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A truck bearing what appears to be Islamic State flag within an oil facility near Al-Shadadi, Syria after U.S.-backed alliance captures it from Islamic State following U.S. air strikes, is seen in this still image taken from video February 19, 2016. REUTERS/ANHA via REUTERS TV

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By Yeganeh Torbati

WASHINGTON (Reuters) - Air strikes, a drop in the price of oil, and counter-smuggling efforts by neighbouring countries have combined to cut Islamic State's oil revenues in half to about $250 million (£172.8 million) per year, a senior U.S. Treasury official said on Wednesday.

A U.S.-led coalition has targeted the ultra-hardline Sunni Islamist militant group with airstrikes since it seized control of parts of Iraq and Syria in 2014. The U.S. military launched an intensified effort in October to go after its oil infrastructure in hopes of cutting funding to the group, which U.S. officials call the wealthiest terrorist group of its kind.

Those strikes, along with a drop in the international price of oil, counter-smuggling efforts by Turkey, and difficulties Islamic State has in transporting its oil across battle lines have combined to halve its oil revenues, said Daniel Glaser, assistant secretary for terrorist financing at the U.S. Treasury's Office of Terrorism and Financial Intelligence.

"The number that we had been giving previously until about early this year was $500 million a year off of oil sales. I think they're substantially less than that now," Glaser told a think-tank event in Washington. "I think they probably make about half of what they previously made."

The group also earns about $360 million per year from taxation in the areas it controls, Glaser said. Cutting its taxation revenues is challenging because it occurs internally within Islamic State territory, he said. One approach he is looking at is drying up liquidity, or the availability of cash, to Islamic State-held territory, he said.

"That prevents them from taxing, it also prevents them from profiting from oil sales because I think the vast majority of their oil profits are from oil sold internally within ISIL-controlled territory," he said, using an acronym for the group.

A U.S. military official said in January that the air campaign had reduced Islamic State oil revenue by about 30 percent.

Despite the cuts in its revenue, the group still controls much of its border-spanning "caliphate," inspires global affiliates and is able to orchestrate deadly external attacks.

(Reporting by Yeganeh Torbati; Editing by James Dalgleish)

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