BAGHDAD (Reuters) – The U.S.-led coalition fighting Islamic State aims this year to recapture Iraq’s second city Mosul, working with Iraqi government forces, and drive the jihadis out of Raqqa, their stronghold in northeast Syria, Arab and Western officials say.

If it succeeds, the coalition will have struck a crippling blow against Islamic State’s self-proclaimed caliphate in Iraq and Syria.

The strategy is to regain territory at the heart of IS’s cross-border state, take both its “capitals”, and destroy the confidence of its fighters that it can expand as a Sunni caliphate and magnet for jihadis, according to these Arab and Western officials, few of whom were willing to speak on the record on a matter of such strategic sensitivity.

“The plan is to hit them in Raqqa in Syria and in Iraq at Mosul, to crush their capitals,” said an Iraqi official with knowledge of the strategy. “I think there is some speed and urgency by the coalition, by the U.S. administration and by us to end this year with the regaining of control over all territory.”

“Iraqi officials say 2016 will witness the elimination of Daesh (IS) and the Americans have the same idea – get the job finished, then they can withdraw and (President Barack) Obama will have a legacy,” said a diplomat in Baghdad, emphasizing the Iraqi part of the operation. “The day Mosul is liberated, Daesh will be defeated.”

The war against jihadi insurgents in this turbulent region has had its twists and turns but there is a palpable sense in Baghdad that the tide has turned against IS.

TWIN-PRONGED ANTI-IS STRATEGY

In the year after the jihadis’ summer 2014 surge back into Iraq from the bases they managed to build amid the chaos of Syria’s civil war, IS momentum as a rapid, flexible and brutal military force seemed unstoppable.

But in the past nine months IS has lost swathes of territory and strategic towns. In Iraq it was driven out of Tikrit and Sinjar in the north, the oil refinery town of Baiji in central Iraq, and Ramadi west of Baghdad in Anbar province, the heart of insurgency after the 2003 U.S.-led invasion that toppled Saddam.

In northern Syria, U.S.-allied Kurdish militia of the People’s Protection Units (YPG) have taken vital territory and border crossings below the frontier with Turkey, after breaking a long IS siege at Kobani and later taking Tel Abyad, north of Raqqa and a key supply line for the jihadi capital.

“Daesh are losing their ability to hold onto territory in Iraq and to stage the kind of complex attacks that allow them to hold the towns they seized,” said a U.S. official, adding that the recapture of Mosul would start in 2016.

Lieutenant-General Sean MacFarland, Baghdad-based head of the U.S.-led coalition, emphasized to a group of reporters last month the twin-pronged approach to operations against IS in Iraq, “in conjunction with something we might have going on over in Syria about the same time (and) see if we can put pressure on the enemy in two places at once and create a dilemma.”

Hisham al-Hashemi, an Iraqi expert on IS who advises the Iraqi government on the group, points out that as a result of last year’s setbacks “out of seven strategic roads between Iraq and Syria they (IS) now have one; they cannot move with ease and Turkey has tightened the noose on them.”

IS is under pressure across many other fronts apart from its ability to deploy. The collapse in oil prices has dented its revenue from oil smuggled, now through a less permeable Turkish border, from captured Syrian and Iraqi fields.

COVERT OPERATIONS

Coalition air strikes recently incinerated a stockpile of cash from looting and kidnapping, taxation and extortion, forcing IS to cut wages. It is losing top cadres. More than 100 mid-level to senior leaders have been killed since May, according to coalition spokesman Colonel Steve Warren, who says that “works out to an average of one every two days”.

“The place where they were holding huge cash reserves was targeted and destroyed,” the diplomat told Reuters.

“Daesh will be defeated in Iraq. It is not a question of if but when,” added another senior Western diplomat in Iraq.

A top Iraqi official, speaking on condition of anonymity, said the Mosul operation would require delicate collaboration between the U.S. air force, the Iraqi army, local Sunni tribal forces, and Peshmerga fighters from the self-governing Kurdistan Regional Government east of the city.

“Most likely, coalition special forces will be embedded with the Iraqi forces and the Peshmerga will close on Mosul from the north and east.”

