Winter is coming and wood is already scarce and being hoarded, he said. Prices for food and other items have skyrocketed, and are now four times higher than in nearby Kurdish-controlled Tel Abyad. Taxes and fines are being levied with impunity. Money for public services is running out and subsidies are being unwound. Paris attacks ringleader suspect Abdelhamid Abaaoud. Credit:AP Across the self-styled caliphate, where some 8 million people live, it is much the same story for the vast bulk of citizens who do not actively support the terrorist group, or have yet to be press-ganged into its fighting force. For the jihadists defending Islamic State's territory, the situation is hardly much better. In the past fortnight, IS has been routed in the town of Sinjar​ and lost control of an important highway to the Kurds. A year-long siege of an airbase near the contested city of Aleppo has been broken by Syrian government forces while Ramadi is encircled by the Iraqi Army.

The flow of foreign fighters joining IS has also slowed dramatically, according to an account given to terrorism author and journalist Michael Weiss by a defecting IS security operative. This undated photo posted on a militant website in January 2014 shows fighters from Islamic State marching in Raqqa, Syria. Credit:AP And the sudden deficit of fighters had prompted a change in strategy by IS leadership, he said. "The most important thing," said the operative, dubbed Abu Khaled, "is that they are trying to make sleeper cells all over the world".

The leadership of IS, he added, had "asked people to stay in their countries and fight there, kill citizens, blow up buildings, whatever they can do". The account, provided in late October, tallies with one of a returning French jihadist in August, reported in Le Monde, that IS was a "factory" of terrorist plots. Both chillingly foreshadowed the carnage in Paris on Friday, November 13, when 129 citizens were strafed and bombed by at least eight terrorists. It was a terror campaign unleashed because of the weaknesses of the teetering IS caliphate, but no less concerning because of that. It was also an attack long anticipated by security authorities, but no less shocking. Coupled with the downing of a Russian passenger jet and suicide attacks in Beirut, it highlights a deadly and far more sophisticated capability of IS to spread terrorism beyond Iraq and Syria.

Since that slaughter, at least two more mass casualty terrorism plots, another in Paris and one in Turkey to coincide with the G20 summit, appear to have been foiled. It is, threatens IS, "just the beginning of the storm". The Paris terrorist attacks and the strategic shift behind it, says Australian National University terrorism analyst Haroro Ingram, have likely been long planned. While US-led forces aimed to halt IS's advances and slowly roll back its territory, it has given it time to build a massive armoury of weaponry looted from abandoned Iraqi military bases, and raise funds. It pilfered up to $1 billion in hard currency from bank vaults after conquering and ransacking the Iraqi cities of Mosul and Ramadi. Taxes, levies and extortion of local populations generated a further $US350 million, according to an analysis by ThomsonReuters. At the beginning of the year, oil revenues were estimated at $US40 million per month. Although likely degraded after attacks on oilfields, refineries and trucks, smuggled oil – some of it to the Assad regime – is still a lucrative stream of income.

Kidnapping, the sale of antiquities, donations from supporters in the Gulf States and Saudi Arabia supplement the funds. Even after the costs of waging war and paying its fighters and their families and sustaining a labyrinthine sharia bureaucracy have depleted its wealth IS is estimated by terrorism expert J.M. Berger to have tens of millions of dollars in reserve, possibly much more. "I don't think we've ever seen a terrorist organisation that had the ability to draw down from its own internal territory these kinds of resources," Daniel Glaser, the US Treasury official in charge of terrorist financing, said. Moreover, terrorist attacks are cheap – the 9/11 attacks cost $US500,000. A campaign of spectacular mass casualty attacks appear within reach of IS, especially given the numbers of foreign fighters who have returned home from Syria and Iraq. Some 4500 people from Western countries, most European, have travelled to Syria and Iraq to fight with Islamist groups. At least 1000 have returned.

Keeping track of such large numbers is a nightmare for security agencies. French terrorism expert Jean-Charles Brisard​ estimates that France has between 3000 and 5000 militants under watch and only 3000 people to do that work. It can take 25 agents to maintain round-the-clock coverage of a suspected militant. The difficulties facing security agencies were highlighted by the Paris plot. As many as six of the assailants appeared to have travelled to Syria in recent years. One managed to travel there even after his passport had been confiscated and he was put under judicial oversight by the French.

