Hi

This is Yousif Ismael from the Washington Kurdish Institute. I interviewed Dr. Michael Knights, the senior fellow at the Washington Institute for near east policy (WINEP).

Dr. Knights spoke about the Iranian role in Iraq since 2003, the current formation of the Iraqi Government, the relationship between the Kurdistan region and Baghdad, and the economic crisis ahead of Iraq.

Dr. Knights is one of the most prominent experts on the Middle East, especially Iraq. He has written extensively about the political, security, and economic issues of Iraq, Iran, and the Gulf Arab states since 1990. Dr. Knights constantly briefs the US government and Congress about regional security. On a regular basis, Dr. Knights travels to Iraq, Yemen, and the Arab Gulf states. He earned his doctorate at the Department of War Studies, King’s College London.

Thank you, Dr. Michael knights for joining us today. We very much appreciate your time and we are very excited to hear your remarks about everything-Iraq. And I would like to start by one question which is Iran in Iraq. And that is, if you could briefly describe the role of Iran in Iraq. Almost always there is an Iran vocabulary. When you talk about Iraq

In 2003, Iran was faced with a tremendous opportunity in Iraq, but also a tremendous potential threat. On the one hand, Sadam Hussein, Iran’s longest, worst ally had been removed. But on the other hand, the United States had effectively taken over Iraq and seemed to be rebuilding its entire government and security forces. And in January, 2002, the United States had just said that Iran was in the axis of evil and it appeared as if the United States was starting to remove enemy regimes one by one. So the Iranian government began a very energetic program of trying to prevent the Americans from taking over Iraq and turning it into an enemy state again. They did this in a number of ways. The Iranians worked at the political level by building up the Shiite Islamist parties in Iraq for the first time. Badr, the Islamic Supreme council of Iraq Dawa party, they also penetrated the security services of the new Iraqi state, including the Iraqi security forces, a set of parallel militias and most recently the Hashd al Shaabi [Popular Mobilization Forces].

Iran also took control of major economic ventures inside the country, first religious tourism, but later all sorts of export import businesses, including the importation of Iranian food, pharmaceuticals into Iraq. Iran initially did not believe that they could control Iraq. Iran and the Iranian-back militias felt like the Sunni Arab world, which is much bigger, would try and take control of Iraq. They felt that the Americans would control Iraq. So initially the Iranian groups wanted to have a region with just the Shiite provinces similar to the Kurdistan region of Iraq. And they initially, their idea was to call it Sumer and for it to be like a regional government for the South because they felt like they could control that, but they wouldn’t be able to control the whole country. But as the years rolled by, they realized that it was actually within their power to control the whole of Iraq.

They built that influence year upon year upon year until in September of 2019 Iran had reached its maximum power in Iraq. It controlled the Iraqi prime minister’s office. It basically controlled the security forces. It was the largest single player in Iraq’s economy. And at that moment of maximum power, the Iranians and their militias made a terrible mistake. They started killing Iraqi protesters. They also became too open in their influence. And one example of that was that “Abu Jihad” Mohammed al-Hashemi, a well known Iranian-backed politician was inplaced as Prime Minister Adel Abdulmahdi’s chief of staff. And it made it clear to absolutely everybody that Iraq was now controlled by Iranian militias inside the prime minister’s office, by Abu Mahdi al Muhandis effectively controlling the security forces and putting down the protests with violent actions. That probably was the beginning of the end, I think for Iranian domination of Iraqi politics. A number of factions, whether they’re young protesters on the streets, Muqtada al-Sadr, Grand Ayatollah Ali al Sistani, the Najaf Hawza, the Ataba shrine militias associated with Sistani and the international community all began to push back on Iranian influence.

Eventually you saw young Iraqi protesters hitting pictures of the Supreme leader Khamenei and Qasim Soleimani with the bottoms of their shoes. And that eventually spread to Iran as well. And these young Iraqi youth were doing this with no face masks which would have been unthinkable just a few months before. So what I’ve just described to you is the Iranians and their allies in Iraq starting off with very low expectations and mostly fears that Iraq would become a powerful enemy state again, but ending almost controlling the entire Iraqi state. And then because they became arrogant and careless, pushing it too far. And as a result, we’re in the situation we’re in today where there is a very live contest to try and control the future of the Iraqi state with even senior Shiite politicians such as Adnan al Zurfi talking about an Iraq first policy in which Iraq is neither allied with America, nor allied with the Iran.

