Stalemate, Not Statehood, for Iraqi Kurdistan

Editor’s Note: The Kurds are the largest nation in the Middle East without a state of their own and their quest for more rights and at times independence has led to civil wars, unrest, and near-genocidal levels of killing. Iraq has often been the center of the Kurdish struggle, and the decline of the Iraqi state since 2003 – and the latest dysfunction manifest in its efforts to fight the Islamic State – seems to offer opportunities for Iraqi Kurds to carve out their own state. Denise Natali, an expert on the Kurds at the National Defense University, challenges this claim. She argues that the Iraqi Kurds’ current in-between status is likely to endure and, indeed, offers benefits for Kurdish leaders.

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Since the creation of a weak federal Iraqi state a decade ago, the Kurdistan Regional Government (KRG) has moved toward what many analysts, pundits, and Kurds consider a desired end state: independence. Taking advantage of the ambiguous 2005 Iraqi constitution, disfranchised Sunni Arab community, sectarian conflicts, and dysfunctional Iraqi government, the KRG has developed its own energy sector; assumed de facto control over disputed lands; and created a cohort of influential supporters to lobby Kurdish interests in Washington and abroad. These trends have been further bolstered by the Islamic State threat, which has allowed the KRG to access U.S. and coalition military support, further expand its territorial reach, and challenge Baghdad with “independent” oil exports.

Yet a deeper look into the Iraqi Kurdish trajectory reveals a more complicated and interrupted scenario defined by legal, economic, and geopolitical constraints. The KRG may have created new “facts on the ground” that strengthen its internal sovereignty and international recognition, but it remains a landlocked, quasi-state entity lacking external sovereignty.

This condition means that the degree and nature of Kurdish autonomy, including any potential for independence, is not determined by unilateral decisions made by Kurdish elites but rather by the demands, deals, and incentive structures brokered by powerful regional states and non-state actors. These influences have not only checked Kurdish leverage and kept Kurds within the Iraqi state, at least nominally, they have also created necessary political ambiguity that benefits KRG officials. Maintaining the status quo has allowed the KRG to realize rights, revenues, and recognition as part of a weak federal Iraqi state while also pursuing a nationalist agenda based on victimization, struggle, territorial expansion, and opaque, oil-based economic development, supported by external networks.

Post-Saddam stalemate

As a quasi-state, the Kurdistan Region thrives off of a weak central government, nationalist sentiment, and external patronage. It may have substantial internal sovereignty, but it lacks external sovereignty, which it seeks to replace with international support and recognition. The KRG has done so by developing external networks – lobbies, international oil companies (IOCs), foreign governments, and international universities, organizations, and think tanks – which help advance KRG interests at home and abroad.

These features have influenced KRG behavior and produced important benefits for Kurds in post-Saddam Iraq. They have enabled the KRG to operate as a free-rider, accessing revenues from Baghdad based on the new Iraqi constitution, while pursuing its own nationalist agenda. For nearly a decade, the KRG gained 17 percent of Iraqi oil sales derived from southern exports – which increased its annual income from about US$2.5 billion to $13 billion – without having to pay taxes, declare revenues, or contribute to the Iraqi national budget.

Baghdad-sourced revenues have been critical to developing and stabilizing the Kurdistan Region. They have not only paid the salaries of over 70 percent of the Kurdish population (at a cost of about US$720 million monthly) but have also sourced the KRG’s “trade relations” with Ankara, valued at US$10 billion in 2013, which are almost wholly based on imported Turkish goods. Additionally, by remaining tied to a less than fully functional Iraqi state, the KRG has been able to brand itself as the “Other Iraq” with a minimal metric of success: simply being more stable and economically viable than Baghdad.

Kurdish officials have also benefitted from political limbo by leaving contentious issues unsettled, such as territorial disputes, resource claims, and revenue allocation. For instance, although Masoud Barzani, the leader of the Kurdistan Democratic Party (KDP), publicly insists that Kirkuk is the “bleeding heart of Kurdistan,” he will avoid officially incorporating Kirkuk into an independent Kurdistan Region because it would render the KDP a political minority (the rival Patriotic Union of Kurdistan (PUK) and Gorran movement control parts of Erbil, Kirkuk, and Suleymaniya).

