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 Kurdistan: It's not independence but oil revenues stupid!

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Kurdistan: It's not independence but oil revenues stupid!  26.10.2011
By Shwan Zulal - ekurd.net







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.                
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

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