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Where is Iraqi Kurdistan’s sovereign
wealth fund?
26.6.2011
By Michael Rubin
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June
26, 2011
After years of war, oppression, and uncertainty,
Iraqi Kurds have reason for optimism. Under
monarchy, republic, and the Baath dictatorship, the
central government in Baghdad at best ignored and
more often sought to undermine Iraqi Kurdistan’s
development. While rumors swirled for decades about
oil deposits under Iraqi Kurdistan, Iraqi policy and
international sanctions prevented its exploitation.
No longer: despite disputes with Baghdad, the
Kurdistan Regional Government has sold international
companies rights for exploitation and development of
the region’s petroleum resources. There are more
than 40 different oil companies from more than a
dozen countries operating in Iraqi Kurdistan. A few
companies already produce oil. Many others are on
the verge, having completed both exploration and the
digging of test wells.
Despite the progress, however, success is not
guaranteed. Kurds are cursed by geography: tension
with Baghdad, Ankara, and Tehran can undercut
exports at any time. Corruption remains a problem.
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Michael Rubin |
Only five or six officials know
the complete terms of the Kurdistan Regional
Government’s oil contracts. After hearing stories of
embezzlement, extortion, and outright theft, many
investors remain nervous about putting too much
money into Kurdistan. Other companies take the risk
or believe payments to self-described consulting
firms, sometimes run by former American officials,
can shake loose permits and paperwork.
While good governance advocates focus on Kurdish
authorities’ antipathy to international business
norms, the Kurdish government’s opacity undercuts
the planning necessary to ensure that Kurds maximize
the benefits from the sale of their resources.
The best thing the Kurdistan Regional Government can
do ahead of the oil boom is to establish a
fully-transparent sovereign wealth fund. The
region’s oil should be a resource for generations,
not an asset to be spent on jewelry, luxury cars,
and ostentatious homes for the elite and
politically-connected few.
Norway and Kuwait established the first sovereign
wealth funds more than a half century ago in order
to channel oil income into investment funds which
not only would amplify revenue, but would also
ensure the resources would protect the governments
against declines in oil prices and the day when oil
ran out. The tiny Pacific island nation of Kiribati
once exported vast amounts of phosphates from bird
droppings but exhausted this resource in 1979.
Still, because they had invested profits wisely in a
sovereign wealth fund, they immunized the government
against economic collapse. Today, Kiribati’s
sovereign wealth fund exceeds a half billion
dollars, more than eight times the country’s gross
domestic product.
The most prosperous Middle Eastern states have built
huge sovereign wealth funds. In its first 30 years
of existence, the United Arab Emirates’ fund grew to
more than $800 billion, although, according to the
Sovereign Wealth Fund Institute, it has since fallen
back to $627 billion because of the global economic
downturn. Saudi Arabia’s fund is rapidly approaching
$500 billion, while Kuwait and Qatar have nearly
$300 billion and $85 billion respectively. Kuwait
deposits 10 percent of its oil proceeds into a
Future Generations’ Funds, before investing the
remainder in such things as automobile companies,
banking, other nation’s energy companies, and real
estate in Europe, the United States, and China.
If Kurdistan was to follow Kuwait’s lead and create
its own future generations’ fund, it might secure
scholarships for generations of Kurdish students to
study in any university across the globe without the
need to secure scholarships or scramble for the
money to rent apartments. Rather than the current
system in which Kurdish university presidents must
ask government officials for money whenever they
seek to build a new hall or equip a laboratory,www.ekurd.netproceeds
from a Kurdish sovereign wealth fund might endow
these bodies and provide the stability required to
plan. While Kurdish politicians speculate on real
estate in Sulaimaniyah and Erbil (often displacing
Kirkuk refugees and poorer Kurds in the process),
they remain too disorganized to invest the
governments’ profits in choice real estate in New
York, London, and Beijing. Certainly, transparency
is a prerequisite to ensure that investments are
made in the funds’ name rather than their own.
Serious businessmen meet Kurdish officials on a
daily basis to try to make a profit. There is
nothing wrong with that: Kurdistan has something to
sell, and the outside world wants to buy. But
Kurdish leaders will do Kurds and Kurdistan a
historical disservice if they believe profits are
permanent and they believe oil makes serious
planning unnecessary. Oil prices rise, but they also
crash.
Kurdistan has tremendous potential, but its success
is not assured. Many Kurdish officials have enriched
themselves tremendously. It is time they shift focus
from their own bank accounts to a collective
portfolio to ensure future generations also benefit.
Michael Rubin
is a resident scholar at the American Enterprise
Institute AEI. His major research area is the Middle
East, with special focus on Iran, Iraq, Turkey, and
Kurdish society. He also writes frequently on
transformative diplomacy and governance issues. At
AEI, Mr. Rubin chaired the "Dissent and Reform in
the Arab World" conference series. He was the lead
drafter of the Bipartisan Policy Center's 2008
report on Iran. In addition to his work at AEI,
several times each month, Mr. Rubin travels to
military bases across the United States and Europe
to instruct senior U.S. Army and Marine officers
deploying to Iraq and Afghanistan on issues relating
to regional state history and politics, Shiism, the
theological basis of extremism, and strategy.
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