And as Iranian role has been weakened, after its peak and Soleimani death, I assume has also changed the Iranian role in Iraq. But how about his replacement? Is he as effective as Soleimani was?

Well, we got a chance to look at revolutionary guard Quds force commander [Esmail] Qaani this week. He came to Baghdad in order to discuss the prime ministerial nomination with a range of key factions. But he did not see Muqtada al-Sadr who was unwilling to host him if he came to talk about Iraqi politics. He also didn’t see a number of other Shiite leaders. And what we can see from this week is that first of all, Qaani is not at home with the Iraqis. Qaani’s career was all focused in the East on Afghanistan, Pakistan and Turkmenistan. He doesn’t have that history with the Iraqi factions or with Arabs, Generally. He doesn’t have the charisma of Soleimani and he doesn’t have as close a relationship with Supreme leader Khamenei. but also what we saw is that Qaani is probably not completely in control of the Iraq portfolio within the Iranian foreign policy establishment. We in recent weeks have seen at least the Supreme national security council chairman, Rear Admiral [Ali ]Shamkhani come over to Iraq and discuss the prime ministerial race with the Iraqi factions. We also know that the ministry of intelligence and security in Iran is interested in Iraq. We also have the revolutionary guards Iraj Masjidi the Iranian ambassador to Iraq, also a former Quds force member who is very significant. And then there’s the councils in the Basra and Erbil consulates and various revolutionary guards Qudsforce commanders. What we’re saying is that the Iranians have split up the role that was being played by Qassim Soleimani amongst a number of people. And those people don’t necessarily agree what should come next.

Shamkhani appeared to have a slightly different view of who would be acceptable as an Iraqi prime minister from Qaani. Qaani came to Baghdad this week in order to try and put forward two names. Abdul-Hussein Abdul abtaan, who’s the former Minister of Sports and Youth in Iraq and Qasim al-Araji, the former Minister of Interior in Iraq. But the factions in Iraq said to Qaani ‘listen, we have a prime minister designate right now. We can’t just replace that person with some names that you like. We have to resolve that process that’s underway now with a deadline of 16th of April. And if Adnan al Zurfi agrees to withdraw from the prime ministerial competition in Iraq, then we need to have an agreement amongst Iraqi factions as to who should replace him. But we can’t just change course right now because you’ve come to Iraq’.

This is an indication that revolutionary guard Quds force has lost some of its skill in its dealings with Iraqis. Qasim Soleimani would not ask Iraqis to do something that they could not do. He wouldn’t push on a closed door, he would wait for the right moment and then he would use his influence. So I think the revolutionary guard Quds force, has lost connections, is lost It’s good instinct for Iraqi politics to some extent. And as a result they’re still on the defensive. They’re still trying to recover influence and they’re still trying to replace their key agent inside Iraq, Abu Mahdi al Muhandis. It’s notable that when they tried to replace him with Abu Fadk [Abdul Aziz al Mohammadawy] as the head of the head of Hashd al Shaabi, vice chairmanship, the Ataba, the shrine militias pushed back and were very blunt in saying, no, ‘we are not going to accept another Iranian-back to Kata’ib Hezbollah commander as the head of the Hash al Shaabi. So the Iranians have lost quite a lot of influence.

There is also division as you have expressed before within the Shiite parties, the Kurdish parties, the Sunni parties, which resulted in the Prime Minister-designate Mohammed allawi failing to form his cabinet and the current Prime Minister-designate Zurfi is also facing challenges to form his cabinet. Do you think a compromise candidate like the current caretaker Prime Minister Adel Abdul Mahdi is the solution? And if so, where do you see the voice of the protestors in the new government? I mean, the protestors, many of them have been killed and thousands were on the streets. So the whole foiling of the current government was based on the demands of the protests.

