Once driven to near irrelevance by the rise of Islamic State abroad and security crackdowns at home, al Qaeda in Yemen now openly rules a mini-state with a war chest swollen by an estimated $100 million in looted bank deposits and revenue from running the country’s third largest port.

If Islamic State’s capital is the Syrian city of Raqqa, then al Qaeda’s is Mukalla, a southeastern Yemeni port city of 500,000 people. Al Qaeda fighters there have abolished taxes for local residents, operate speedboats manned by RPG-wielding fighters who impose fees on ship traffic, and make propaganda videos in which they boast about paving local roads and stocking hospitals.

The economic empire was described by more than a dozen diplomats, Yemeni security officials, tribal leaders and residents of Mukalla. Its emergence is the most striking unintended consequence of the Saudi-led military intervention in Yemen. The campaign, backed by the United States, has helped Al Qaeda in the Arabian Peninsula (AQAP) to become stronger than at any time since it first emerged almost 20 years ago.

Yemeni government officials and local traders estimated the group, as well as seizing the bank deposits, has extorted $1.4 million from the national oil company and earns up to $2 million every day in taxes on goods and fuel coming into the port.

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