The Islamic State in Iraq and Syria, or ISIS, is the first jihadist group to control a major area at the heart of the Islamic and Arab world.

ISIS has commanded significant recurring revenue streams allowing the extremists to establish a law-enforcement capacity in a region in which over three million people live, and to direct a sizable arms trading business. But the group’s real novelty and peril lie elsewhere: in the sophistication of its operations.

Unlike Al-Qaeda’s or for that matter any previous jihadist group, ISIS leaders do not seek to win over large sections of Arab or Muslim groups. From their perspective, this will happen only when they secure a sizable land mass, establish mechanisms for asserting Sharia, and create governing structures (typically, quasi-municipal services). The masses’ acquiescence, and later buy-in, will follow.

ISIS’s short-term objective is to establish a statelet—not further territorial expansion. Creating a statelet ensures continued access to the already acquired economic assets, building an administrative structure, strengthening the group’s deterrent against neighboring countries (the threat of undertaking terrorist operations in their territories), and importantly, achieving an objective not a single jihadist group has managed before: becoming a political entity within the Arab world.

ISIS has a four-pillar approach to creating a statelet. First, ensure compliance of the local population. ISIS is already establishing a quasi-law-enforcement apparatus in several northwestern Iraqi towns. It also works on providing basic services, primarily water, food, medical supplies, and rudimentary schooling to children (highly achievable given that the daily revenue of the oil installations under its control exceeds $800,000, at discounted, smuggling prices).

Second, ISIS is building alliances of convenience to create a credible deterrence against neighboring countries. ISIS has so far been successful in finding common ground with some of the fighting groups in Syria, and with few of Iraq’s largest Sunni tribes. The group’s leaders realize that they could face an existential threat if neighboring countries unite against it. As such, groups it controls join in the fight against Syrian President Bashar Al-Assad, others support in a war of attrition against Hezbollah in northern Lebanon, some undertake politically-driven kidnappings and assassinations; and crucially ISIS willingly acts as a pawn in the Sunni-Shite conflict raging across the eastern Mediterranean. In essence, ISIS is making itself useful to different regional powers. At the same time, it is establishing a deterrent through its reach within the large refugee communities across the region, a potential bomb that no country hosting them can defuse.

Third, ISIS has focused on posing a credible threat to the region’s oil industry. This strengthens its deterrent, and weakens its neighbors. Iraq, Jordan, Saudi Arabia, and Gulf states are now forced to significantly increase security at their oil installations and pipelines. This creates a perpetual sense of apprehension, which drains resources and exhausts security forces. Also, the sense of imminent attack on economic assets, especially oil, raises transactional costs, and accordingly prices which hurts the west, and creates a fissure between it and Gulf States. And ISIS, like all terrorist groups, thrives on such fissures.

Fourth, ISIS leaders insist on abandoning organizational rigidity and creating operational redundancy. Not surprisingly, some of the writings of the group’s leaders indicate that they have studied the impact the war on terror has had on Al-Qaeda. They value flexibility and decentralized decision-making in non-strategic matters. And unlike almost all previous jihadist groups, ISIS’ management is not centered round a “founding sheikh” or “early mujahideen” (fighters); it has a heavily promoted policy of spotting, nurturing, and promoting “talent.”

To defeat ISIS, two actions are crucial. First, disrupt its risk-reward calculus. ISIS leaders understand that the United States, after Afghanistan and Iraq and given its current economic situation, will not engage in an all-out war against it. And Europe lacks the will and the resources for such a war. Airstrikes could disrupt economic operations for few weeks, and their impact on the group’s 20,000 fighters will be absorbable because they are highly mobile throughout the eastern Mediterranean.

On the reward side, engaging the west, and primarily the United States, in a direct war would “reveal the U.S.’s hatred for the Islamic world”, irrespective of rhetoric such as “we are not at war with Islam”. This often works because here the target of ISIS propaganda is not Arab and Muslim middle classes, but impressionable young Muslims, living in harsh circumstances in refugee camps and shantytowns in Jordan, Lebanon, and Turkey. To alter this calculus, the alliance against ISIS should hit where it really hurts: the group’s main revenue streams. This will upset the group’s operational dynamics and deny it the resources that sustain its services, and therefore its ability to consolidate its presence in the region. Decimating the revenue streams is, primarily, a logistical and intelligence effort, rather than a military operation.

And second, shatter its deterrence and alliances strategy. This could be achieved only if regional countries realize that using jihadist groups as proxies in the different hot and cold wars raging across the region is blowing wind at parched grass; some of them will score quick wins, but all will suffer immensely if these groups entrench themselves in the region. In addition, the alliance against ISIS should incentivize and mobilize other fighting groups in Syria and Iraq—such as The Free Syrian Army, the Islamic Front, the Kurdish Protection Units, the Badr Organization and the Mukhtar Army—to attack it. These groups should become convinced that ISIS is vulnerable and losing its economic power. In such a situation, ISIS will fight several wars of attrition at multiple fronts.

ISIS leaders correctly realize that the order that has governed the eastern Mediterranean since the end of World War I and the Sykes-Picot Agreement that created its countries, is crumbling. They believe that by leveraging on the political chaos, human disasters, and geo-strategic polarizations rampant across the region, they can establish an alternative order. They will fail. But their attempt could wreck immense havoc on a region already undergoing its most painful transformation in a century.

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