It’s just the reality right now that since Muqtada al-Sadr removed protection from the protestors and since the COVID, coronavirus has become such a big issue, the protesters are not the primary drivers of the new Iraqi prime minister and his selection. That might be the case in the next elections. I’m sure the Iraqi street will make its voice heard very loudly, but right now the protestors are not, do not have a veto over the selection of the next prime minister. It’s gone back behind closed doors and it is an elite phenomenon again. In Iraq right now, the exact identity of the prime minister or even his association with the Americans such as Adnan al Zurfi or Mustafa Al-Kathemi are not as important as how the prime ministerial candidate become nominated. And by that I mean the problem with Adnan al Zurfi right now is primarily that he was chosen by the Kurdish President of Iraq Barham Salih, not by the Shiite parties themselves as a consensus candidate. So it’s how he came to the prime ministerial nominee position. That’s the primary problem. One of the reasons for that is because the Iranian-backed factions are under tremendous pressure. Iran is in trouble because of COVID because of oil prices and sanctions and protests. Muhandis and Soelimani are dead. There’s more reaction and resistance towards Iranian influence in Iraq now than there has been for a long, long time. And at this moment they cannot afford for the Iraqi prime ministership to be decided without them. They can not afford to look like they got sidelined or ignored. So any Iraqi prime minister that has to look like they accepted him and they were part of the process of choosing him. And with Adnan al Zurfi they very clearly were not part of that process, not just because he is a candidate with close links to the US he lived in the US for 12 years, he’s a US citizen, But also because the lack of Shiite consensus was what resulted in Barham Salih picking AdnanAl Zurfi on his own. So what I think is going to happen is that Iraq will probably move towards a new Canada in the next couple of weeks. I think that that candidate will be chosen by the consensus of the Shiite blocks behind closed doors and it will be a candidate that the Iranian-back blocks would not have accepted two months ago. But they will pragmatically accept that candidate this time because it’s very important for them to appear to be part of the process. And it’s very important for Iraq to get a prime minister as quick as possible now because Iraq desperately needs management of the COVID crisis, it needs a budget to be passed and it needs international support. That’s maybe a good segue into discussing those issues, which I know you want to talk about today.

These are significant points you just made Dr.Knights, which brings me to my other topic, The current pandemic crisis of Coronavirus, COVID19, the oil prices have dramatically dropped, which will significantly affect Iraq. What should Iraq expect the coming months and would that deepen the political crisis?

It’s tempting to say we’ve been through this once before. We had a double crisis in 2014 through 2015 with the rise of Da’esh [ISIS] and the oil price crash. But this time it’s much worse. And I’m afraid I’m going to lay down some pretty bad news.

First of all, in 2014/15, we saw the price of oil drop from $110 per barrel to around $60 per barrel. And even though that was painful, $60 is still pretty good this time it’s dropped from around $60 per barrel down to under 30. And that’s a big difference because it just affects the economic viability of the entire Iraqi state, including the Kurdistan region of Iraq. Additionally, because of COVID, we have seen a drop off in global demand for oil. So it’s not even as if Iraq can double the amount of its Produces or add another million barrels per day. Iraq’s not in a good position to do that because of poor export infrastructure and not a lot of spare capacity, but additionally, nobody is going to need any oil for the next six to 12 months. So Iraq is in the worst economic situation it has probably ever been in since it was under sanctions in the 1990s. We will see the budget slashed in Baghdad from around $137 billion for the year down to about $85 billion. That means there has to be reductions and withholding of salary. Additionally, we’ll see inflation at street level, we’ll see imports become more expensive. We will see the devaluation of the Iraqi dinar. We will also see a severe health crisis which will strain the non-oil economy. It will remove all of the promising growth in the non-oil sector.

And it’s important to remember that even during Da’esh, the Iraqi economy was growing, the private sector was growing. We’ve all seen how shops, markets, telecommunications, internet, and other things have improved in Iraq. Cars were selling, property was getting more expensive. That’s not the case this time because of COVID, because of the health crisis. So we have two economic crises at the same time, COVID and the oil price. And this is a really serious potential problem for Iraq. As a result, we will at some point see nonpayment or public employees. We will see Muqtda al-Sadr activate a large scale crisis, a large scale protest movement. We will see breakdowns of law and order in some Iraqi cities for periods of time, including potentially looting. This is probably the reality of where we’re going for a little while.

