Driven away from a lucrative border crossing in Syria and from oil-rich land in Iraq, Islamic State fighters are seeing their economic spigot going dry.
In recent weeks, IS has lost strategic towns in Syria and Iraq that used to generate enormous profits. Analysts say this has caused economic frenzy in areas the extremists still hold.
“IS territorial losses lead to a decrease of political power,” said Khorshid Alika, a Syrian researcher who follows the country's war dynamics. “This subsequently leads to a severe economic decline.”
Syrian rebels backed by Turkey recently drove IS fighters out of Jarablus, a major border crossing with Turkey that IS had held for more than two years. IS used the town to move foreign fighters, supplies and crude oil into and out of Syria.
Currently, IS controls only about a 40-kilometer stretch of the Syrian-Turkish border, which has limited the group's ability to continue cross-border black-market activities.
Iraq regains Qayyarah
In addition, Iraqi armed forces forced IS fighters to pull back from the oil-rich town of Qayyarah. IS fighters set oil fields ablaze as they fled, but the loss of Qayyarah was a major blow to the extremists' income, said Bewar Khansi, an economic adviser to the Kurdistan Regional Government in northern Iraq.
IS was pulling 10,000 barrels of oil a day from Qayyarah's wells, so that loss has cost the extremists millions of dollars, Khansi told an Iraqi newspaper.
The economic fallout from its battlefield losses is being felt throughout Islamic State's self-styled "caliphate."
In Raqqa, its self-proclaimed capital in Syria, IS has been suffering from a massive labor shortage. A group that reports on IS abuses in Syria, known as Raqqa Is Being Slaughtered Silently, said many of the city's professionals who had been forced to work with IS are finding their way out of IS-controlled territories. The result is “an awkward administrative crisis” for Islamic State, the Syrian group said.
IS salaries are cut
In a desperate move to stretch its declining income, IS recently reduced salaries of public servants in the areas of Syria it controls by 50 percent, local news reports said. Extremist fighters had their pay cut by 20 percent.
Compounding the situation is the damage from U.S.-led coalition airstrikes on oil fields that IS still controls, such as in the eastern Syrian province of Deir Ezzor. Syrian economist Jowan Hemo estimated that coalition airstrikes have cut overall production by nearly 90 percent.
IS is resorting to desperate measures to keep some cash flowing, according to reports from the area — increasing its extortion activities and "taxation" of locals and stepping up black-market trade with shady businessmen abroad.
“Economically, IS cooperates with nearly all parties involved in the conflicts of Syria and Iraq,” economist Hemo told VOA. “This is natural, especially since they all follow a middleman strategy in conducting their dealings.”
IS also is hoarding its economic reserves — "a lot of cash and gold" — as its future grows bleaker, according to Syrian researcher Alika.
As long as major areas such as Mosul in Iraq and Deir Ezzor in Syria are still under IS control, analysts say, it is difficult to predict when the IS economy will collapse.