Baghdad’s “Financial Blockade”

This article was originally published by Niqash. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Baghdad’s Financial Blockade: Iraqi Kurdistan Talks Independence While Locals Strike

Conflict between Baghdad and Iraqi Kurdistan over oil exports has resulted in something of a financial crisis in the northern region. State employees haven’t been paid, MPs are threatening to resign and there are rumours that Turkey was asked for a loan.

Negotiations are continuing but some senior politicians are saying that Iraqi Kurdistan is ready for financial independence if a compromise is not reached soon.

Negotiators from the semi-autonomous region of Iraqi Kurdistan have visited Baghdad three times already this year. They went there to discuss many of the seemingly-intractable conflicts that the partially-independent region populated mainly by Iraqis of Kurdish ethnicity is having with the rest of the country, as governed from Baghdad.

The list of these conflicts is similar to those of past years: The disputed areas of Iraq which the Iraqi Kurdish say should belong to their region but which Baghdad says belong to Iraq proper. The oil and gas law – Iraqi Kurdistan has one and Baghdad does not. Who pays for the services of the Iraqi Kurdish military, the Peshmerga. Iraqi Kurdistan’s share of national income, based on oil earnings.

These issues have been sources of antipathy year on year – occasionally they send the relationship between Baghdad and Erbil, the capital of Iraqi Kurdistan to teeter on the brink of a political abyss. And recently one of the most contentious issues – the oil and gas impasse – has been doing just that.

“The Iraqi budget is IQD163 trillion,” the Iraqi Kurdish Deputy Finance Minister, Fazil Nabi, explained the country’s draft budget for 2014 last week. “The share of Kurdistan Region from the budget is IQD19.7 trillion. Also, Kurdistan Region is entitled to IQD2.14 trillion dinars from the sovereign budget. In total, the share of Kurdistan Region from the budget is around IQD22 trillion dinars.”

The draft budget also says that, in return, the Iraqi Kurdish must export around 400,000 barrels of oil per day and that the revenues from that must go to Baghdad, from where it will be distributed.

But Baghdad says that Iraqi Kurdistan is exporting oil from inside its own region without federal permission – and that this is why oil revenues are down. Iraqi Kurdistan denies this and says that Baghdad isn’t performing it’s governmental duties. Iraqi Kurdish officials say Baghdad has not transferred their share of the national budget to them and they accuse Baghdad of using the national budget to pressure them, insisting that what Baghdad is doing is akin to imposing an economic blockade. In fact, some officials say this is the toughest financial period the semi-autonomous region has experienced since the fall of former Iraqi leader Saddam Hussein in 2003.

Iraqi Kurdish MP, Najiba Najib, said that the main problem is the export of oil from Iraqi Kurdistan to Turkey, without Baghdad’s consent.

“Today Baghdad is pressuring Iraqi Kurdistan to force it to sell it’s oil through [the national oil company] SOMO,” says Najib, who is a member of the Iraqi Parliament’s Finance Committee. “But Iraqi Kurdistan won’t accept that. If they do – and the region’s oil is sold through SOMO – that means that earlier oil contracts and the construction of the new oil pipeline [between Iraqi Kurdistan and Turkey] all fall into Baghdad’s hands – and that is simply not something the Iraqi Kurdish are willing to accept. Iraqi Kurdistan also believes this is all about al-Maliki’s election campaigning too,” she added.

Nonetheless the two parties – both experienced at political brinkmanship – are continuing to negotiate. But as they do so, the people of Iraqi Kurdistan – especially the region’s wage earners – are feeling the pressure.

Around 700,000 people in Iraqi Kurdistan are registered as government employees – the government in Iraq is a major employer. And many of these employees have not been paid for as long as 50 days.

The delay has led some employees to organize protests and boycotts. There have been plenty of promises made about payment but in general, employees trust the Iraqi Kurdish government less and less on this subject.

In a statement to NIQASH, Safeen Dizayee, the spokesperson for the Iraqi Kurdish regional authorities, said that the government was taking steps to ensure that state employees’ salaries were covered. “By no means, will we give in to the illegitimate pressure from Baghdad,” he said. But he did not specify where the money was coming from.

It is true that measures have been taken. A group of businessmen called the Kurdistan Investor’s Union collected money to loan to Iraqi Kurdistan’s central bank in order to keep it liquid and to allow employees to be paid.

Local media have also speculated that a recent visit by the Prime Minister of Iraqi Kurdistan, Nechirvan Barzani, to Turkey included a request made to the Turkish government to loan money to the beleaguered Iraqi Kurdish government, or to pay part of the oil payments in advance. A spokesperson for the Iraqi Kurdish authorities said these were unfounded rumours though.

As it is, all of these measures are clearly only temporary and many locals don’t think the Iraqi Kurdish government will be able to stand the pressure much longer. Iraqi Kurdish Deputy Finance Minister Fazil Nabi submitted his resignation last week, angry at the financial blockade, and now there is talk of more Iraqi Kurdish MPs withdrawing from Parliament in Baghdad in protest. Iraqi Kurdistan’s Deputy Prime Minister for Economic Affairs, Rose Nuri Shaways, has already said that this is a possible step.

Heads of the different Iraqi Kurdish parties in Baghdad’s Parliament met with Barzani this week too. After the meeting they issued a statement urging al-Maliki to stop his “unconstitutional behaviour” and asking any involved parties – including religious authorities, the United Nations, and international allies – to exert pressure on al-Maliki.

“If we can’t reach an agreement during the next fortnight, then one of the cards we have left to play is withdrawal from the political process,” says Nabi, whose resignation has not yet actually been accepted. In fact, Nabi told NIQASH that, from an economic perspective, Iraqi Kurdistan is “a hundred percent ready to be independent. There wouldn’t be any significant problems. But it’s a political problem,” he stressed, “and it must be solved by politicians.”

Local economists are not that sure though. They say that Baghdad’s financial blockade has already had a significant negative effect on Iraqi Kurdistan’s mostly-booming economy. “The region’s government should have been expecting this to happen because they started exporting their oil,” argues economist Idriss Ramadan. “It should have been ready to manage local money in a smart and logical way.”

In fact, Ramadan believes that the current problem lies with the weakness of internal economic policy in Iraqi Kurdistan.

For the time being though, the only thing that unpaid Iraqi Kurdish employees can do is wait. The same goes for the politicians. Government spokesperson Dizayee says the region’s government is awaiting Baghdad’s response to the latest proposals. After they respond, another delegation will head back to Baghdad for further negotiations.

“And we hope that we can find a solution and that we don’t reach the stage where there is nothing left to agree on,” Dizayee concludes.

5 Responses to Baghdad’s “Financial Blockade”

  1. Paul March 4, 2014 at 11:50 pm #

    I’ll have to keep an eye on this one I’d invest in an independent Kurdistan with a dinar of their own. but hope they pull it together for the betterment of the whole country.