The governments of Kuwait, Qatar, and Saudi Arabia have for many years funded anti-Shia political and military movements in the Middle East without any substantial resistance from the international community. After the Islamic State (Daesh) morphed into the monster that is has become, and the group was widely condemned by governments around the world, these nations either stopped or substantially reduced their official funding of the organization. Yet, wealthy individuals in these countries picked up where the governments left off. Daesh continues to be funded from sources within these countries unabated.
The original intention of the governments of Kuwait, Qatar, and Saudi Arabia in deciding to provide funding for Daesh was simple: covertly fund an organization that promoted their collective anti-Shia regional agenda while maintaining plausible deniability with regard to their involvement. While the leaders of these governments could not have predicted what Daesh would turn into, they have failed to implement and enforce regulations that would prevent their citizens from funding Daesh.
A contributory reason for this failure is disillusionment with the U.S. government's response to the Arab Awakening, and U.S. policy toward Iraq and Syria. Regional governments feel disengaged from America and believe that the only way they may influence the course of events is by crafting their own solution. They believe that the threat of failure on that basis is comparatively smaller than taking no action and leaving the fate of the region to what they view as an ineffective American strategy.
Some regional governments now understand that the monster they helped to create is coming to attack them in their homeland. Indeed, this is a growing fear in Saudi Arabia, where Daesh has claimed responsibility for two mosque bombings in the Eastern Province in as many weeks. Daesh has specifically targeted the governments of Jordan, Lebanon, and Bahrain, among others, and its ability to strike, seemingly at will, has been impressive.
As reprehensible as Daesh is to many of the region's governments and citizens, it represents stability in the territory it controls, having established its own form of government, collecting taxes and providing government services. While many residents of the cities it controls may abhor Daesh, many of them admit that Daesh is doing a better job of providing basic services than either the Iraqi or Syrian government. Given the ongoing political mosaic in the region, it can certainly be argued that some stability and provision of basic services is better than none.
Given all this, why has the U.S. government not leaned harder on the region's governments to cut off Daesh's financing? Part of the reason, surely, is diminished moral authority and legitimacy. America's ability to influence either regional or domestic policy is probably more limited today than at any time since the end of the Second World War. The U.S. government wishes to maximize what leverage it does still possess - in terms of oil purchases and military sales -- and does not wish to rock the boat more than necessary, thereby risking further disenfranchisement among the regional powers. In addition, the U.S. wishes to maintain whatever goodwill it still has in the region so that its foreign policy and military objectives can be implemented, to the extent any regional governments wish to do so.
Yet, America's - and the West's -- hands are really tied with respect to either applying pressure or stemming the flow of funds to Daesh from the region. Not only is its ability to influence foreign policy more limited than before, but its ability to impact domestic policy is even more limited. Hard power failed to work in Afghanistan and Iraq, and with respect to stemming the tide of Daesh through air strikes, and the West is forced to apply 'soft' pressure in an environment not conducive to being effective. Regional governments appear to be even less inclined to view the world through an American or Western lens.
In short, the moment for the U.S. to be able to effectively influence the flow of funds from the Gulf to Daesh has essentially passed. Daesh now funds itself, through a combination of oil sales, tax collection, kidnapping, extortion, cross-border smuggling, and other means. It is precisely because Daesh has so many potential sources of revenue that the U.S. and the international community must grapple with the fundamental question of whether it is realistic to completely cut-off external sources of funding for Daesh, and whether doing so, if it were even possible, would make a substantial difference in degrading the organization's operational capabilities. Based on Daesh's operational model, and the West's performance on these issues to date, the answer is no.
*Daniel Wagner is CEO of Country Risk Solution and author of the book "Managing Country Risk". Alex Stout is a research analyst with CRS.