The Devil You Know

Currently, the KRG is focused on realizing the full potential of its oil reserves. The estimated 45 billion barrels of oil proved so lucrative that the threat of being kicked out of southern Iraq was not enough to dissuade oil companies from signing contracts directly with the KRG, in direct violation of Iraqi law. When the world’s largest oil company signed a contract with the KRG, and still managed to continue operating in southern Iraq no less, the Kurdish leaders knew they had emerged as major players.

In January 2014, a new pipeline between the KRG and Turkey began shuttling crude across the border, creating a sorely needed outlet for their reserves but also compounding the ongoing crisis with Baghdad. Constitutionally, KRG oil sales must go through Baghdad coffers (and pipelines), and, in return, the KRG is allotted a significant portion of the federal budget. Today, that tranche of the budget sits at seventeen percent (although KRG officials assert they have never received more than 10%) and the KRG is required to produce a minimum amount of oil that injects capital into the Iraqi economy. According to the Iraqi ministry of oil, the Kurds failed to meet their minimum oil output in 2013 and are threatening to withhold the region’s share of the budget. The January announcement that crude had begun to flow into Turkey could not have come at a more politically sensitive moment. The beginning of the year is always the scene of renewed tension between Erbil and Baghdad on budgetary issues, and the Turkish pipeline gave more than enough ammunition to Baghdad for being reticent in budgetary talks.

The biggest sticking point for the Kurds today is that they are entitled to a rather good deal from Baghdad. Seventeen percent of the overall federal budget (as stated in the constitution) contributes far more to the region than its current oil output. As upstream and transport capacity grows, that balance will certainly shift, but the Kurds will simply be trading reliance on Baghdad for reliance on Ankara. Until oil output, after profit sharing and sweetheart deals for domestic Turkish sales are taken into account, can outstrip the federal entitlement, it would seem that the old adage, better the devil you know than the devil you don’t, may hold water.

However, with independence in mind, Kurdistan must be able to throw off the shackles of any devil. The only way to do so is to focus growth efforts on diversifying the economy, leveraging the manifold capabilities of their people and the fruits of the land on the surface, rather than exclusively the fruits found underground.

The Kurds have opened their cityscape to one of the largest Emirati developers, Emaar, which is led by the overarching strategy set forth by the Ruler of Dubai, Sheikh Mohammed bin Rashid al Maktoum. Diversification of the economy and creating a space for tourism could be even more successful in a Kurdistan full of idyllic scenery, ski resorts, and mountainscapes screaming for eco-tourism.