Policymakers in Erbil today confront severe governmental and fiscal emergencies that threatens the region’s stability and prosperity. To meet these challenges, they will need to couple stringent economic reforms with reconciliation between political parties.
On 27 November, a group of unidentified gunmen assaulted the Kurdistan Democratic Party (KDP) headquarters in Chamchamal – a town 55km west of Sulaimania. According to local KDP official Farhad Kirkuki, the attackers sought to intimidate his party’s leader and president of the Kurdistan Regional Government (KRG), Masoud Barzani, who had just announced a new effort to resolve political gridlock in the Kurdistan Region of Iraq (KRI). While Kirkuki offered no further details, his statement highlighted the cleavages between Iraqi Kurdish political parties that continue to undermine long-term stability in the KRI.
Deadlock between political actors in Erbil handicaps efforts to overcome a dire financial emergency while coordinating military operations against ISIS in two provinces. The KRG has weathered the post-2014 tumult surprisingly well – maintaining internal security, fighting effectively against ISIS, and absorbing over 1.8 million displaced people (with over 57,000 arriving after 17 October, when operations to clear ISIS from Mosul began). However, this veneer of stability belies systemic governance and economic challenges facing Kurdish policymakers. The KRG parliament has not met for over a year. During this period, the rift between regional parties – chiefly the KDP, Patriotic Union of Kurdistan (PUK), and Gorran – widened; finance and defense minister positions fell vacant; and, as global oil prices plunged, the region’s debt reached US$20 billion. Protests surged, particularly in cities like Sulaimania, Halabja, and Chamchamal where opposition to the ruling KDP is strong.
Across the KRI, an enduring sense of crisis will shape Kurdish power in post-ISIS northern Iraq — as well as realities for non-Kurdish minorities in the KRI. Whether the KRG can adequately address governmental and fiscal emergencies may depend on leaders’ willingness to couple stringent economic reforms with reconciliation between political parties.
Turbulence in Erbil
One week before the shooting in Chamchamal, Barzani had urged the KRG’s political groups “to restart negotiations to activate the parliament and elect a new presidency.” However, he also noted that “those whose actions led to the crisis” could not join any new government, fueling continued rancor in Erbil among groups who feel cut out of meaningful dialogue by the KDP’s rhetoric. As former Gorran-affiliated KRG Speaker of Parliament, Yousif Sadiq, told the Wall Street Journal, “there is a lot of anger in the Kurdistan region, and it is quiet so far because people are being responsible and are waiting. But after ISIS is gone, they won’t be waiting anymore.”
The spark for the most recent deadlock came in summer 2015. On 20 August 2015, KRG President Massoud Barzani’s term of office supposedly ended, following a two-year extension approved by the parliament in the face of fierce dissent from opposition parties and civil society. The KDP insisted that he could legally remain in office until the next scheduled presidential elections in 2017. The party leadership cites a 17 August 2015 decision issued by the Kurdistan Consultative Council (KCC) – an entity within the KRG Ministry of Justice authorized to mediate legal disputes between government agencies – that approved an additional two year extension. Critically, however, Barzani solicited KCC opinion through the Deputy Speaker of Parliament, a senior KDP official, bypassing Sadiq and the opposition.
Opposition parties claim this decision contradicts Kurdistan Law No. 19, Article 1, passed on 30 June 2013, which specified the original term extension: “The term of the president that expires on 20 August 2013, will be extended until 19 August 2015, and cannot be extended for a second time.” In June, Gorran – which split from the PUK in 2009 and claimed nearly half of the latter’s votes in parliament – led an effort to introduce a series of parliamentary amendments to the presidency law, with little effect other than to alienate KDP policymakers.
Whether the KRG can adequately address governmental and fiscal emergencies may depend on leaders’ willingness to couple stringent economic reforms with reconciliation between political parties.
This legal bickering precipitated political violence on 12 October 2015, when KDP security forces blocked Sadiq and four Gorran lawmakers from entering Erbil – effectively shuttering the KRG parliament, which has remained in recess since. Cast as a response to an attack against KDP offices in Sulaimania, the maneuver effectively prevented Gorran and its opposition allies from electing a new president through parliamentary vote. In the months after the dramatic showdown on Erbil’s outskirts, four parties – Gorran, PUK, Kurdistan Islamic Union, and Kurdistan Islamic Group – have sought stronger parliamentary mechanisms to which the president (elected by parliament) must be accountable.
