Iraqi government forces in Fallujah. Thomson Reuters BAGHDAD — The Islamic State, pushed off more than half the Iraqi territory it seized in 2014, has suffered a near collapse in revenue from oil smuggling, officials say, forcing it to cut fighters' pay, levy new taxes, and raise fines for breaking its religious code.

The jihadist group has lost control of a series of oil fields and is having to sell its remaining production at steep discounts to persuade truck drivers to collect it and run the gauntlet of US-led airstrikes.

Alongside taxes, ransoms, and antiquities trading, oil has been a major fund-raiser for Islamic State operations. At one point it made millions of dollars a month in sales to neighboring Syria and Iran or to makeshift local refineries.

But advances by Iraqi government and Kurdish forces plus Shi'ite Muslim militias have left the militant group, also known as ISIS, ISIL, or Daesh, with partial access to just two of the five Iraqi oil fields it once controlled. This has cut smuggling by at least 90%, according to security and municipal officials.

The Islamic State used to sell at least 50 tanker truckloads a day from the Qayara and Najma oil fields, south of the group's Mosul stronghold. This crude was mostly shipped to Syria to barter for automobile fuel, said Mosul provincial councilman Abdul Rahman al-Wagga, who moved to the Kurdish capital Erbil after the fall of Mosul.

"Now with Iraqi forces getting closer and stepping up airstrikes, Daesh can hardly sell five small tankers," he said.

Gasoline containers at a roadside shop in the oil-rich city of Kirkuk, Iraq. Getty Images/Anadolu Agency Precise figures on how much Islamic State raises from oil are hard to come by. Luay Al-Khatteeb, the executive director of the Iraq Energy Institute who has done extensive research into the Islamic State's oil smuggling, said revenues fluctuated even during their peak in the second half of 2014 when "on its best days" the group made nearly $700,000 a day from Iraqi fields.

In May the US estimated that its revenue had been roughly halved to $250 million a year from the territory it controlled in Iraq and Syria. While the militants have suffered further losses since then in Iraq, they still control several oil fields in eastern Syria, where US-backed rebels have had less success in ejecting them.

Luring local traders

The Islamic State took the Iraqi oil fields, with a total capacity of nearly 60,000 barrels a day, when they swept through the north and west two years ago. This prompted the airstrikes from the US-led coalition that have targeted financial infrastructure as well as fighters and leaders.

The group has been losing production for some time. Kurdish peshmerga forces took the Ain Zala oil field, northwest of Mosul, in late 2014.

Khatteeb's estimates are at the conservative end of the range. Security officials and an oil ministry adviser say the Islamic State's revenue fell by $1 million a day in April 2015 alone when it lost the Ajil and Himreen oil fields near the city of Tikrit, which lies about 95 miles north of Baghdad.

Now Iraqi forces pushing toward Mosul for a planned year-end offensive are close enough to Qayara and Najma fields, about 40 miles south of the city, to reduce their operations substantially, security and local officials said.

The danger smugglers face from coalition airstrikes to collect the oil has forced the Islamic State to slash prices.

"Daesh is luring local traders in Mosul to buy its crude from Qayara and Najma by cutting the price from $6,000 per tanker to just $2,000," Wagga said.

An oil-ministry spokesman said the militants had been using primitive mechanisms such as water-irrigation pumps to extract oil from these fields.

Most of Iraq's oil fields, which provide nearly all government revenues, are in the south, far from Islamic State areas of control.

Combating smuggling

Qayara and Najma were once operated by the Angolan state energy group Sonangol, which pulled out in 2013 because of rising development costs and security concerns.

Qayara, with estimated reserves of 800 million barrels, had been producing 7,000 barrels a day of heavy crude before Islamic State seized the field and a nearby refinery with a 16,000-barrel-a-day capacity. The refinery and a smaller plant at Kasak, northwest of Mosul, stopped operating when employees fled the takeover.

Najma, mainly a gas field, used to produce around 5,000 barrels a day.

A member of Iraqi counterterrorism forces in Fallujah. Thomson Reuters Advances this month have helped Iraqi forces to control Qayara air base, which they will use for an assault on Mosul that could start within months. The gains include nearby areas adjacent to the Qayara and Najma fields.

"We have destroyed almost all facilities and storage depots used by Daesh to smuggle oil in areas near Mosul," said Sabah al-Numan, the spokesman for Iraq's counterterrorism service, which led the latest advances.

"We obtained all the coordinates from the Oil Ministry, and airstrikes have pursued every single oil-smuggling truck," he said, estimating that the bombardment had helped to cut smuggling by 95%.

Pay cuts, shaving fines

The loss of oil revenues has forced the militants to cut salaries by a third, said Muthana Jbara, a senior security official in Salahuddin province, where Ajil and Himreen are located, citing sources in Islamic State-held areas.

They have also imposed more taxes on farmers, truckers, and traders and increased fines for minor violations of religious bans on smoking and shaving beards, he said.

Abu Abdulla, a Mosul-based shipper, said most traders stopped buying crude from the Islamic State after hundreds of trucks were destroyed by airstrikes over the past six months or so.

"At least 100 drivers were killed trying to smuggle crude into Syria. Drivers are refusing to go because the smuggling route between Mosul and Syria has became a death trap," Abu Abdulla told Reuters in an internet call.

Smoke rising after airstrikes from the US-led coalition against Islamic State militants in a village east of Mosul on May 29. Reuters/Azad Lashkari The US-led coalition intensified its targeting of tanker trucks in the past year after previously avoiding such strikes for fear of killing drivers who were not clearly militants.

Abu Abdulla and four other traders and truck drivers said the trip back and forth to Syria became more difficult after Iraqi Kurdish forces retook Sinjar in November, forcing them to take a road south of Mosul to the Syrian border.

Drivers tried to evade airstrikes by painting "drinking water" on the side of their tankers, but without success, Abu Abdulla said.

"It's an open desert road that leaves us easily targeted by airstrikes," a driver who gave his name only as Muamar said. "I saw my brother get killed by an airstrike while sitting inside his truck. Other trucks were blown up like in a video game."