Kurdish peshmerga and the Iraqi army are closing in on the northern city but the battle to liberate it may unleash a humanitarian disaster

The campaign to oust Isis from Mosul could trigger an exodus of up to a million civilians into Iraqi Kurdistan, and risks overwhelming a region already strained to “near breaking point” by multiple crises, internal government documents seen by the Observer reveal.

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A plan for handling the possible refugee surge, that also doubles as a desperate call for help from the international community, warns that the Kurdistan Regional Government can barely support the 1.5 million people who have already fled to the territory. Iraqi Kurdistan is already struggling with an economic collapse, the battle against Isis and the ongoing refugee crisis. Without extra funding for the expected influx, social, economic, political and security stability of the region will be “at risk of total collapse”, the documents warn. Officials also say that security may be at threat from Isis militants attempting to infiltrate among the refugees.

“The current capacity of the Kurdistan Regional Government to respond to the new waves of displacement is close to non-existent,” the contingency plan drawn up by the regional interior ministry warns. “It [is] already overstretched with the financial crisis and being the host of over 1.5 million [displaced people], as well as the costly war with Isis.”

The long, complex push for Mosul is a joint effort between the Kurdish peshmerga, Iraqi forces and Shia militias, backed by US air support, who are expected to close in on the city within weeks. “Mosul will be liberated in 2016,” Iraqi prime minister Haider al-Abadi said last week.

The Iraqi military is fighting its way up the Tigris river as peshmerga forces close in from the east. Iraqi troops took the key town of Qaraya, near a major airbase, 70km south of Mosul, while Kurdish forces are even closer.

The city has huge strategic and propaganda value for both sides as capital of Isis operations in Iraq, and is the group’s last stronghold in the country after it was pushed out of Ramadi and Falluja.

The battles to evict it from those cities were seen as precursor and preparation for retaking Mosul, with tough street fighting and Isis tactics including ruthless use of civilians as human shields and leaving streets and buildings laced with booby traps.

Far greater numbers of ordinary Iraqis are at risk in Mosul, however, with around 1.2 million civilians still in the city and another 800,000 in the countryside surrounding it, the Kurdish government estimates. Ramadi by contrast was virtually deserted by the time Iraqi forces and anti-Isis militias closed in, and Fallujah was estimated to have as few as 40,000 civilians left.

The Kurdish government planning documents describe three ways it believes the battle could play out. Even the most optimistic scenario, a rapid, successful campaign with most Mosul civilians simply bunkered down at home, is expected to trigger a minimum of 100,000 new refugees.

The bleakest forecast is for a battle that drags on for months with heavy street fighting, and sends more than a million people fleeing into Kurdistan.

The government deems the “most likely” outcome something between the two, with an offensive that drags out from weeks to months, a virtual siege on the city as major roads in and out are cut – draining supplies of food, water and medicine – and intensive fighting and airstrikes in the city.

That would create over 400,000 new refugees, the forecast warns, most arriving gradually as the fighting spread and intensified. Feeding and sheltering them would cost more than $275m for the first six months alone, and they are likely to arrive with little beyond the clothes on their backs.

“It is highly likely that hundreds of thousands of people will be displaced, trapped, stranded, injured and killed. Those who will be able to escape will leave all of their possessions behind and will solely depend on humanitarian assistance,” the briefing paper said.

More support from Baghdad or abroad will be needed to care for them, the report says repeatedly, and bluntly. “We expect more assistance and contribution from the government of Iraq and partners in the international community,” the briefing paper warned. “Otherwise the region will be witnessing another dire humanitarian catastrophe which cannot be undone or reversed.”

Facebook Twitter Pinterest Iraqi security forces enter the town of Qayara, south of Mosul. Photograph: AP

The UN has also warned that the battle will create a humanitarian crisis, and pleaded for donations. So far Kurdistan has been given less than 20% of funds needed even to support the refugees currently on its territory, and without a rapid aid injection will have to stop key services from water and power to education and rubbish collection.

The region has been hovering on the brink of economic collapse for several months, hit by tumbling oil prices and lack of support from the central government. Two years ago, Baghdad slashed funding in a bid to punish it for arranging independent oil export contracts.

By spring the crisis was so bad that even peshmerga fighters had gone without pay for several months, until the US government finally agreed to step in and pay salaries for troops who have proved a key group on the frontline against Isis.

The cash only covered the military however, so civil servants have gone for months without wages, apparently willing to struggle on while the threat of Isis looms, and Iraqi Kurdistan preserves a degree of security in a violent region.

To preserve its record “as a safe haven”, largely spared the Isis attacks that have killed hundreds of civilians in Syria, Turkey and other parts of Iraq, the government has closed its borders and plans checkpoints to vet new arrivals for any would-be militant infiltrators.

“Measures are in place and will be reinforced along the front line and the entry points to [the region] in the event of large population movement,” the outline plan suggests.

Analysts warn that the scale of refugee arrivals may overwhelm any screening plans, but even if Kurdish authorities can keep out militants, the influx of new arrivals risks further inflaming ethnic and territorial tensions in the region.

Kurdish advances against Isis in both Syria and Iraq have raised suspicions about their territorial ambitions among both governments and local Arab populations. They fear maps are being redrawn in ways that could deprive them of their homes, as Kurdish forces seize territory they have long wanted as part of their autonomous region, often with a majority Turkish population.

“All the areas that have been liberated by the peshmerga forces, our (Kurdish) forces will stay there,” Falah Mustafa, the head of the Iraqi Kurdish region’s foreign relations department told the Associated Press, echoing statements by numerous officials.

The land taken with the help of US airstrikes, since Isis moved on Mosul in 2014, is already equivalent to around half of the official Kurdish autonomous region. Perhaps the biggest prize has been the city of Kirkuk, seized by Kurdish forces that summer, who said they were protecting it from Isis after the Iraqi military all but collapsed.

Since then, as Isis’s holdings have been rolled back, there have been increasingly vocal protests from refugees barred from returning home on security grounds. Many are Arab and Yazidi, and fear that peshmerga are using security as a pretext to consolidate land gains.

In Syria, Kurdish advances have also added to Arab fears, and prompted Turkey to join the fight against Isis in a bid to diminish Kurdish gains and influence.

In both countries Kurdish forces’ effectiveness in fighting Isis has drawn western funds and military support that are bolstering wider hopes – in Syria for autonomy and in Iraq for independence. The advances are parallel however, signalling more a rise in overall Kurdish power and confidence, rather than any step towards a united Kurdistan.

There is little love lost between the Iraqi Kurdish ruling party and the group that leads Kurdish forces across the border inside Syria. The different parties share a history of oppression at the hands of autocrats, President Bashar al-Assad and his father in Syria and Saddam Hussein in Iraq, but little more.

Major figures in Erbil have chafed at gains made by their Syrian neighbours, particularly during the battle for the Yazidi centre of Sinjar, and responses have included cutting back access to the region across the mutual border.

Even inside Iraqi Kurdistan, unity is strained and fragile. The ruling party and opposition were fighting a civil war two decades ago, and the prospect that economic and political tensions could rekindle the old animosities is one of the threats adding force to the Kurdish plea for more funds.

“The scale of the influx and the security threat from Isis has placed the Kurdistan Region of Iraq under the real threat of total collapse, risking the safety and welfare of millions,” the report warns.