In May 2016, Gorran and the PUK signed an agreement to bring the two parties together in Kurdish and Iraqi political arenas. The alliance impacted KRG politics in three critical ways, further exacerbating tensions simmering inside the region since 2015: it created a counterweight to KDP dominance in Erbil by breaking apart the KDP-Gorran parliamentary partnership that formed in 2014; ended seven years of hostility between the Gorran and the PUK; and fractured the 2007 “strategic agreement” between PUK and KDP that had brought the two previously warring sides together. As Kurdish journalist Mohammad Salih explained, the result “has been a dangerous escalation of tensions among the KDP, on one side, and PUK and Gorran, on the other.”
These parties, however, are themselves handicapped by internal divisions that further complicate any effort to reconcile broader Kurdish cleavages. The PUK’s leading Talabani family remains locked in a struggle for the party’s future with challengers centered on KRG Vice President Khosrat Rasul Ali and former KRG Prime Minister Barham Salih. Gorran, too, is experiencing an existential crisis as its leader, Nawshirwan Mustafa, remains absent on medical leave abroad. Many Kurds believe his condition is terminal, and the party has thus far been unable to pick even a temporary head. Even KDP leaders differ on strategies for managing their Gorran-PUK rivalry. The KRG Prime Minister Nechirvan Barzani has advocated reactivating parliament – with Sadiq as speaker – and extending Masoud Barzani’s term, whereas KDP National Security Chancellor Masrour Barzani has urged his party to reach an agreement with the PUK, form an entirely new cabinet, and push Gorran away from mainstream politics.
Barzani’s recent statement may help jumpstart an eventual rapprochement between political actors. Yet he also declared that “those whose actions led to the crisis” could not join any new government – setting a decidedly confrontational tone. Although he identified the need to elect a new parliament and president, implementing these efforts may be challenging amidst the current security and economic environment. For now, grievance remains the language shaping Iraqi Kurdish political dialogue.
Running out of Money
Feuds between Erbil powerbrokers are complicated by growing unrest among Iraqi Kurds at the government’s perceived dysfunction and severe response to an ongoing economic emergency. On 19 November, hundreds of teachers, civil servants and employees staged protests in Sulaimania and across the KRI, decrying the KRG’s inability to pay – the latest in a string of strikes against harsh austerity measures.
After oil prices fell from nearly $115 per barrel in early 2014 to below $50 per barrel a year later, the KRG economy – which is heavily dependent on petroleum export – contracted sharply. For more than four months in 2015-2016, Erbil could not pay civil sector salaries and was forced to reduce pensions for government employees, who make up half the Kurdish workforce. The situation had grown so dire by April 2016 that, during a visit to Washington, KRG deputy Prime Minister Qubad Talabani declared that “the real existential threat facing Kurdistan today is the state of [its] economy.”
Today, the KRG is months behind on paying civil sector salaries, and its debt has grown to around $20 billion, with a monthly deficit of nearly $108 million. Oil exports, most of which is shipped to Turkey through the Ceyhan pipeline, have been slowed by ISIS attacks and technical malfunctions across the Turkish border. For example, Kirkuk’s key Bai Hassan oil field (which came under Kurdish control in 2014) went offline following a series of attacks by a suspected Islamic State sleeper cell on 31 July, resulting in a loss of approximately 75,000 barrels per day. Between Aug. 7 and Aug. 9, the Ceyhan pipeline went offline due to an unspecified electrical problem in Turkey – the 18th stoppage since July – slashing 2016 earnings by $25 million. Meanwhile, ongoing military operations against ISIS and costs associated with the influx of refugees – who comprise 28 percent of the KRI’s population and live mainly in urban areas – continue to drain Erbil’s coffers. By late 2016, the poverty rate inside the KRG rose to 12.5 percent, up from 3 percent in 2013.
To salvage the region from the effects of low oil prices and diminished production, the KRG implemented a series of reforms in early 2016. As Brookings’ Ken Pollack notes, this effort “continues to move along smartly, marking milestones that are quite remarkable in their own right.” Since January, the KRG completed an extensive audit of the finance ministry, and retained both Ernst & Young and Deloitte to audit the entire oil and gas sector on a yearly basis, rooting out corruption and inefficiencies. In May, Erbil cut civil servant salaries by 15 to 75 percent, depending on seniority, and lowered fuel subsidies. These measures yielded positive results, reducing the monthly wage bill to $480 million and cutting nearly 54 percent of nonmilitary spending from the KRG’s budget. By the end of 2016, KRG fiscal consolidation had reached 37 percent. If Erbil’s political impasse continues to mute constructive dialogue between key actors, ongoing financial trouble may further entrench factionalism as powerbrokers seek advantage in a diminishing earning environment.