Determining Kirkuk’s status – whether it is under the legal jurisdiction of the Iraqi government, the KRG, or a local administration as a special status province – is contentious given its oil-rich territories, multi-ethnic and multi-religious character, and historical legacies of Arabization. While Arabs and most Turcoman regard Kirkuk as an essential part of Iraq, Kurds consider Kirkuk as a national territory and source of oil revenue that can help the KRG realize economic independence. Claims to Kirkuk are also part of internal Kurdish balance of power politics that reflect geographical divisions between KDP, PUK, and Gorran party factions. These dynamics influence KRG behavior over Kirkuk and other disputed areas.

By leaving territorial borders politically ambiguous, KRG officials can promote myths of victimization that authenticate their nationalist credentials, deflect internal political tensions and needed reforms, and resonate among local populations as a “struggle against Baghdad.”

By leaving territorial borders politically ambiguous, KRG officials can promote myths of victimization that authenticate their nationalist credentials, deflect internal political tensions and needed reforms, and resonate among local populations as a “struggle against Baghdad.” Unilateral Kurdish claims to disputed territories have been justified as a battle “drawn in Kurdish blood.” Similarly, high-risk oil exports are now framed as a “Kurdish nationalist right.”

Breaking the stalemate

The KRG has attempted to break its political stalemate by realizing economic independence. Most important is the aim to develop an autonomous revenue source that can sustain the Kurdistan Region apart from Baghdad. Since 2005, the KRG has aggressively developed its own energy sector by attracting IOCs to the Kurdistan Region, building pipeline infrastructure, unilaterally connecting its pipeline to the Iraqi state-owned Iraqi-Turkish Pipeline (ITP), negotiating a 50-year energy deal with Turkey and gaining de facto control over parts of Kirkuk and related oil assets.

These new facts on the ground have made the KRG increasingly risk averse and willing to export oil sans Baghdad. They coincide with failed attempts to negotiate with the Iraqi government and sell Kurdish crude through the Iraqi State Oil Marketing Organization (SOMO), including the most recent “oil-for-revenue” deal in December 2014. Baghdad insists on state sovereignty over Iraqi oil resources, sales, and revenues, and a fully transparent KRG oil sector that contributes to the Iraqi national budget. Erbil, however, demands control of its own crude oil exports and revenues, which remain opaque, and to receive regular and full payments from Baghdad for its crude. The near-halving of world oil prices, Iraq’s financial crisis, and coalition support to the KRG to fight the Islamic State have added disincentives to negotiate. Instead, by September 2015, the KRG pressed ahead without Baghdad, exporting about 620,000 barrels of oil per day (bpd) through the ITP, 460,000 bdp of which were from fields operated by the Kurdistan Region, with the remaining from Kirkuk fields operated by Iraq’s North Oil Company.

Still, the KRG has not become economically autonomous. Because the Kurdistan Region is not a sovereign entity and continues to rely on Iraqi pipeline infrastructure, its exports are not fully independent. Baghdad retains international legal rights over oil flows and revenues from the ITP based on the 2010 pipeline Tariff Agreement negotiated with Turkey – and has already filed litigation against Ankara at the International Chamber of Commerce in Paris. It has also threatened to penalize IOCs and shipping companies that purchase Kurdish crude apart from SOMO, reinforcing the legal risks and opaque nature of KRG oil exports and sales. Moreover, Baghdad has cut the KRG budget (except for monthly food allocations), which represents 95 percent of the KRG’s operating expenses.

The KRG’s financial break from Baghdad has had direct consequences on the Kurdistan Region’s internal stability and economic viability. In the absence of a financial buffer to replace Baghdad (by June 2014 the KRG had no savings in its central bank) the KRG’s oil gamble with Turkey has devastated and destabilized local populations and the economy. Civil servant salaries have gone unpaid for months, thousands of local businesses have closed, IOC payments remain in arrears, new investment has halted, and nearly 25,000 Kurds, mainly educated youth, have fled the Kurdistan Region over the past eight months. The KRG has also borrowed billions from Ankara and local businesses while front-loading its oil sales to 2016 in the attempt to meet operating costs and a US$22 billion debt accumulated over the past year. These economic pressures coincide with the Kurdistan Region’s presidency crisis in which reformers, political party officials, and opposition groups are challenging the legitimacy of Masoud Barzani’s position, which expired on August 19, 2015, and calling for sweeping political reforms.

