The Islamic State is now facing an existential crisis as opposition forces close in on all sides in both Syria and Iraq. The once highly moralized pseudo-state now finds itself unable to feed, power and adequately pay residents, civil servants and fighters, which in turn is causing growing domestic unrest. It must now be asked whether the most dangerous risk facing the Caliphate is external or from within its borders.

Reports of rebellion within IS-held territory are emerging with increasing regularity, while locally geo-tagged social media posts are now commonly showing pro-rebellion, anti-IS graffiti across several of the Caliphate’s major cities. This comes at a time where the organization is rapidly losing ground across all fronts, having already shrunk by 12% in the first half of 2016 prior to the major offensives around Mosul and Manbij that came in the latter part of the year, which saw total losses through 2016 increase to 16%. These losses have found several major IS strongholds in Iraq and Syria isolated and besieged by hostile forces.

Economically IS finds itself increasing strained, in stark contrast to the wealthy early days of the organisation. The Kurdish Rudaw news agency reports that following the recapture of the oilfields at Shargat and Qayyarah, the Islamic State no longer controls any oil wells within Iraq. In Syria, while the group still controls three major fields in the Raqqa and Deir ez Zour regions, recent offensives by Turkey have cut off major export routes. Iraq has a large number of single-battery oil wells dispersed within the Baghdad-Baiji-Hadithah triangle; an area where pockets of remaining IS control still exist. Whilst social media posts by Kurdish forces confirm Rudaw’s claims that Shargat and Qayyarah have been recaptured, and no major Iraqi fields remain under IS control, it is difficult to determine whether all single-battery wells have truly been recaptured from the group. Despite the potential existence of these remaining IS wells, major supply lines into core IS territories have now been severed, and “boutique” production wells have a relatively low profitability ratio. Whilst local entities were willing to overlook the source of black market crude in exchange for IS’ cheap sale price (estimated to only see around $15 profit per barrel), single-battery wells in Iraq tend to have a significantly higher break-even price than large fields. As such, it is unlikely that beyond local tactical benefits through oil refined to fuel the IS war machine that any remaining wells would provide economic benefits to the financially-strained pseudo-government.

The Caliphate is likely to be taking a pragmatic view of its battlefield prospects; the group is cut off in pockets in Mosul, Ramadi, Fallujah and Baiji in Iraq, and the al Safa region of Syria, whilst simultaneously losing ground regularly to the Iraqi Security Forces, Kurdish Peshmerga, Kurdish Rojava, Syrian Regime alliance, and now Turkish forces along their northern front.

Rumors have also emerged that IS have dramatically increased “exit visa” costs on civilians seeking to flee areas such as Mosul ahead of the closing battlefield lines, with the latest figures believed to be as high as US$4000 for a family. This figure seems reasonable given both the financial situation of the group, and their desire to deter civilians from leaving prior to offensives due to their unfortunate value as human shields.

In Syria, the closure of the Manbij gap export routes by the Turkish advance will have also dramatically effected IS revenues, leaving only previously-rumored sales of oil and hydroelectricity to Syrian government and regime-aligned militia regions as a source of income beyond internal taxation. It is also almost certain that agricultural taxation revenues, a staple of IS’ zakat system thought to have generated up to $56 million annually at its peak in 2015, will have fallen dramatically given the shrinking territory, the scarcity of fuel and fertilizer, and the redistribution of manpower from taxation and policing roles to replenish battlefield losses and desertions among the group’s front line fighting units.

The ongoing rural-urban offensives in the fertile Euphrates and Tigris regions of Iraq and Syria throughout the winter planting season will also likely result in a sharp drop in agricultural output come harvest season, which will almost certainly bring major humanitarian consequences alongside economic losses. In the long term, the damage to the agricultural “breadbasket” of northern Iraq and eastern Syria will have profound consequences on the population of this region, however in the short term this will place additional strains on the Islamic State’s ability to feed its captive population.

The Caliphate is likely to be taking a pragmatic view of its battlefield prospects; the group is cut off in pockets in Mosul, Ramadi, Fallujah and Baiji in Iraq, and the al Safa region of Syria, whilst simultaneously losing ground regularly to the Iraqi Security Forces, Kurdish Peshmerga, Kurdish Rojava, Syrian Regime alliance, and now Turkish forces along their northern front. As such, IS no longer control any external international borders (with the exception of the now-defunct Iraq-Syria border running through IS territory) through which they are able to smuggle black market oil, grain and looted antiquities.

The group has responded to rumors of internal dissent with mass executions and crackdowns on any attempts to assemble groups larger than three people. In public messages, the group’s leaders are acknowledging the organization’s declining fortunes on the battlefield while bracing for the possibility that its remaining strongholds could fall, which has in part pressed IS to intensify its global terror campaign. A late 2016 editorial in the group’s weekly Arabic-language newsletter al Naba offered a gloomy assessment of the Caliphate’s prospects and acknowledged the possibility that its total territorial holdings could ultimately be lost. Just two years ago, jihadist leaders heralded “the start of a new epoch in world history” with the establishment of the new Caliphate, which at the time encompassed most of eastern Syria and a vast section of northern and western Iraq; a combined territory roughly the size of Great Britain. The editorial, titled “The Crusaders’ Illusions in the Age of the Caliphate,” sought to rally followers by insisting that IS would continue to survive, even if all its cities fell to the advancing “crusaders”.

In the face of such dire economic and strategic prospects, it is almost certain that IS will continue to pursue its recent strategic shift to focus on transnational terror attacks as a more traditional dispersed and cellular terror organization. The group may also seek to exploit ungoverned spaces in regions such as sub-Saharan Africa, the Horn of Africa and the southern Philippines to reestablish a territorial Caliphate, however given the lower levels of historical significance of these regions to the Islamist movement, it is unlikely that IS would experience similar levels of success outside of the Middle East.

Lewis Tallon is a former British Army Intelligence Officer with several years experience working and living in the Middle East and North Africa region in geopolitical, armed conflict risk and threat intelligence roles. Lewis currently provides MENA-region geopolitical intelligence support to a leading U.S. investment bank.