Prospect for Kurdish economy bleak for now but could shift radically, think tank

Iraq, September 18, 2016

The Kurdistan Regional Government (KRG) faces unprecedented financial challenges at present due to plummeting oil prices and regional tensions, but it could come out of the ongoing crises stronger than before if conditions in the neighbouring regions shift, according to a fresh report by Washington-based think tank Atlantic Council.

The report says the long-term prosperity of the Kurdish economy depends on how the KRG can solve its internal political problems as well as its relations with its neighbours, especially with Turkey.

The KRG will need to secure the fragile oil route to Turkey’s Ceyhan port, which has been sabotaged repeatedly during the year-long clashes between the Turkish army and the Kurdistan Workers Party's (PKK), it says.

"Not only have the PKK attacked the Kirkuk-Ceyhan line in the past, they have also signaled that the planned gasline from Kurdistan to Turkey constitutes a natural target for future assault," the report reads.

Much depends on how events develop in Turkey with regard to not only its war with the PKK and the collapsed peace process, but also how Ankara handles the powerful Gulenist movement, which has great influence in the military and thus on how the war with the PKK can unfold, according to the report.

The KRG is also likely to seek alternative routes for the export of its oil via both Iraq and neighbouring Iran, while both governments in Tehran and Baghdad openly oppose further independence of the Kurdish administration in Iraq.

"The infrastructure exists for oil from the Kurdistan Region of Iraq to be exported southwards. Should the anti-ISIS coalition recapture Mosul and thus ease—and possibly end—the direct threat posed by ISIS to communities controlled by the KRG, Erbil would have to consider the practicality of exporting crude via federal Iraq as well as via Turkey, even if that meant a further postponement of independence," the report says.

"As long as there are doubts about the security of export routes via Turkey, the ability of an independent Kurdish state in northern Iraq to secure economic viability remains in doubt."

The stability of the Turkish borders is also vital for the much anticipated gas export from Kurdistan to Turkey, which is planned to begin in 2017.

But strained relations between the ruling Kurdistan Democratic Party (KDP) and the PKK over events in Syrian Kurdistan is a major challenge for the KRG to resolve in order to secure the much needed gas route.

The report also notes that domestic turmoil within the KRG due to political disputes between parties will further undermine Kurdistan's efforts to resolve its issues with all the regional players as well as its economic reforms.

"An effective regional government in Erbil is required in order to ensure the implementation of a major reform program," the report says.