Islamic State militants seized four small oilfields when they swept through north Iraq last month and are now selling crude oil and gasoline from them to finance their newly declared "caliphate".
Near the northern city of Mosul, the Islamic State has taken over the Najma and Qayara fields, while further south near Tikrit it overran the Himreen and Ajil fields during its two-day sweep through northern Iraq in mid-June.
The oilfields in Islamic State hands are modest compared to Iraq's giant fields near Kirkuk and Basra, which are under Kurdish and central government control. Most of the Islamic State-held oil wells - estimated by a Kurdish official to number around 80 - are sealed and not pumping.
But the monopoly over fuel in the territory it has captured gives the Islamic State leverage over other armed Sunni factions who could threaten its dominance in northern Iraq.
Iraqi officials say that in recent weeks the group has transported oil from Qayara to be processed by mobile refineries in Syria into low quality gasoil and gasoline, then brought back for sale in Mosul, a city of 2 million people.
Larger shipments of crude, some of them from Najma, are also sold via smugglers to Turkish traders at vastly discounted prices of around $25 per barrel, they said.
"We have confirmed reports showing that the Islamic State is shipping crude from Najma oilfield in Mosul into Syria to smuggle it to one of Syria's neighbours," said Husham al-Brefkani, head of Mosul provincial council's energy committee.
"The Islamic State is making multi-million dollar profits from this illegal trade."
Petrol stations in Mosul are now selling fuel supplied by traders working with the Islamic State, which charges either $1.0 or $1.5 a litre depending on quality - a huge increase on previous prices, one petrol station owner in the city said.
"The fuel is brought from Syria ... It's triple the price before, but drivers have to buy it because subsidized government fuel was halted," he said.
Brefkani said the Islamic State was the sole sponsor of the imports from Syria, where the group also controls oilfields in the Syrian province of Deir al-Zor. "They use part of it for their vehicles and sell the rest to their traders in Mosul."
MILITANTS KEPT OILFIELD INTACT
Najma and Qayara had been operated by Angola's state-owned firm Sonangol, but it pulled out last year declaring force majeure amid rising development costs and security concerns over Sunni militants in the