The cell's organiser, Abdelhamid Abaaoud, was well known to security agencies but was still able to amass an extraordinary cache of explosives, guns and ammunition, deploying them with military tactics honed on the battlefield with the sole aim of killing as many civilians as possible. After being detained for his role in a suspected plot in Belgium in January, he is believed to have travelled to Syria twice. For domestic security agencies, and world leaders, IS poses a unique threat. There are no easy choices. French President Francois Hollande has promised a "merciless war" on IS, and bomb strikes have been dramatically intensified over Raqqa in the past week. At the same time, US President Obama has urged a more methodical approach that will take "some time".

"We can retake territory," he says. "And as long as we leave our troops there, we can hold it, but that does not solve the underlying problem of eliminating the dynamics that are producing these kinds of violent extremist groups." The caliphate must be squeezed, not routed, Obama says. Local forces must be built up to hold territory as it is lost by IS. And a political solution must be forged to end the agonising, complex civil war which gave IS a fertile ground to take root. Australian Prime Minister Malcolm Turnbull is among many who has flagged that a political settlement may include Syrian dictator Bashar al-Assad – who he described as a "murderous tyrant". If Assad remains in power, it will prove hugely problematic. His forces are responsible for most of the 300,000 killed, fuelling Sunni Muslim fury and underpinning IS's appeal. The US appears divided. Obama said on Thursday he "did not foresee a situation in which we can end the civil war in Syria while Assad remains in power".

Turnbull, though, is calling for a "spirit of pragmatism". "Ultimately, there have been hundreds of thousands of people killed, there have been millions of people driven out of their homes – it is a complete catastrophe ... what is needed is a pragmatic settlement as quickly as possible." Turnbull cites Lebanon as a model; Syria's neighbour is governed by a power-sharing deal between its main religious groups in an uneasy pact designed to combat sectarian turmoil. In Vienna, on the day after the Paris attacks, the US, Russia, Iran and the other proxies who are battling for influence in Syria vowed to co-operate to crush IS militarily and set up a power-sharing framework before elections in 18 months. It's a hugely ambitious timetable, yet at the same time deeply inadequate for the worst humanitarian crisis since World War II and as the threat of terrorism rises.

Lydia Khalil, a terrorism expert at the Lowy Institute, cautions that defeating IS in Syria and Iraq will not be enough. Just as IS rose from the decimated insurgency of al-Qaeda in Iraq, others will likely replace it. "People look at ISIS in a vacuum," she says. "In reality, they are a manifestation of a deeper disease ... "Authoritarian governments have just completely decayed the societies and governments of the Middle East over generations," she says. Those regimes have crushed secular, liberal opposition political movements but promoted Islamists in a deliberate strategy to hold power. "That's why things look so bleak. For most of the people in the Middle East, they have a choice between a dictator or an Islamist."

Outside the Middle East, IS affiliates hold swaths of territory from north Africa across to Nigeria, where Boko Haram is reaping carnage on a scale that rivals Iraq and Syria. The terrorism attacks launched by IS had two main objectives – protect its caliphate and sow division in Western countries. The latter goal seeks to eliminate the "grey zone" where Muslims and non-Muslims coexist. IS wants Muslims to return to the caliphate. If they remain, they are obligated to launch attacks against the "crusaders". Europe, where 40 million Muslims live and close to 1 million refugees and migrants have arrived, mostly from Syria, Iraq and Libya, is its target. The massive strain of incorporating the new arrivals has already seen the resurgence of right-wing groups across Europe, creating a perfect environment for IS to wage its campaign.

As the bombs fall, IS fighters are reportedly shifting from Raqqa and other Syrian cities to Mosul in Iraq. More than 6,000 foreign fighters are massed there, according to blog posts by citizens there.. Hamood al-Moussa, speaking to Fairfax from Turkey, said the people of Raqqa were living in a state of fear as air strikes intensify. IS leaders were scattering, moving their security apparatus and living among the general population as the bombs rain down on their headquarters and administration buildings. Internet cafes and private routers has been shut down. The only positive is that authorities have stopped the public executions.

"There hasn't been one execution this whole week – they don't gather in big numbers in public any more," he says. "They are afraid if they do they will be bombed, but there is still a lot of arrests." Follow FairfaxForeign on Twitter Follow FairfaxForeign on Facebook