From death to dollars - how Kurds struck it rich

Kurdistan presents itself as the new economic tiger of the Middle East, flush with the prospect of exploiting its oilfields. The tall towers of two new luxury hotels rise high above the Kurdish capital Erbil, the oldest inhabited city in the world whose skyline had previously been dominated by its ancient citadel for thousands of years.

Nearby, a glittering new airport has replaced the old Iraqi military runway. In contrast to Baghdad and other Iraqi cities the cars in the streets look new. Above all, and again in sharp contrast to further south, there is a continuous supply of electricity.

“I cannot find employees to go and work in the oilfield,” complains a Kurdish manager in a Western oil company. “I cannot even find rooms in the new hotels for visiting executives because they are so full.” Convoys of shiny black vehicles conveying delegations of visiting businessmen from Germany, France, the UAE and Turkey race through the city. Many of those now coming to Kurdistan could not have found it on the map a few years ago and – so Kurds who have met them caustically remark – are often still unsure of its location when they leave. But there is no doubting international business enthusiasm for the Kurdistan Regional Government (KRG), the semi-independent enclave in northern Iraq that is prospering like no other part of the country. A Kurdish businessman says: “We are benefiting from having a boom at a time of austerity and slow growth in the rest of the world, so the boardrooms of international companies are particularly interested in us.”

At the heart of the boom are 50 or 60 foreign oil companies seeking to find and exploit Kurdistan’s oil, on better terms and with greater security and official backing than they could find in the rest of Iraq. This influx started with small and obscure foreign companies in the years after the fall of Saddam in 2003. But foreign interest deepened, the size of the oil companies increased, and in 2010 ExxonMobil signed an exploration contract with the KRG. The central government in Baghdad was furious and threatened to punish Exxon, which has large interests in southern Iraq, but failed to do so as other oil majors – Chevron, Total and Gazprom – had also signed their own deals.

When the Kurds first encouraged foreign oil companies to look for oil on territory they controlled, Baghdad was sanguine. In 2007 Iraq’s Oil Minister Hussein Shahristani, now Deputy Prime Minister in charge of energy-related issues, said to me that, even if foreign oil companies found oil, they would not be able to export it. He asked sarcastically: “Are they going to carry it out in buckets?” It is this calculation that has changed radically in the last year. A new pipeline is being built between the KRG and Turkey, which in theory would enable the Kurds to export crude and get paid for it without permission from Baghdad. This would give the five million Iraqi Kurds an economically and politically independent state for the first time in their history after decades of war, ethnic cleansing and genocide. On the other hand, Turkey may decide that it is not in its interests to defy Baghdad and break up Iraq.

Self-determination is close, but not quite there yet. One Kurdish observer said: “We Kurds have one of the most complicated political situations in the world.” It is easy to forget this in the present boom-town atmosphere of the KRG. First, the Kurdish autonomous zone is landlocked and on all sides faces powers – Turkey, Iran, Syria and the rest of Iraq – that are oppressing Kurds or have oppressed them in the recent past. The KRG may be a haven of peace for the moment but violence is not far away. Syria, Iraq and Turkey are fighting guerrilla insurgences of varying levels of intensity just beyond the KRG’s frontiers. In recent weeks al-Qa’ida suicide bombers blew up the main police station in Kirkuk 50 miles south of Erbil and assassinated a senior general and his bodyguards in Mosul, a similar distance to the west.

The political geography of the Middle East is changing in ways that so far are to the advantage of the Iraqi Kurds, though the trends may not always be so. The KRG consists of three provinces – Erbil, Dohuk and Sulaimanya – that won de facto autonomy in 1991 after the Kurdish uprising in the wake of the first Gulf War. This area expanded dramatically in 2003 as the Kurdish pesh merga militiamen advanced and Saddam Hussein’s forces collapsed. The Kurds captured Kirkuk and its oilfields as well as a swathe of territory north and east of Mosul and have never been likely to give it up. An explosive aspect of the deal with ExxonMobil in 2010 is that three of its six exploration blocks are outside the KRG, but inside territories disputed between Kurds and Arabs and between the governments in Erbil and Baghdad. Last year pesh merga and Iraqi troops confronted each other along the so-called “trigger” line, stretching from the Syrian to the Iranian border.

It is a moment of unprecedented political change in the region. Iraq as a country is getting close to disintegration as a single state, but this is not inevitable. Old alliances are being junked and hated enemies embraced. Massoud Barzani, long demonised in Turkey, was a guest at the conference of Turkey’s ruling AKP party and was given a standing ovation. The Iraqi Kurds are tipping towards Ankara and away from Baghdad. For a decade Turkish companies have poured into KRG and are doing trade worth at least $8bn (£5.3bn) a year there. The Shia-Kurdish alliance is the backbone of the post-Saddam settlement brokered by the Americans, but is today it is looking frayed. Mr Barzani and the Iraqi Prime Minister Nouri al-Maliki are barely on speaking terms. The Kurds feel, as do other opponents of Mr Maliki, that he has repeatedly reneged on power-sharing agreements, particularly when it comes to military and security appointments.

