WI: The Ottoman Empire loses territory after World War I, but the caliphate remains in place

The Ottoman Empire capitulates in 1916 before the Entente can completely overrun Syria and Iraq and before the Sykes-Picot Agreement is signed.

Instead of losing all of it's territory and then suffering a internal civil war, the Ottoman Empire loses a large degree of it's territory (mostly in the Arabian Peninsula below the 30th parallel north) and it's religious government (including the sultan) remains in place.

What happens as a result of this?
 
Would be hard to argue being a Caliphate without the Holy Lands of Palestine and Hejaz. Plus, even by 1918, there was a strong presence of Arab Nationalism. It's not like the Turks can continue bossing the Arabs and others indefinitely.

Plus, one can argue the "Caliphate" side's been weakening since the Young Turks took over.
 
Caliphate is based in two things power and prestige, the title can become invalid if the user doesn't have both. The Ottomans no longer have either they lost alot of the muslim land and have little prestige due to its failures. Ottoman failure will mark the end of the caliphate, as the ottomans have lost the mandate as they cant win wars or expand.
 
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