Erbil had a weird feel to it this week. The euphoria that came when the Kurd’s military, known as the peshmerga, took over Kirkuk on June 11 has not exactly faded, but reality is making people nervous. The Kurds have never had it so good, but it is all relative, and the Kurds may be getting ahead of themselves which could lead to disaster.

The chaotic dissolution of Iraq creates an environment for an independent Kurdistan in Dohuk, Erbil, and Sulaymaniyah provinces to emerge. The mad rush of the peshmerga down to the city of Kirkuk two weeks ago has created a new fact on the ground. Kirkuk, which is disputed among Kurds, Arab, and Turkmen, is central to the Kurds’ national narrative. When I was in Sulaymaniyah last fall, one Kurdish interlocutor told me that without Kirkuk there can be no Kurdistan. Not everyone feels that way, of course, but the status of Kirkuk is an emotional issue, especially since Saddam Hussein tried so hard to alter its demographic balance to strengthen Arab claims to the city. As a result, the Kurds have declared that Kirkuk is not subject to negotiation. Lest anyone have any doubts about Kurdish resolve on the issue, not long after moving into the city the Ministry of Peshmerga Affairs, Kurdistan’s nascent Ministry of Defense, stated:

The entire Kurdish territories outside Kurdistan Region were [sic] now in the hands of the Kurdish forces….the Kurdish troops have no intention of leaving the area. We are here to stay... Basically, all Kurdish villages and localities are now protected by the Peshmerga forces.

More on: Iraq Kurds

The Kurds estimate that after some work done on the oil fields in the area, they could eventually export 800,000 barrels of oil a day to fund their state in the making. Over the objections of both Baghdad and Washington, who remain committed to the Iraqi constitution, which grants the central government control over energy exports, the Kurds began exporting oil through Turkey. Despite the likelihood that the Iraqi government will seek legal damages against the KRG and its clients, the Kurds have sold the four tankers full of oil that they have put on the market. They have a long way to go, of course. At the moment, they are exporting 125,000 barrels per day, but they need to do five times that volume in order to make up for the revenue they will lose in the break from Baghdad. Legal action or not, the Kurds have opened an export channel that they will only expand in the coming months.

The World This Week A weekly digest of the latest from CFR on the biggest foreign policy stories of the week, featuring briefs, opinions, and explainers. Every Friday. View all newsletters >

The control of Kirkuk and the successful sale of Kurdish oil have unburdened the Kurds. When the president of the Kurdistan Regional Government, Massoud Barzani, told Christiane Amanpour that it was the time of Kurds’ “national self-determination” it was not terribly different from what he or other Kurdish officials had said in the past, but he also made a point of emphasizing “new realities.” These new realities are the collapse of Iraq, its military, and U.S. influence in the country. The Kurds, especially Barzani, also have a good relationship with Turkey, which has its own concerns about Kurdish independence, but that pales in comparison to the threat that ISIS nihilism poses. The Kurds claim that they are willing to work with a new Baghdad government so long as they can be assured that new leaders are committed to federalism and Kurdish rights are protected. These are just words, however. The Kurds can make these demands knowing they will never be fulfilled. Declaring that they are no longer pawns in someone else’s game, Erbil now believes it has the wherewithal to play as well.

For all the confidence in Erbil, the Kurds have a host of significant problems that seriously complicate the establishment of an independent Kurdistan. The Kurds have enjoyed something that looks a lot like a state for the past three decades, but they have never actually had the responsibilities of a state. Even as they railed against Baghdad for routinely bilking them out of large amounts of the 17 percent share of government revenue they were supposed to receive, they were still dependent on the central government. The answer is obviously oil revenues, which are promising, but it is clear that with legal challenges and capacity issues, it is no panacea. The Kurds will be living hand-to-mouth for quite some time.

