An Simple Economic Model of Radical Islamic Terrorism

By Kent R. Kroeger (January 17, 2019)

“Taking of Jerusalem by the Crusaders, 15th July 1099,” (oil on canvas), Emile Signol, (1804–92). A month prior, the Crusaders took the city of Ma’arrat al-Numan and ate some of its inhabitants.

The observation that Middle East oil money and levels of worldwide terrorism are related is not new, though typically the inquiry is focused on how terrorism impacts oil markets.

In an earlier essay, I reviewed some of the news reporting and qualitative research on the role of Gulf State oil money and the funding of terrorist groups. In this essay, I take a more quantitative approach to understanding the relationship.

If it looks like a duck…

Someone merely needs to look at a time-series chart of oil price and terrorism-related deaths to see there is something going on between them (Figure 1). Do changes in oil prices cause changes in terrorism deaths? Is it the other way around? Or is the relationship non-recursive (i.e., goes both ways)? Or is there some confounding factor acting on both of them that makes them look causally related?

Figure 1: Islamic Terrorism-related Deaths and the Price of Oil, 2001 to 2018

Graph by NuQum.com (Data from Federal Reserve of St. Louis and TheReligionOfPeace.com)

The following essay documents a simple empirical test into that question using terrorism data…