A number of vital matters stand as obstacles to the independence of the Kurdistan Region of Iraq, the most important being the internal Kurdish dispute and economic dependence. Kurdish party leaders in Iraqi Kurdistan are well aware of the said difficulties, so they place all the strength in their capacity to participate in the government of Baghdad and to have a share in the federal budget.
Competition between the administrations
The effects of competition between the leaderships of the two big Kurdish parties remains inherent to the extent of preventing the unification of the peshmerga because of their civil war during the nineties on the subject of Kurdish leadership that led to the killing of thousands of Kurds. Divisions among the Iraqi Kurds had begun in 1975 when the Patriotic Union of Kurdistan broke away from the Kurdistan Democratic Party.
Kurdistan is currently divided into two administrations or areas of influence, one to the east of the Kurdistan Region (a Patriotic Union of Kurdistan area of influence) and the other to the west (where the Kurdistan Democratic Party enjoys its sphere of influence). The first is economically linked to Iran via the exchange of business that is worth billions of dollars a year, where Iran represents the Patriotic Union of Kurdistan’s outlet to the world, whereas the Kurdistan Democratic Party is economically linked to Turkey in commercial exchange worth billions of dollars too. For this reason, the administration of Sulaymaniyah is associated with Iran and the administration of Erbil with Turkey.
The issue of extending Mr. Massoud Barzani’s mandate – who nears 70 – is a controversial and disputed issue between the Kurdish parties, for the mandate of Mr. Barzani is due to end on the 19th of August after it was extended for two years in 2013 when he was elected as president of the Region for two consecutive terms in the years 2005-2009 and 2009-2013 respectively. And according to the constitution of the Region of Kurdistan, the mandate of the president of the region shall be for four years and for two terms only.
There has been talk by Kurdish observers about a letter addressed to the Regional parliament and government on 16th April 2015 by Barazanji in which he describes a Kurdish party with no reference to its name as the “non-nationalistic and dangerous movement that seeks to provoke civil war and divide the region into two administrations.” Barazanji wrote the letter following talks with a top official in the Kurdish Workers’ Party who rejected Barazanji’s mandate extention. And albeit the said party is not Iraqi, it nonetheless expressed the views of the opposition, including the administration of Sulaymaniyah on rejecting an extension. The lack of agreement would confer a constitutional crisis in Kurdistan despite attempts by some parties, such as The Party of Change, that call for the nomination of Nechirvan Barzani for president of the Region, and Talbani to head the government.
On 15th April 2015, one of Kurdistan’s Workers’ Party leaders, Duran Kalkan, said that “… the central dictatorship will not be able to stay in Kurdistan, and it is unacceptable that the administration of the Region be exclusively in Erbil, and it is the right of Sinjar, Kirkuk, Karmyaan, Dhuk and Sulaymaniyah to administer themselves.” He also added: “They want to divide Kurdistan so that part of it is for The Kurdish Workers’ Party and the other for the Peshmerga. However, we do not accept the division of Kurdistan and demand that it be administered together .”
The Kurdish Workers’ Party is a strong ally to the Patriotic Union of Kurdistan, and both are characterized by strong ties with Iran. The Kurdish Workers’ Party seeks to establish a province in the Sinjar area after establishing an administrative board comprised of the Yezidi community, with two military arrangements made up of several thousand Yazidi men and women far from the administration of Erbil. On their part, the authorities in Erbil arrested the head of one of the two parties, Haidar Shsho. He was released after the intervention of the Patriotic Union of Kurdistan, and the Erbil administration formed another loyal force of Yazidis while the two military arrangements loyal to The Kurdish Workers’ Party remain.
Amendment of the constitution will allow Barzani to stay in power constricting all security and economic powers under his command. However, party leaders in Sulaymaniyah object this strongly amidst Kurdish-Kurdish media exchanges on the division of the Region and accusations towards Iran and Turkey as benefactor from the dispute. Barzani refused the question of the formation of the Region of Sulaymaniyah, adding that it is a “conspiracy that must be stopped” and expressed his surprise and concern on the Kurdish media’s take on the issue of the Regions division. Adding to the dispute was the West’s supply of weapons and the sending of military trainers to the Region where party leaders in Sulaymaniyah opposed the mechanism of weapons distribution, stressing that Erbil did not send Sulaimaniya’s share of troops by restricting it in the hands of its troops in Erbil and Dhuk.
