The situation in Iraq is bad and it’s getting worse.

This week, the terrorist group known as the Islamic State of Iraq and Syria, or ISIS, announced the formation of an Islamic state — or caliphate — across the swath of territory it is currently holding.

It’s a big deal — for a lot of reasons.

First, while holding territory can be more difficult than taking it, just the mere proclamation of a (Sunni) caliphate that spans Syria and Iraq is a huge propaganda victory for ISIS, especially considering the massive media attention it’s getting.

The establishment of a caliphate that may one day include the capitals of previous Islamic “empires,” such as Baghdad and Damascus in the 7th through 13th centuries, will resonate on a number of levels to Islamists across the globe.

That allure could translate into more terrorist foot soldiers, alliances and funding for ISIS, increasing its chances of holding captured ground — even taking more. Its early success will also encourage others to try to do the same thing elsewhere.

Next, those who live within the caliphate, simply dubbed the “Islamic State” by ISIS, will be subjugated to the rule of the “caliph” (absolute political/religious leader) as well as to highly oppressive sharia law.

The power transition underway means that the bloodshed won’t be limited to the battle front with Syrian and Iraqi government forces, as ISIS consolidates its murderous reign over its ill-gotten gains.

Plus, the ISIS crisis also serves to undermine U.S. influence in the region, increasing the clout of some countries that — let’s just say — don’t hold us in high regard. Iran and Russia quickly come to mind.

Iran has sent supplies and crack Islamic Revolutionary Group Corps troops and advisers to Iraq, according to news reports, trying to buck up the dysfunctional central government and its army which has underperformed — to say the least.

Besides advising Iraqis, the Iranians are said to be concentrating their security efforts on protecting Shia shrines in places like Najaf and Karbala and the Iran-Iraq border from conflict spillover.

It has also been reported that Russia is delivering Su-25 ground attack aircraft to Iraq ahead of U.S. F-16s that Iraq has on order and possible Apache helicopters. With those deliveries Moscow will score big points with Baghdad, since Iraq is convinced air power will win the day.

If there’s any good news it’s that the ISIS caliphate isn’t a sure thing. It could prove to be little more than a terrorist flash in the pan. ISIS has its work cut out not only in holding ground but in governing.

Indeed, beyond the opposition of Damascus, Baghdad, Tehran and the Lebanese terror group Hez-bollah, ISIS will certainly make enemies among al-Qaeda core, jihadis and terrorist wannabes — and even local Sunni tribes, which are key to the group’s success in Iraq.

ISIS will not only have to rule an unruly caliphate from within, it will have to defend its Islamic state from without. The terrorist caliphate may very well crumble under the weight of its own “imperial overstretch.”

The burning questions are: If, when — and at what cost?

 - Peter Brookes is a Heritage Foundation senior fellow and a former deputy assistant secretary of defense.