Beirut: To hear Islamic State tell it, the extremist group’s two-year-old caliphate has become “more manifest than the sun in the middle of the sky."

However, the slick video the militants released last week, with children training for war instead of basketball in the background, belied the facts on the ground: its territory is shrinking, finances are dwindling, and the attempt at governance that distinguished it from other jihadist groups is failing, according to a report by IHS Conflict Monitor published on Sunday. The fear now is of an increase in attacks as the group refocuses on insurgency, IHS said.

“They have to justify that they’ve lost territory with big wins and the way they can get big wins and make the headlines is by launching big attacks against civilians, not just in Iraq and Syria, but also further afield, including Europe," Columb Strack, lead analyst for the IHS Conflict Monitor, said in an interview.

Islamic State declared a caliphate straddling parts of Syria and Iraq after capturing Mosul, Iraq’s biggest northern city, in June 2014. Since then, extremists linked to the group have proliferated and murdered hundreds in Ankara, Beirut, Brussels and Paris as well as in Iraq, Syria and elsewhere. The risk of further attacks echoes the narrative from the US and European governments, which say Islamic State still poses a major terrorism threat despite losing ground.

Under attack from US-backed forces dominated by Kurdish fighters, the caliphate shrank by 12% in the first six months of this year after losing 14% in 2015, the IHS report said. As of 4 July, Islamic State controls about 68,300 square kilometers (26,370 square miles) in Iraq and Syria, roughly the size of the Republic of Ireland, it added.

The group, which boosted funding with illegal oil sales and extortion, has also suffered a decline in revenue. Monthly income fell to $56 million as of March from about $80 million in mid-2015 and has probably decreased another 35% since then, IHS said.

Death toll

The militants, meanwhile, killed more than 350 people since late May with coordinated blasts in the Syrian coastal cities of Tartus and Jableh, a massive truck bombing in Baghdad’s Karrada area, a hostage-taking in Bangladesh and three suicide bombs in one day in Saudi Arabia. The Turkish government blames Islamic State for attacks at its main international airport in Istanbul that killed at least 47 people in late June.

“They’re going back to what they know and they’re going back to what they can do very well," said Strack. “They’re emphasizing the broader, global scale of their endeavor as opposed to just the governance project that they set up in Iraq and Syria."

The caliphate has been fraying since last year. The militants lost the two major cities in the Iraqi province of Anbar: Ramadi in December and Fallujah last month. Today, Islamic State is engaged in battles with mostly Kurdish forces who advanced into the Syrian town of Manbij, a key logistics hub close to the Turkish border and 100 kilometers northwest of Raqqah, the group’s self-proclaimed capital.

Strack said the militants are throwing everything they have at Manbij, contrasting with their relatively quick withdrawal from Fallujah. If Manbij and the other logistics hub, Al-Bab, fall and Raqqah is isolated, it will be very difficult for the group “but it won’t spell the end of the Islamic State as an organization," said Strack. Bloomberg