The United States had abstained training and equipping the peshmerga in the past because of internal divisions among the Kurds. The commander of the multinational force in Iraq at the time, General Raymond Odierno, met with the Kurdish leadership in northern Iraq to convey a message from Washington. And according to the details of what took place in the meeting back in 2009, Odierno had told them that he “came to talk to them about the peshmerga and that Congress appropriated funds for the training and arming of the peshmerga, but was unable to offer it to separate powers within the peshmerga in the absence of unity.” A media official who had attended the American meetings with officials from the Patriotic Union of Kurdistan said “the Americans wanted to create a unified and professional force that was non-political, but the Patriotic Union of Kurdistan and Kurdistan Democratic Party officials missed out on the opportunity “.
When Islamic State fighters directed their attention against the Kurdistan Region last August, the peshmerga was unable to face the terrorist organization due to its lack of training and armament, according to Kurdish leaders. But the fact is that it was devoid of a unified leadership since a large proportion of peshmerga fighters remain loyal to the Patriotic Union of Kurdistan or the Kurdistan Democratic Party and not to the government of the Region.
Kirkuk
The Patriotic Union of Kurdistan controls the city of Kirkuk, where most of the Kurdish population support the Union, save for July 2014 when the Kurdistan Democratic Party benefited from the collapse of the Iraqi army after the Islamic State’s attack and its control over west Kirkuk that is home to the oil fields affiliated to the Iraqi Oil Ministry. Najm al-Deen Kareem, governor of Kirkuk, is a leader in the Patriotic Union of Kurdistan and seeks to preserve Kurdish unity and defend Kirkuk, and at the same time works to restrict the influence of the Kurdistan Democratic Party.
With the entry of the popular mobilization forces to the province of Kirkuk after the collapse of the Iraqi army, opinions of the Kurdish parties varied. Barzani categorically rejected any Iraqi military intervention, but the governor of Kirkuk received Hadi al-Amiri – one of the leaders of the popular mobilization forces – in his office, while the Kurdistan Workers’ Party (whose forces are fighting in west Kirkuk alongside the rest of the Kurdish and Iraqi factions) expressed its welcome to the entry of the popular mobilization forces. Most of the Kurdish voters in Kirkuk voted for the National Union, and in the case of any clash between the two parties, Kirkuk will join the administration of Sulaymaniyah or ally with it.
The economy
Only three countries monopolize 90% of the Kurdistan market, the first being Turkey that provides about 35% of basic needs. Competing it by a marginally lesser degree is Iran which in turn covers about 25% of the said needs, and in third place comes China via the Turkish and Iranian border gates. The Region of Kurdistan is considered the third largest export market for Turkey, as Turkish exports under the Erbil administration witnessed a significant increase over the past decade.
Turkish companies have come to dominate all core businesses in Kurdistan. In 2012, 25 Turkish companies were being incorporated each month, and in 2009, the number of operating Turkish companies totaled 485. In 2013, that number rose to 1,500 companies. And according to the Turkish consul in Erbil, trade exchange between Iraq and Turkey during the year 2013 amounted to about $12 billion, 70% of which is with the Kurdistan Region, and $15 billion during 2014. And it is a similar figure to that which Iran seeks to achieve, according to the Iranian Finance Minister, who said that the volume of Iranian-Iraqi trade exchange reached $12 billion up until the end of last year with almost half of it with the Kurdistan Region.
Fiscal deficit
According to a report by The World Bank, the government of the Kurdistan Region will need $1.4 billion this year to stabilize its economy following the decline of the annual economic growth rate by 5 percentage points due to the Syrian civil war, the ongoing conflict with the Islamic State and flow of displaced persons, whereby the population increased by 28% and which in turn placed additional pressure on the local economy.
Minister of Planning in the Kurdistan Regional government, Ali Sindi, said in a report entitled “Evaluation of the economic and social impact of the Syrian conflict and the crisis with the Islamic State” that the refugees who enter the labour market raise price rates and increase unemployment figures in Kurdistan Iraq, in addition to the reduced flow of direct foreign investment in the Region, leaving a negative effect on the economy of Kurdistan.