“…the real existential threat facing Kurdistan today is the state of [its] economy.”
Yet, political rivalries in Erbil could handicap economic reforms. For example, the KDP and Barzani maintain control over the KRG’s revenue streams, and have few incentives to engage the opposition parties in meaningful political dialogue. In Kirkuk, a large portion of KRG oil revenues from the province never reaches government ministries. Due to a contract between the Ministry of Finance and the KDP-owned Kurdistan International Bank, all natural resource profit generated from Kirkuk’s main refineries must be directed through the bank. By selectively disbursing revenue to allied entities, KDP officials have been able to choke their political opposition of funding.
Other efforts to build a more efficient economic model for Kurdistan could have longer-term positive effects on the region’s economic and political health. Over the next few months, Erbil aims to boost efficiency in the electricity sector by privatizing distribution and metering. Additionally, the KRG will continue to introduce biometric screening for civil servant payrolls, including the Peshmerga. Only those registered in the accompanying database will receive salaries, thus addressing the problem of ghost workers and soldiers. However, as many Iraqi Kurds remain focused on their diminished incomes and express discontent through protest, these structural changes could falter.
On 30 November, the Organization of Petroleum Exporting Countries (OPEC) reached an agreement to cut production among its member nations, thus driving up slouching oil prices. The Iraqi government had long opposed such an arrangement, as it desperately needs to maintain its revenue flow. As the Washington Institute’s Bilal Wahab explains, Baghdad may not be able to implement any such commitment “because the country’s energy policy and industry remain divided between the central government and the [KRG].” For Erbil, production cuts could upset an already fragile balance between political and economic crises – and it is unclear what leverage the Iraqi government will be able to exert over the KRG if it does not comply with the OPEC arrangement. In fact, Kurdish fiscal projections outline increased oil export in 2017. While the time might be right for Baghdad and Erbil to cooperate – Kurdish and Iraqi forces have worked together amicably during the Mosul operation, fostering a sense of goodwill between capitals – the economic exigencies in the KRI, as well as simmering protests and government deadlock, may push Barzani into a tricky position.
Need for Comprehensive Reform
Iraqi Kurds are today growing restless at their government’s inability to provide salaries, functioning political institutions, or essential services. Despite energy sector reform, for example, the KRG recently announced that it could only provide 8-9 hours of electricity during the winter months, down from 15-16 hours this summer. For analysts who champion the Iraqi Kurdish narrative, it is important to understand the underlying challenges to prosperity and stability in the region. While the fight against ISIS has claimed international attention, problems like those facing KRG leaders will ultimately shape Iraq beyond any eventual victory. Efforts thus far to address both the political and economic crisis in the KRI are admirable, but will require greater engagement from both Kurdish political parties and international actors with a stake in the region if they are to succeed. In April, the United States provided a $415 million grant to fund Peshmerga salaries; by offering future financial aid in exchange for political reforms or reconciliation between KRG powerbrokers, for instance, economic recovery could also bolster the KRI’s democratic systems.
For policymakers in Erbil, the most pressing concern remains (justifiably) the region’s dire economic situation. However, rapprochement between the KRI’s political factions is a necessary step toward devising a plan for sustainable economic recovery. Effectively confronting corruption and inefficiency within the KRG will require parties to work together, and any lasting reform in the oil sector must ensure that each group feels itself enfranchised financially as well as politically within the Kurdish polity.
How the KRG addresses its twin governance and economic crises will ultimately give observers some indication of how the region’s politics may look post-ISIS. Political dysfunction and economic inefficiency remain significant points of embarrassment for Kurdish leaders seeking to demonstrate their region’s prosperity, pluralistic process, and safety to international partners. The challenges facing Erbil today are certainly not insurmountable. Yet, it is crucial that observers do not hold the KRI to an imaginary standard. Its economic situation is dire, and its leaders must not let factionalism handicap their response, lest they jeopardize the region’s future.