One of the only upsides is that Iraqi politicians told revolutionary guard Quds force commander Qaani this week. ‘We cannot accept names provided by the Iranian government to become the next Iraqi prime minister. And one of the reasons for that is because we will desperately need international help and Iran cannot help us.’ The IMF, the world bank, the international finance corporation, the US government, the European governments, all of these players will be required to help keep Iraq afloat and to help keep the Kurdistan region of Iraq economically afloat in the coming months and years. And what that means is that Iraq may be allowed to have a effective prime minister, that some of the militias and foreign powers will step out of the way and let Iraq make good decisions and work with international players, including the United States going forward, because there really is no alternative if Iraq is going to survive as a state.

And that brings me to ask about the Kurdistan region of Iraq and their disputes with the central government, especially since 2014 over the allocated federal budget. They could have had the same apprehensions in the past about Baghdad providing the salaries for the Kurdistan region. There are also outstanding disputes as far as the disputed territories, the oil revenue. I mean, would this also affect the relationship between Kurdistan and Baghdad?

We all know the history of Baghdad-Kurdistan relations, the disappointments on both sides about revenue sharing about territory, about sovereignty or autonomy. But I’ll say this, I think since 2017 since the referendum and Kirkuk things have been getting a lot better and there’s a couple of reasons for that. People are more realistic now. By that I mean Baghdad is not scared of the Kurdistan region anymore. Back in 2017, the Iraqi leaders were scared that Kurdistan would break away, that it would become its own state. That if Iraq collapsed Kurdistan would leave. They were scared that the Kurdistan region would make a strong strategic Alliance with Turkey, would take Kirkuk and all of its oil and we’d have a more powerful military, maybe even than federal Iraq. But since 2017, that fear has been reduced in Baghdad.

The Iraqi government now knows that the future is probably going to be in partnership, not in independence in the near term for the Kurdistan region. And that’s made the Iraqi government in Baghdad more reasonable. We also saw Adel Abdul Mahdi come in as prime minister and he does have a good relationship with the Kurds. But I think almost any Iraqi prime minister is going to have a good relationship with the Kurds going forward because they don’t fear the breakaway of Kurdistan region. And because the Kurds have a tremendous amount of leverage still in Baghdad. As long as the Kurds are staying in Iraq, they are powerful players. To give one example, Massud Barzani’s Kurdistan Democratic Party is currently the largest single party in the Iraqi parliament. If the Kurds all work together and stay as one parliamentary block in Baghdad, they are the largest block in the Iraqi parliament, the largest single block, the largest number of seats. And as a result, whenever an Iraqi prime minister has to be ratified, whenever a cabinet reshuffle has to be approved in parliament, whenever a law has to be passed or a budget, the Kurds will be needed. There’ll be needed multiple times every year. And for that reason, the Iraqi government, since 2017, has actually been reasonably cooperative with the Kurds. In other words, it’s typically given the Kurds a number of hundreds of millions of dollars per month at the moment, $393 million per month, as well as allowing the Kurds to sell all of their own oil. That’s the reality right now.

Now going forward, I think we’re going to see further cooperation in a new budget revenue sharing deal. Even if the Iraqi budget drops to $85 billion for the year in 2020, we will see about $600 million of that coming to the Kurdistan region every month. And as a revenue share, Baghdad is not allowed to cut the Kurdistan region out of its budget. When the Kurdistan region is saying ‘we’re leaving Iraq we’re not going to send our MPs to Baghdad’. Then under those circumstances, Baghdad has in the past discussed holding back salaries from the Kurdistan region. But it’s very notable that since 2018, the Iraqi government has said, ‘no, we are going to pay salaries in the Kurdistan region and if the codes are going to be part of Iraq, then we will not cut them out.’