Sindi added: “Despite the fact that our government has allocated considerable resources during the immediate response plan to meet the needs of the displaced, it remains that this great humanitarian crisis cannot address itself by itself.” The report added that the poverty rate in Kurdistan had doubled over the past year from 3.5% to 8.1%. Sindi called for national and international partners to provide greater support to overcome the humanitarian crisis.
On the other hand, the federal government in Baghdad expects to receive revenue from the oil of the Kurdistan Regional government in exchange for conferring 17% of the total Iraqi oil revenue. The Baghdad government believes that the Kurds are playing a double game by demanding their share of federal oil revenues at a time when they had previously signed a series of independent contracts with international oil companies without consulting the Oil Ministry in Baghdad. The southern provinces that produce more than 90% of Iraq’s oil may replicate the Kurds call for self-government because the political elites in Basra are wondering why Iraq pays the Kurdistan Regional government from its oil revenues, when simultaneously, its president demands independence from Iraq.
As for the Kurds, independence means a discontinued share of 17% of the Iraqi budget which would be disastrous for them because independence of Kurdistan would mean that the annual Kurdish oil revenues will decline to less than $7 billion, or nearly one-third of what it receives from Iraqi oil revenues – which is not economically possible for Kurdistan in the presence of hundreds of thousands of displaced people in the Kurdish Region, and with revenues of approximately $300 million per month accompanied with the drop in oil prices. All this means that the Kurds will need to produce double the current output of oil. The Kurdistan Region government currently produces only 10% of the country’s oil and despite export obstacles and regulatory challenges, international companies have noticed that by 2020, it could be possible to double that production at the giant oil fields of Basra, which means a possibly larger share of Iraqi oil to the Kurdistan Regional government.
Kurdish options
Dr. Biwar Khansi is an economic security adviser at The Foundation of Region Protection. He wrote a report in the Coughlan Media weekly journal that is published in Kurdish, in which he said that the government of the Kurdistan Region faces three options – either that its budget is included with Iraq, or that it be independent of the Iraqi budget, or a mixed budget.
The first option – a budget with Iraq: The decline in oil prices leads to a decline in the share of oil revenues to the Kurdistan Region whether it is with Iraq or alone. The Region’s share for 2015 will be between $6.885-8.262 billion on the basis of a 17% share.
The second option – independent budget: The Kurdistan Regional government receives $45 per barrel from the sale of 450-500 thousand oil barrels per day, on a revenue estimated to stand between $7.290-8.1 billion for the year 2015.
The third option – a mixed budget: Under the recent agreement between Erbil and Baghdad, the Region sold a share of its production (250,000 barrels per day) via SOMO Co. with the help of the Iraqi government to export 300,000 barrels per day from Kirkuk to the outside world via the Kurdistan pipeline in exchange to Baghdad’s pledge to pay 1.2 trillion Iraqi Dinars for the salaries of the peshmerga forces, and the allocation of 17% of Iraq’s budget for the Kurdistan Region. The Region government can, in light of this agreement, sell (circa) an additional 200,000-250,000 barrels per day for the purpose of paying company dues and debts.
By comparing options, Dr. Biwar Khansi concluded that the second option of $7.290 – 8.1 billion is better than the first option of 17% ($6.885 – 8.262 billion) because the Region will receive higher revenues and more guarantees with economic independence. Dr. Khansi deemed the third option as best suited than the second or first options.
The Kurdistan Regional government faces an internal debt crisis of $17 billion and has no cash to pay civil servants’ salaries in the Kurdistan Region of Iraq. Debts include the salaries of civil servants that span over two months which amount to $1.25 billion, and government debt at $1.1 billion, and private bank debts at $10 billion US dollars, in addition to debts owed to oil companies, at a total debt of $17 billion.
Recently, the Region government borrowed $500 million from Turkey to deal with the financial crisis, and expects another $500 million soon. And the Kurds believe that the monthly payment of $400 million under the agreement of the central government in Baghdad is not even enough to pay civil servant salaries in the government of the Kurdistan Region given the monthly returns of the Iraqi national budget as part of the oil deal with Baghdad.
According to the agreement reached by the parties, the government of the Region exports 250,000 barrels of oil per day and the province of Kirkuk exports 300,000 barrels per day under the supervision of the federal government in Baghdad. On the other hand, the federal government gives 17% of its national budget to Erbil, equivalent to about $1 billion per month.