With Baghdad no longer its paymaster, at least at present, the KRG’s institutional deficits have also surfaced, namely its lack of transparent pricing mechanisms, undisclosed revenue flows, and endemic corruption. These issues have become a leading source of criticism inside the Kurdish government as well as society. Officials on the oil and gas committee in the Iraqi Kurdistan Parliament (IKP), for instance, are unaware of how much revenues are derived from KRG oil sales and where the funds are allocated. Of the 16 international bank accounts in which revenues from KRG oil sales are supposedly deposited, the KRG minister of finance - recently expelled by the KDP from the parliament - has access to only one Turkish Halkbank account, which has only US$14 million in deposits. The minister of natural resources and Prime Minister Nechirvan Barzani control all other bank accounts.

By choosing to bypass Baghdad without the necessary legal, financial, and political institutions in place, KRG officials have left the region prone to political opposition and economic collapse. Instead of blaming Baghdad for the KRG’s financial and political crises, local populations are now harshly criticizing the KRG.

Given Baghdad and Erbil’s financial crises and unresolved claims over control of oil exports and payments, it is not surprising that Kurdish officials have pursued alternative means of income generation. They need a reliable revenue source that can develop the region and sustain its populations. Yet by choosing to bypass Baghdad without the necessary legal, financial, and political institutions in place, KRG officials have left the region prone to political opposition and economic collapse. Instead of blaming Baghdad for the KRG’s financial and political crises, local populations are now harshly criticizing the KRG. This growing opposition movement inside the Kurdistan Region has recently manifested in violent and deadly uprisings in Suleymaniya province, further deepening political fragmentation and instability.

Nor has the KRG resolved disputed claims to territories and hydrocarbons inside Iraq. In many ways it has aggravated its own situation. Having gained de facto control over expansive lands, the KRG is now responsible for administering and stabilizing a 1,000-kilometer border with the Islamic State and Sunni Arab nationalist groups. The KRG may currently benefit from coalition military support to secure these borders, but it has no guarantee as to how long this assistance will last. Alongside Baghdad, different local stakeholders continue to claim ownership of these territories and resources, to include Kirkuki populations, Sunni Arabs, and minority groups. Some of these groups may agree to become part of the Kurdistan Region, while others are seeking to create their own region or special status inside the Iraqi state.

Shifting dependencies

These trends have also enhanced the KRG’s regional dependencies, particularly on Turkey and Iran. By becoming fully reliant on a single transit route and a legally contentious pipeline running through Turkey and a war zone, the landlocked Kurdistan Region has become more financially vulnerable than ever before.

KRG’s oil exports and revenues are now tied to Turkey’s domestic politics and its 30-year conflict with the Kurdistan Workers’ Party, or PKK, whose forces are based in the Kurdistan Region, eastern Syria, and southeastern Turkey and have already attacked the ITP and other energy assets in Turkey. PKK challenges also extend to Barzani and the KDP, with whom the PKK competes for leadership of Kurdish communities and which the PKK regards as a “sellout to Turkey.” These vulnerabilities are further enhanced by the opaque and personal nature of KRG-Ankara energy ties, which are largely a private deal between Barzani and Turkish President Recep Tayyip Erdogan and not an institutionalized arrangement. Any change in the positions and influence of these personalities or in Turkey’s domestic politics risks affecting the terms and nature of the agreement, and more directly KRG exports.

Iran also continues to influence the KRG’s economic, political, and security arenas. Sharing an expansive border with Suleymaniya and Erbil provinces, Iran provides another outlet for cheap, trucked Kurdish crude and diesel products that benefits Iraqi Kurdish political parties, particularly the PUK, and associated businesses. These exchanges are much smaller than the trucking operations at the Turkish-Iraqi Kurdish border, but they coexist with investment, commerce, and security pacts between Tehran and the KRG that affirm Iranian interests in the region. Since the Islamic State onslaught, Iranian influence has increased, particularly in Suleymaniya and Kirkuk provinces, where Tehran has provided military and security assistance alongside the PUK peshmerga, Shi’a militias, Iraqi security forces, and Syrian Kurdish fighters (PYG).