The international community has also supported the Kurdistan region’s economy very consistently. Now it’s obvious the internationals did not back the Kurds on the referendum and that they were slow to react during the Kirkuk crisis, but they have consistently supported Kurdistan on religion getting a share of the Iraqi budget in the 1990s under oil for food. The UN made sure that Kurdistan got 17% of Iraq’s oil sales. The US wrote Kurdistan region’s budget into the new constitution. Although not in exact terms, the US and the international community have backed the Kurds receiving a share of Baghdad’s money every single year 2017, 18, 19 and it will be the case again in 2020. The international monetary fund, the IMF and the world bank have said, ‘we won’t give you any money, Iraq unless you gave the Kurdistan region its budget share because you cannot cut off one part of the country and expect the international community to give you aid.’

So this will continue in the future. The Kurdistan region of Iraq has very strong support inside the US government right now, more than any time in the past, I would say because of some of the officials that are in place at the present time. That means that the Kurds will get revenue share. We should not expect the next Iraqi government to resolve big issues like passing a revenue sharing law or resolving article 140 in the disputed areas. This next Iraqi government is going to arrange early elections, hopefully in 2021, they will pass a budget. They will fight COVID coronavirus, those will be the three main priorities, even an Iraqi government under the best of conditions, we’ll take a few years to negotiate a permanent revenue sharing deal or disputed areas. And this Iraqi government will not be capable of that. But I think what they will continue to do to give the Kurdistan region its budget share, which will mean that the Kurdistan region can survive economically as long as it makes some cuts to its overall spending. And that’s what Masrour Barzani and his cabinet are doing right now under the auspices of the reform law that was passed in January in the Kurdistan region and that will be enacted from April onwards.

Jumping to the recent US redeployment of troops? It’s warring for a lot of the US allies that this move is a beginning of the US withdrawal from Iraq. What do you make up of this whole redeployment of the US troops and bases?

So the US has taken a very pragmatic point of view over the last month or so. And what they’ve said is this ‘right now with COVID coronavirus, we can’t train the Iraqi security forces and we can’t even operate alongside them. So there’s no point in being in these forward bases like K1 in Kirkuk, Qayara in Mosul, and al Qa’im.’ But there’s another factor which is clearly that the Iranian-back militias are striking locations and killing US and other coalition forces. The US cannot put missile defense on every single one of these small bases. So the combination of the militia threat and the COVID coronavirus threat has resulted in the US pulling back forces to a couple of big well defended bases such as al-Assad, Baghdad, Erbil, and a couple of other small sites. The US knows that every time the militias kill one of our troops, we need to hit back. But we also know that the militias would like us to hit back right now. They want us to hit back so that it will disrupt the Iraqi government formation process. And Iraq will file to get a good prime minister. They want us to hit back because we can’t hit the militia leaders easily. We can only hit the foot soldiers and sometimes Iraqi citizens or Iraqi security forces get killed during that process.

So the US government doesn’t really want to hit back right now. It doesn’t want to get into a war with Iran by hitting Iran itself during COVID or destabilizing the Strait of Hormuz by having a Naval battle with the Iranians. Ideally it doesn’t want to bomb in Iraq right now. There’s no point bombing in Syria because the Israelis do that anyway, so they’ve got that job. And so as a result the US is saying ‘for a while, we are all going to keep our heads down because we basically don’t want one of our troops to get killed and for the US to be forced to respond. Instead, we will go defensive and we will hunker down. ‘Now that doesn’t mean that the US is withdrawing from Iraq. That’s all about the next Iraqi prime minister who will stick around for a year or a year and a half. And then the prime minister after that. You know, the moment an Iraqi prime minister tells US we have our military forces have to leave Iraq and our military forces will leave federal Iraq and there’s a question about whether they would then leave the Kurdistan region. I think that’s up to the Kurdistan region honestly. But the US is not withdrawing from Iraq just because it moved back to al Assad. It can move back into forward bases as quickly as the Iraqi government wants it to. And our special forces can easily operate in a low profile way, in a range of forward locations if the Shiite militias are ordered to not attack us anymore. And if the Iraqi government can enforce that order. So I wouldn’t worry about the withdrawal from forward bases right now because this is not a long term withdrawal decision. It’s waiting to see what the next Iraqi prime minister is like and then deciding whether to restore our presence and forward bases if it’s requested.

