By Sameer N. Yacoub and Vivian Salama , AP

BAGHDAD –Saadi Abdul-Rahman was recently forced to pull his three children out of school in the Iraqi city of Mosul, where Islamic State militants have ruled with an iron fist since June. The cost of living has soared there, and the family is barely able to make ends meet, even after putting the kids to work.

��We are not able to pay for cooking gas, kerosene and food,�� laments the 56-year-old retired government worker. ��The situation in Mosul is miserable.��

The economy in the self-styled ��caliphate�� declared by the Islamic State group bridging Iraq and Syria is starting to show signs of strain. Prices of most staples have more than doubled as coalition airstrikes make it difficult for products to move in and out of militant strongholds, leading to shortages, price-gouging and the creation of black markets.

Resentment has grown among residents under the rule of the extremists, who initially won support with their ability to deliver services.

In the early days of its rule, the Islamic State group subsidized food and gas prices through the wealth it accumulated from oil smuggling, extortion and ransom demands. They sold their smuggled oil at a discount �X US$25 to US$60 a barrel for oil that normally cost US$100 a barrel or more, according to analysts and government officials.

But in recent weeks, prices have soared in militant-held cities. Items like kerosene, used for heating and cooking, are in short supply, while others, such as alcohol and cigarettes, strictly banned by the group, are making a comeback at higher prices on the black market.

Smoking is a punishable offense in militant-held Mosul. But at a warehouse on the outskirts of the city, cigarettes, as well as hard-to-come-by essentials like kerosene, can be found at hugely inflated prices on a black market run by the extremists. There, a pack of cigarettes sells for 30,000 dinars �X the equivalent of US$26 �X more than double the pre-caliphate price, according to residents who spoke on condition of anonymity for fear of reprisals.

The militants ��are developing an unsustainable economy,�� said Paul Sullivan, an expert on Middle East economies at the National Defense University in Washington. ��Eventually the costs of keeping the subsidies and price controls going will overpower their smuggling funds, which are also used for offensive and defensive actions.��

��They can collect taxes, extort money, and so forth,�� he said. ��But that will likely not be enough in the long run to keep such an unbalanced economic system going.��

Strikes and Social Laws Hurt