Deepening regional ties have not translated into political support for a Kurdish nationalist project. Despite the financial benefits of doing business with the KRG, neither Turkey nor Iran back Kurdish independence, or even an overly autonomous Kurdistan Region.

However, these deepening regional ties have not translated into political support for a Kurdish nationalist project. Despite the financial benefits of doing business with the KRG, neither Turkey nor Iran back Kurdish independence, or even an overly autonomous Kurdistan Region. Both remain committed to a weak but sovereign Iraqi state that enables them to influence Iraqi Kurds, as well as Sunni and Shi’a communities. Turkey and Iran also continue to prioritize their own territorial integrity, which includes checking Kurdish nationalist communities within and across their borders through enhanced security, political and economic pacts with Iraqi Kurds.

Implications

All of these dynamics indicate a more fluid and interrupted Kurdish trajectory and not a forward moving process toward independence. Any change in Ankara-Baghdad relations, Iranian-Turkish capabilities, access to pipeline infrastructure, PKK-Turkey tensions, Erdogan’s political status, Iraqi government stabilization, intra-Kurdish tensions, bridging of Sunni-Shi’a ties, or a strengthened Sunni Arab region could affect the KRG’s leverage and ability to export oil and access revenues apart from Baghdad.

The dependent nature of the KRG, its nationalist agenda, and internal Kurdish divisions also challenge U.S. efforts against the Islamic State. Although the Iraqi Kurdish peshmerga are important local partners and the KRG is a key regional ally, their strategic priorities are to extend and consolidate territorial control, while also fighting the Islamic State. In many ways, the KRG needs to keep the campaign against the Islamic State alive because external military support enhances its international recognition and strategic significance, legitimates Barzani family power, and helps displace pressing domestic political issues.

These local dynamics coincide with deepening Kurdish fragmentation that prevents a unified command structure to fight the Islamic State. They indicate the second- and third-order consequences of counting on the Kurds to fight the Islamic State beyond their juridical borders and demonstrate how unchecked and unconditional military support can fuel intra-communal and intra-Kurdish conflicts. The United States should therefore continue to act as a neutral broker and provide weapons to the KRG through the Iraqi government (and not directly to the KRG), more closely monitor the distribution of weapons to Erbil and within the Kurdistan Region, and help stabilize Islamic State-free territories so that displaced communities can return without fear of retaliation.

The KRG’s attempts to gain economic independence have also had significant consequences on the Kurdistan Region’s development and internal stability. Although Kurdish officials can access much needed revenues from direct oil sales, they lack the institutional mechanisms that can shield the region from the ill effects of rentierism. These institutions will be increasingly important as KRG officials operate their own energy sector, particularly since the KRG and not Baghdad will be held directly accountable for revenue generation, resource distribution, and service provision. These changes will demand financial transparency, tackling corruption, coherent oil and revenue policies, and real political reforms. The vulnerabilities created by the KRG’s growing dependence on Turkey also underline the need for renewed negotiations between Erbil and Baghdad, particularly in securing a sustained budget based on the 2005 constitution. The United States can play an instrumental role in brokering these negotiations as well as in helping the KRG develop more transparent institutions that can effectively administer and govern the region.

Finally, in assessing the strategic end state of the Kurdistan Region, geopolitics remains tantamount. No matter how disinterested Kurds are in being Iraqis, they live in a landlocked territory that remains dependent on Baghdad, and increasingly Turkey and Iran. These dependencies have resulted in alliances that not only keep borders open and intact, but provide different Kurdish parties with external patronage to balance power inside the Kurdistan Region. It is not the KRG that will unilaterally declare independence, sending ripple effects throughout the region; rather, it is strong and assertive regional states, namely Turkey and Iran, that will influence the trajectory of the Kurdistan Region. Unless these conditions fundamentally change, the Kurdistan Region will continue to exist in political limbo while seeking to leverage its interests in a weak Iraqi state.

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The views expressed here are those of the author and do not reflect the official policy or position of the National Defense University, the Department of Defense, or the U.S. government.