I will have to ask one more question because this is a good opportunity to speak with Dr. Knights. How do you evaluate the reforms that the Kurdistan regional government (KRG) is trying to implement? And is it winning any foreign support?

The Kurdistan region is small enough that it can do economic reforms in quite an effective way. So the Kurdistan region is actually very popular in the international community because of its economic reforms. And these were obviously started under Nechirvan Barzani and Qubad Talibani and they’ve been continued under Masrour Barzani. The economic reform program in KRG is quite impressive. The creation of a biometric registration of all recipients of government pay or social services is the building block for an economic reform program. Because for the first time you understand how many employees you have, what they get paid, what allowances they are being given. And from that point you can say, okay, who is doing fraud? Who doesn’t exist anymore? Who is allowed to get two or three allowances and who isn’t? And that has allowed them to prepare for some cuts to the Kurdistan region salaries, allowances and social security. The first cuts will be made in the areas that are, where people are clearly taking advantage of the system. So here I’m talking about people who receive allowances they shouldn’t, people who are defrauding the system. That’s the kind of changes that we will see in the next three months. How much would it cut from the Kurdish budget? Nobody knows yet. It’s not going to cut the Kurdish budget by a third. Probably not even by quarter, but it will be a good start.

I’ll give you another example of economic reform in the Kurdistan region. Diesel used to be purchased for the power stations to burn instead of gas. The Kurds had to buy diesel from abroad and it cost $1 billion a year, $1 billion! and now it’s down to $96 million a year. And it will probably be down to zero in about a year’s time when they connect the Sumel gas plant to the gas line. That will mean no diesel needs to be burned in any KRG power stations at that point. So that gives you an example of how $900 million a year was saved just by switching power stations from diesel to gas. So we are seeing some pretty good economic reforms in the Kurdistan region and we’ll see more in the years ahead. I will say this economic crisis is so severe that I think Kurdistan employees are probably going to see a reduction in payroll in the same way that we saw a reduction in 2015, 16, 17. Nobody wants to do that straight away, but that’s probably what’s going to have to happen eventually because right now the Kurdistan region is spending about $995 million a month. So just under a billion dollars a month and it’s getting under $600 million a month of income. And so that means every month there’s a $400 million shortfall. And the Kurdistan region has no reserves. It’s not like Baghdad where there is $65 billion sitting in the reserves, the Kurds got nothing and they’ve got $10 billion of debt. So it’s simply impossible to run a $400 million deficit every month. Something has to change very, very quickly. What the Kurdistan region is doing right now is to restructure all of his debts to negotiate with the Turks, the Russians, the oil companies, the oil traders, the banks to slow down their repayments. They’re going to remove some people from the payroll who shouldn’t be getting payroll, the ‘ghosts’ as they called them the ‘zombies.’ But even after that, I suspect the Kurdistan region is going to reduce the value of the dinner that’s going to happen at federal level in Iraq. It’s also going to have to make some more cuts withholding to the payroll and to the allowances.

The Kurdistan people rose to that challenge last time they accepted that the government had to hold back some of their salary and the entire economy reset to a different level. And that’s going to have to happen again because I just want to stress for the Kurdistan people, this crisis is much worse than 2014, 2015 losing the old prices at the same time as all of the non oil revenues to trade with Turkey, the taxes, is worse than Da’esh and the oil price is dropping to $60 per barrel. Now the prices are so low that some of the Kurdistan region oil fields make any money by exporting the oil. It’s actually negative money. You’re giving away the old for free essentially. So, you know, the Kurdistan region really needs to make some deep cuts to its economy and we’ll see if the Masrour Barzani only government is capable of doing that.

Dr. Michael Michael nights, once again, thank you very much for being with us today and we are grateful for your remarks. I hope to host you once again in the future.

It’s been a pleasure to be here. It’s always an honor to be interviewed by the Washington Kurdish Institute, which is one of the most influential think tanks on the Middle East in Washington DC.