The Islamic State extremist group has lost 12 per cent of its territory in the first six months of 2016 as well as suffering a drastic decline in its revenues, analysis firm IHS said on Sunday.
The group currently controls some 68,300 square kilometres of Syria and Iraq, down from over 90,000 square kilometres at the beginning of 2015, an analysis released by IHS said.
However, the group's territorial losses are leading it to focus more on terrorist attacks and economic sabotage, the firm warned.
Islamic State has recently lost ground to Kurdish forces in northern Syria, Syrian government forces in the country's central desert, and Iraqi security forces west and north of Baghdad.
In addition, Islamic State's monthly revenue dropped from around 80 million dollars in mid-2015 to 56 million in March 2016 and has probably declined by another 35 per cent since then, IHS estimated.
"Combined with the military setbacks on the ground, this is having an impact on the internal cohesion of the group as indicated by a marked increase in defections and desertions since January 2016," IHS senior analyst Ludovico Carlino said.
IHS said that the current offensive by Kurdish-led forces against Minbij in northern Syria posed a major threat to the group's de facto capital of al-Raqqa and to its ability to act as a state, a key factor in its propadanda.
"The likely capture of [Minbij] by the US-backed Syrian Democratic Forces (SDF) would have a major impact on the Islamic State's ability to supply Raqqa, and by extension the remainder of its territory, with new recruits and supplies, undermining its ability to govern," IHS lead analyst Columb Strack said.
Strack noted that the Turkish border was "the only viable entry and exit point for the caliphate" and Islamic State's funding had come under pressure since Syrian Kurdish forces captured the central border region around Tel Abyad in June 2015.
The group's losses on the ground were leading it to prioritize "insurgency" so as to retain its allure to potential supporters, IHS warned.
"As a result, we unfortunately expect an increase in mass casualty attacks and sabotage of economic infrastructure, across Iraq and Syria, and further afield, including Europe,” Stack said.
The Islamic State organization captured swathes of Sunni-populated northern and western Iraq in a lightning offensive in June 2014.
It then proclaimed its leader Abu Bakr al-Baghdadi caliph and leader of all Muslims worldwide.
Faced with growing territorial losses, it has now shifted from its previous triumphal tone boasting of its victories and the establishment of its vision of Islamic rule.
In May, its spokesman Abu Mohammed al-Adnani said the group would not be defeated even if its enemies took Mosul, Sirte, or al-Raqqa, its main strongholds in Iraq, Libya and Syria respectively.
"True defeat is the loss of willpower and desire to fight," al-Adnani declared.