There is a lot of oil and a fair number of Western oil guys hanging around the Divan and Rotana hotels, but beyond that there seems to be very little economic activity in Kurdistan. Erbil is notable for its half-finished construction sites, including a shell of what is slated to be a JW Marriott and some of those exclusive have-it-all-in-one-place developments that cater to expats and super wealthy locals all around the Middle East. The Kurds clearly envision Erbil to be the next Dubai, but it is not even Amman yet. There are shops and some good restaurants, but no real banks to finance development. Other than oil, the Kurds do not produce much of anything. If there was ever an indication of Kurdish economic vulnerability, it was the immense lines for gas at Kurdish petrol stations. Last Sunday, one line in Erbil stretched for two miles. Even though the Kurds have refineries in Erbil and Sulaymaniyah, they remain dependent on the much larger Iraqi refinery in Baji, which has (or has not) fallen to ISIS and its allies. A number of years ago there was a lot of breathless commentary about how the Turks were building Kurdistan. The Turks are in the Kurdish areas in large numbers, but the construction boom—which is their specialty—seems to have ground to a halt. If you want to buy Turkish crackers and cookies or a Turkish-manufactured air conditioning unit it is no problem, but the availability of Turkish consumer goods says nothing about the real economy, which does not seem to exist.

One can, of course, imagine the development of a sustainable Kurdish economy over a long period. There is a more fundamental significant challenge to Kurdish goals, however. Writing at Nick Kristof’s New York Times blog last week, Cale Salih put her finger on it: Since 1991, Kurds have been of Iraq, but they have not been in Iraq. Consequently, they built an island of stability that generally works, especially in comparison to the rest of the country, which suffered terribly under Saddam and in the decade since the U.S. invasion. That is not to say that there have not been problems. Late last September, terrorists attacked the headquarters of the KRG’s intelligence arm, Asayish, in Erbil. In December, there was a similar attack in Sulaymaniyah. Overall, however, Kurdistan has been spared the blood-letting of the rest of Iraq.

More on: Iraq Kurds

With the fall of large sections of Iraq to ISIS and its Baathist partners, the Kurds are suddenly vulnerable. No one wants neighbors like Abu Bakr al Baghdadi or Izzat Ibrahim al Duri—who allegedly leads the Baathist push against Maliki—but that is now part of the Kurds’ reality. They know that they will have to fight at some point and nothwithstanding the near universal respect for the peshmerga, they have old and unreliable Russian equipment. No one is worried about the fall of Erbil, but when the Kurds have encountered ISIS and its partners in and around Kirkuk, it has been a fight. In a twist that only politics in Iraq and the politics of the American invasion and its aftermath could produce, the Kurdistan Regional Government has been under an American arms embargo. Washington has not wanted to do anything to that could be interpreted as supporting the partition of Iraq so it was willing to give all kinds of weapons to the Iraqi military under someone as unreliable and incompetent as Nouri al Maliki, but not the Kurds. Rumor was that Barzani’s first request (even demand) of Secretary John Kerry in their meeting on Tuesday in Erbil was for American arms. Given the new realities that the Kurds face, they should get them. The future of Iraq is no future at all. It is one of chaos and violence. That is probably not the new reality to which Massoud Barzani (and every other Kurdish official) has been referring to, but that is precisely what they are confronting.

It is hard not to be sympathetic to the Kurds. They have accomplished much despite the very real conspiracies against them. The end of Iraq makes it a lot harder for their opponents to continue to deny the Kurds the independence they want. Yet as RUSI’s Michael Stephens commented to me over coffee at the pretty solid O’Caffe in the Ainkawa area of Erbil, “the Kurds want to run before they can actually walk.” You cannot blame them. They have suffered much in the last century. Still, it seems that the appropriate response of the United States is to help the Kurds instead of hindering them. Washington has it so upside down in Iraq that only the Obama administration and the Maliki government remain opposed to Kurdish independence. The Turks and Iranians may not like it, but right now Ankara actually grudgingly accepts the idea and the Iranians may be too busy trying to save their interests in Lebanon, Syria, and Iraq to care very much. It is time to give up the fiction that somehow a more inclusive government in Baghdad is actually possible, though I understand why the Obama administration cannot. To do so would be to acknowledge that the arguments that Secretary Kerry put to Massoud Barzani about the downsides of independence are meaningless. Yes, it is better to be part of a wealthy Iraq than an independent Kurdistan, but a unified Iraq does not exist. To accept reality as it is would also run contrary to what seems to have been the most important aspect of U.S. Iraq policy to the White House: preventing the country from breaking up as long as President Obama is president.