Is an independent Kurdistan economically viable?
Following the Iraqi Kurds’ controversial independence referendum that resulted in an overwhelming “yes” vote, the Kurdistan Regional Government (KRG) has been placed under conditions that strongly resemble a siege.
Baghdad, Tehran and Ankara have all taken measures to cripple an already fiscally precarious Iraqi Kurdistan, pressuring it to renounce the referendum despite the KRG having made no formal moves towards declaring independence.
The besieging parties are attempting to punish the KRG, led by President Masoud Barzani. By turning the screws on the Kurdish leader, they are attempting to force him to backtrack against the results of the poll.
Barzani is heavily reliant on the goodwill of his neighbours and extensive support from foreign powers, including the United States. Without this goodwill and support, an independent Kurdistan could arguably fail to survive economically. It could be relegated to an economic backwater, impoverished, crippled and unviable as a real state.
First, the KRG’s existing borders — even if one was to include the illegally occupied Kirkuk and other territories — are landlocked and dependent on its immediate neighbours for trade.
While Iraq agrees with Iran on much these days, it disagrees with Turkey on just about everything apart from the issue of Kurdish independence. As such, Turkey, Iran and Iraq have agreed that sanctions imposed by one must be imposed by all. To that end, Ankara has agreed to go exclusively through Baghdad for oil exports, putting the KRG-controlled oil pumped from Kirkuk to Turkey’s southern Ceyhan port at risk. Iran has halted trucking energy products, including oil, through its shared border with the KRG, placing the Kurds under enormous financial strain.
Similarly, flights to, from and via Kurdish-controlled airports have been subjected to a tripartite embargo, leading the KRG’s main airports in Erbil and Sulaymaniyah to more closely resemble ghost ports devoid of activity. This came after the KRG refused to hand its airports over to the federal government. The last flights from Erbil departed September 29. Foreigners left stranded were invited to depart Iraq from Baghdad International Airport which, prior to this, was far less busy than Erbil, which was an oasis of stability in a highly violent and unstable Iraq.
While food, agricultural products and technology pass through the KRG’s borders, these necessities for normal modern life are also at risk of being severed should the dispute continue.
The KRG is Turkey’s third largest export market and a plethora of Turkish goods are sold in the region. Although Turkey would suffer from any halt in trading with Iraq’s Kurds, it definitely has cash reserves and trade with other global partners to help it weather any turmoil until their one-time ally Barzani can be brought to heel. In conjunction with an energy embargo, that could take place within a very short time.
Even before the referendum the KRG was in the midst one of the worst financial crises in its short life due to a plunge in oil prices, the explosion of the Islamic State in 2014 and Baghdad’s halting payments to the KRG. These payments, which amounted to 17% of Iraq’s national budget and 80% of the KRG’s income, were worth approximately $12 billion. Without them, Iraqi Kurdistan plunged into a fiscal crisis and Kurdish civil servants and peshmerga militiamen saw their salaries slashed or halted.
The economic issues that plagued the KRG still exist and were exacerbated by the sanctions it has been hit with since the vote. Although it is highly unlikely that Barzani will surrender his credibility with the Kurdish people by formally backtracking on the independence vote, it is highly likely he will be forced to make enormous concessions to his besiegers if he wants to survive.
After all, a state is only as good as its finances and the KRG’s treasury is looking rather empty these days.