The Wall Street Journal reports: Islamic State militants are skimming tens of millions of dollars a month from salaries paid to Iraqi government employees in occupied areas such as Mosul, and Baghdad continues to send the cash to maintain local support.

The group is using the money to fund operations, U.S. officials say, underlining the delicate balancing act U.S. and Iraqi governments face in what they know is a hearts-and-minds campaign against Islamic State ahead of a military operation to retake Mosul, for which U.S. officials are training Iraqi troops.

U.S. defense officials say U.S.-led strikes have put pressure on Islamic State, hurting its command-and-control operations, but they remain cautious about the near-term prospects of retaking Mosul and other territory under the group’s firm control.

A lack of desirable options has put U.S. officials in an awkward position, forced to choose between the goal of denying funds to Islamic State and the goal of persuading Sunnis to back the Shiite-led government in Baghdad. [Continue reading…]