holds to produce refined products which it is able to sell for cash. Luckily for the rest of the world the majority of Iraq’s oil resources are based either in Kurdish-held areas or in the south of the country which remains beyond its military grasp.

Alongside kidnapping, extortion and smuggling, it has been claimed that Isis scored a spectacular boost to its coffers when it staged what has been described as one of the biggest heists in criminal history after seizing control of Mosul. It was claimed gunmen made off with more than $400m at the region’s central bank, although Iraqi officials have cast doubt on the story.

The group has also shown little concern at exploiting the region’s extraordinary wealth of antiquities. One intelligence expert was recently quoted as claiming that it has raised $36m in 8,000-year-old artefacts pilfered from the Qalamoun mountains west of Damascus.