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Kurdistan: It's not independence but oil
revenues stupid!
26.10.2011
By Shwan Zulal - ekurd.net |
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October 26, 2011
The idea of independent Kurdistan has been making
the headlines recently. Politicians and commentators
from all spectrums are airing their views like never
before. The latest politician to wade into the
argument is no other than Hassan Alawi, who is
identified as a vocal support of the Kurds and one
of the founders of Baath party, which is not two
qualities one hear in a one sentence too often. The
leader of the State of Law coalition, Izzat
Shabander, also proposed that Kurds should form
their own independent state. Both comments have
enraged many Iraqi nationalists, but have done
little to make Kurdish politicians jumping on the
bandwagon.
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Kurdish flag controversy
in Diyala province has demonstrated the impasse
between KR (Kurdistan Region) and the rest of Iraq.
The Iraqi Prime Minister, Nuri AL-Maliki, has issued
a directive ordering the removal of Kurdish flags
from government building in the area. The decision
has sparked an emotional outcry from the Kurdish
public, which followed by large demonstrations.
Consequently, Diyala province office refused to
comply with the order and the PM was rebuffed.
When it became clear that the Kurds are not willing
to listen to Baghdad, Maliki 's spokesman retracted
his statement by saying that the PM did not issue
the directive, but order was issued by local
government. Maliki’s backtracking and his inability
to force his directive is a telling sign that he has
little or no authority in the area. The Kurdish flag
issue with its motives and outcome is a clear
indication that relation between the Kurds and state
of law coalition is hanging by a thread or possibly
over.
The majority if not all Kurds would love to see an
independent Kurdistan, however, most Kurdish
politician keep talking about a united Iraq despite
being ostracised for not mentioning the I word. The
easiest way for a Kurdish politician to become
popular is to call for an independent state, but if
you are a politician and conducting diplomacy with
the authoritarian neighbours and see the economic
and political reality of KR, it is hard to take any
other position but the current one.
KR and the greater Kurdistan is landlocked and
surrounded by hostile neighbours. Having bad or no
relation with the neighbouring countries is not an
option and Kurdish politicians often have to conduct
diplomacy while holding their noises.
Arab politicians are coming out of the woodwork and
calling for Kurdistan to declare independence. They
portray themselves to be friends of the Kurds but
the political dimension of the recent statements is
not as innocent as one might think. It is also worth
noting that most of these calls have come when the
US troops are about to leave Iraq, which many
experts are predicting to lead to a reduced Kurdish
influence in Baghdad.
The phrase goes “it's the Economy Stupid”, which
applies to Kurdistan region and Iraq as anywhere
else. The question is why senior Iraqi politicians
are calling for independent Kurdistan while Iraq's
income from oil is rapidly increasing.
Kurdistan region's economy like Iraq is largely
dependent on oil and gas revenues and the sector in
KR is mostly underdeveloped.
Iraq's oil export will reach 3 million bopd soon and
with buoyant oil prices, the central government’s
budget is swelling and with it the 17 per cent share
of the KRG. Meanwhile due to log standing
disagreements over oil policy and revenue sharing
among other disagreements, KRG is pursuing its own
agenda and not contributing as much as it can to
Iraq's oil exports. If the disputed territories-
like Kirkuk- are discounted from the overall Iraqi
oil exports, the 17 per cent share of the KRG is not
proportionate if calculated at rate of export not
according to land mass, population and other
factors.
While KR economy is booming due to better security
and extra revenue- received in a way of bounces from
oil explorers, selling oil to domestic market, local
taxation and other schemes- the rest of Iraq is
falling behind due to lack of security and chronic
corruption within government and institutions.
Needless to say that KR is not immune from
mismanagement and corruption.
The main ruling parties of PUK and KDP have so far
resisted the temptation of publicly calling for
independence, despite being under a tremendous
pressure from the public and the opposition parties.
It is arguable that KR is politically qualified to
stand on its feet, but it is doubtful that the
region is militarily or economically ready for such
step. Throughout the KRG lifetime,www.ekurd.net
the political consequences of independence have
always been greater than the economic impediments,
but now the table has turned. It is highly unlikely
that the international community would recognise
Kurdistan overnight, but the main issue remains,
whether the economics of independence would work
bearing in mind the geopolitical problems.
Iraqi politicians may encourage Kurdistan to become
independent, but Baghdad has repeatedly failed or
refused to implement article 140 of the Iraqi
constitution. The issue of the disputed territories
defined by Article 140 is another obstacle because
there are no consensuses on KR borders and the
oil-rich areas of Kirkuk.
The Kurds are known as a kingmakers in Iraq at the
moment and enjoy a considerable amount leverage on
Baghdad. They are like a state within a state
without the responsibilities and burden of one. The
region has a generous allowance form Baghdad and
most of the revenue has been generated from oil sold
from Iraq’s southern regions.
An independent Kurdistan would lose its current
budget overnight and from being kingmakers in Iraq
they have to go cap in hand to Turkey or Iran.
Although the KRG has other streams of income, it is
nowhere near enough to keep paying the bloated
public sector salaries let alone keeping the
investment and rebuilding programs and the day to
day running of public services and the government
machine.
The economic impact could be devastating for the
region where the whole economy could implode taking
years to rebuild. The Kurds maybe yearning for
independence, but when the public purse becomes
empty, leading to cutbacks, high unemployment and a
reduction in living standards, people will have
different views.
The best-case scenario would be to annex Kirkuk and
the other disputed territories to Kurdistan and has
full use of Ceyhan pipeline, which is very unlikely
as the pipeline is not entirely in KR. Even in the
unlikely scenario-in short and medium term- Kurdish
region would still not generate income anywhere near
the allocated current budget from Baghdad. It would
take years before building the infrastructure
allowing for exporting hydrocarbon resources given
the neighbouring countries consent.
Kurdistan economy will be based on oil &gas despite
calls for self-sufficiency and the revival of the
agriculture sector. Even if the agriculture sector
is revived, Kurdistan will still be dependent on
Iran and Turkey as they are controlling most if not
all of the water sources into KR. Iran has recently
demonstrated future policy on water by blocking
Alwand River and Turkey has been building dams for
the best part of two decades on Tigris River.
The Kurdish independence will come down to the
nature of the relation with Turkey, which is the
main gateway for KR. Contrary to the common
perception by Kurds and Turks, an independent KR
will immensely benefit Turkey. And despite all the
political rhetoric and historical antipathy, Turkey
is most likely to support the idea of independence
simply because Turkey will have a grater influence
on the KRG and Kurdistan has the potential to become
the cheap energy source that fuel the booming
Turkish economy in the future.
It is hard for any Kurd to say no to independence
because it makes perfect sense for the largest
nation on earth without a state, but if considered
rationally, it is not as straight forward as it
sounds.
Kurdish politicians have hard choices to make,
either to declare independence and lose their clout
in Iraq -becoming more dependent on Turkey and Iran-
while coping with decrepit public finances or stay
within Iraq and buy more time to build up the
country and resolve the outstanding issues of the
disputed territories. Once these areas are annexed
and the infrastructure is in place, Kurdistan can
become more of an economic power which would give it
a better bargaining power if and when Kurdistan
state becomes a reality.
Shwan Zulal is a
political risk analyst, specialising in Kurdish PSCs
and Hydrocarbon Law and advising investors in the
Kurdistan Region and Iraq with legal background.
Zulal is a regular contributing writer for ekurd.net.
He also runs a blog on to the same subject
http://kurdishviews.blogspot.com
Copyright © 2011 ekurd.net
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