In Syria, he said, the likely combination would involve coalition air strikes with special forces and U.S.-led covert missions operating alongside mainly Kurdish fighters of the YPG and other Syrian rebels. “They have some special forces on the ground in Syria in Hasaka, on the outskirts of Raqqa with the rebels,” the Iraqi official said.

An airstrip at Hasaka is being prepared by the United States for this purpose.

The official warned, however, of the need for coordination with Russia, which brought its air force to Syria last September to shore up the Iran-backed rule of President Bashar al-Assad, and is using an airstrip in Qamishli further north, but focusing most of its fire on mainstream and other Islamist rebels rather than IS.

This “competition between the two superpowers is really very, very dangerous”, he said. “There must be coordination (around) the complex operations that will take place.”

LIBYA, NEW IS DESTINATION

Yet even in the unlikely event that all these plans go like clockwork, that alone would not put an end to IS.

The group, IS experts say, has become expert at defensive warfare, and is spreading its tentacles from Europe to North Africa.

Inside the recaptured city of Ramadi the Iraqi army found a warren of underground tunnels the jihadi forces used for shelter, mobility and escape. Mosul, a far bigger city with one million people and a river on one side, is heavily defended and tunneled, with berms, trenches and hidden bombs.

Abu Bakr al-Baghdadi, the IS “caliph” still based near Mosul, has already begun to anticipate tactical reverses.

Arab and Western security sources say he has recently sent several hundred of his top lieutenants to Libya, to consolidate the existing IS bridgehead there amid the chaos of a splintering country, and to offset diminishing revenue in Syria and Iraq by creaming off Libyan oil resources.

Coalition dependence on Kurdish forces in both northern Syria and Iraq, and the Iraqi army’s reliance on Iran-backed Shi’ite militia up until the reconquest of Ramadi by regular forces, were and are being exploited by IS as a means to rally Sunni Arab grievances.

Battlefield success will count for little, officials and diplomats say, without political reconciliation and power-sharing to heal the wounds opened in the ethno-sectarian bloodletting that followed the overthrow of Saddam’s minority Sunni Arab rule in 2003.

AFTER MOSUL?

Islamic State, whose forerunner first emerged as a Sunni reaction to the U.S. installation of Shi’ite majority rule in Iraq, twisted the sectarian knife in the country.

But after the fall of Mosul, then prime minister Nouri al-Maliki, leader of the Shi’ite Islamist Dawa party, who had alienated the Sunnis by tearing up a power-sharing pact with them and the Kurds, was pushed aside. He was replaced by a more conciliatory Dawa leader, Haider al-Abadi.

Most observers give Abadi credit for trying to be more inclusive by negotiating oil revenue sharing with the Kurdistan Regional Government, proposing a National Guard, under which the different sects and ethnic groups would police their areas, and setting out a vision of a decentralized, federal Iraq.

Yet distrust of the Dawa is now so engrained it extends to Abadi. “The problem among the Shi’ites, especially in Dawa, is that there is a deep anti-Sunni feeling,” said one Iraqi leader.

But fear of a return to the Sunni domination of the Saddam era is widespread too, and fanned by IS.

“The National Guard law is rejected by the Shi’ites because the Sunnis will then have their own army and this will threaten the Shi’ite population even if they are dominant now,” said the Baghdad-based diplomat. “The Shi’ites fear the return of Sunni power.”

Yet Abadi has shown signs of independence, from his party and its Iranian patrons.

Baghdad is abuzz with the story of how the prime minister recently ejected Major General Qassem Soleimani from a national security council meeting. The Iranian Revolutionary Guard commander had until recently been photographed often on the frontlines in Iraq and Syria.

The critical question, however, is whether Abadi can build up the army and regular security forces enough to establish control over Shi’ite militias under the sway of Tehran, accused by Sunnis of human rights abuses when they spearheaded the attacks on Baiji, Tikrit and Diyala last year.

Even if Mosul works, Abadi will still have to move quickly to provide things his corrupt predecessors were unwilling or unable to give to Iraqi citizens in general and disgruntled Sunnis and Kurds in particular.

(Addtional reporting by Maher Chmaytelli and Stephen Kalin; editing by Janet McBride)