By Mark Hosenball
WASHINGTON, Aug 14 (Reuters) - Islamic State militants fighting in Iraq are selling oil from oilfields and refineries they control to local communities and smugglers, augmenting their existing ample finances, U.S. intelligence officials said on Thursday.
At least some of the oil is used to fuel a power plant they seized after the radical Islamists captured large tracts of Iraq including the country's second city Mosul, killing thousands and causing hundreds of thousands to flee, the officials said.
The officials, who briefed reporters on condition of anonymity, said the militants, who took over state banks and looted homes and businesses, now have "hundreds of millions of dollars" at their disposal.
"At this point (the group) is overwhelmingly self- financing," one official said. But the officials said the group also has to pay its fighters and finance the operation of public services in territory it controls.
At some point, the intelligence officials predicted, the group is likely to find itself overextended, particularly if it keeps expanding the areas it controls.
They said the Sunni Arab movement, which has published images of brutal killings of Shi'ite civilians, soldiers, Christians and members of other faiths, has been well-organized.
It has transformed itself from a group that mainly carried out suicide bombings and other attacks to terrorize the population into a military organization capable of capturing and holding territory and establishing a governing mechanism.
The self-styled Islamic State, an al-Qaeda offshoot that began in Iraq, grew in strength in Syria while fighting against President Bashar al-Assad and this year extended its sway across much of northwest Iraq.
The U.S. officials attributed the group's relative coherence to the fact that many of its leaders had spent time together in U.S. detention during the eight years after the 2003 American invasion, when they were part of al Qaeda in Iraq (AQI).
The U.S. government has files on many of those leaders, the intelligence officials said. They did not identify them, except for the group's self-proclaimed caliph, Abu Bakr al Baghdadi.
They said Baghdadi, a potential key target of U.S. counter-terrorism operations, spends much of his time between locations in Iraq and Syria, including the eastern Syrian city of Raqqa.
The officials said Baghdadi's group continues to attract many foreign fighters from across the world, and that Western security services remain deeply worried that they might carry out attacks when they return home.
A number of recent plots in Europe have been linked to individuals associated with the Islamic State, including a deadly shooting by a French militant earlier this summer at a Jewish museum in Brussels.
Postings by its supporters on social media, threatening possible attacks on targets in the United States, have surged in the wake of the U.S. air strikes on Islamist positions in northern Iraq in the last week. (Reporting by Mark Hosenball; Writing by David Storey; Editing by Ken Wills)