When it seemed likely in 2003 that the US would invade Iraq from the north accompanied by 40,000 Turkish troops, the Iraqi Kurds were terrified and demonstrated vigorously in protest. These days a Turkish alliance with the KRG appears to many to be a reassuring alternative to dealing with the chaotic and increasingly hostile government in Baghdad. Arab-Kurdish links are weakening at many levels. At the top, Kurdish influence in Baghdad is declining, particularly since the incapacitating illness of President Jalal Talabani who had previously played a conciliatory role at the centre of Iraqi politics. At street level fewer Kurds speak Arabic compared to 20 years ago when many were former conscripts in the Iraqi army. Few Kurds travel to Baghdad except for urgent business because it is dangerous, though many travel to Turkey on holiday. Only a few years ago the Turks would regularly close the Khabour bridge, the main crossing point between the KRG and Turkey, leading to enormous traffic jams. These days it is Baghdad that tries to emphasise the KRG’s isolation, refusing even to allow the plane carrying the Turkish Energy Minister to cross its airspace for a conference in Erbil.

Kurdistan has changed enormously in the last decade. At several moments over the last 40 years the Kurdish cause seemed irretrievably lost. In 1975 their forces, then led by Mullah Mustafa Barzani, the father of the current KRG President Massoud, were betrayed by the US and the Shah of Iran who suddenly withdrew support as the Kurds were locked in battle with the Iraqi army. Saddam Hussein seemed triumphant and Kurdish prospects for self-determination were apparently extinguished forever. But the Shah fell and Saddam invaded Iran in 1980, leading the Iranians to renew support for the Iraqi Kurds. They took over much of the country, only to see Iran forced to agree a truce in 1988 leaving the Kurds to face Saddam’s vengeance. Many were gassed in Halabja and 180,000 civilians slaughtered in the al-Anfal campaign in 1988 and 1989. Again, everything looked dark for the Kurds until Saddam invaded Kuwait and was defeated in 1991. The Kurds rose up, failed to get US support, and were forced to flee in their millions in the face of an Iraqi counter-attack. In the midst of an international outcry, US relented and rescued the Kurds by declaring a no-fly zone.

But Kurdistan was devastated. People had been forced into cities and 3,800 villages and towns were destroyed. This was oppression on the level of Hitler’s armies in Poland and Ukraine. The very land was carpeted with anti-personnel mines like large yellow and white mushrooms. The mountains were stripped bare of trees for heating and cooking. The two main parties – the Kurdistan Democratic Party of Mr Barzani and the Patriotic Union of Kurdistan of Mr Talibani – made a bad situation worse by fighting a ferocious and wholly unnecessary civil war.

The contrast between Kurdistan as a ruined battlefield and its appearance today is so striking as to take one’s breath away. It may also be so great as to unbalance its leaders’ sense of the feasible. One critic says: “We are making the same mistake with the Turks today as we did with the Americans and the Shah in 1975. We are once again becoming over-reliant on foreign powers.” For all the economic development in KRG it remains dependant on getting a 17 per cent share of Iraqi oil revenues proportionate to its population. The KRG likes to present itself as “the other Iraq” so different from the rest of the country. But some things work the same. For instance, some 660,000 Kurds have official jobs though at least half do nothing at all. Much government revenue goes on paying them and without a share of Iraq’s oil revenues the economy would collapse. “Ease of doing business in Erbil compared to Baghdad is very good,” says a businessman. “Compared to the rest of the world it is rubbish.” A sign that many Kurds do realise their continued economic dependence on Baghdad is a sharp drop in the last three months in property prices in Erbil, a fall attributed to disagreements with Baghdad.

Kurdistan may have greater security and better political direction than Baghdad, but it is similarly corrupt. “I call it ‘Corruptistan’,” said one woman. “I live in an area surrounded by the houses of director generals working for the government,” said another source. “I have a higher salary than any of them but they have houses three times bigger than mine.” He complained that it has taken him months to find a decent school for his daughter and, likewise, a good hospital for a sick friend. Erbil may have several five-star hotels, but so few ordinary Kurds visit them that local taxi drivers often do not know where they are.

In many respects the exaggerated expectations generated by the Kurdish tiger resemble those surrounding the Celtic tiger in Ireland before 2008. Both nations are small, long-oppressed and impoverished, and feel history has treated them unfairly. Having endured hard times for so long, both may be vulnerable to seeing a boom as being permanent when it is in fact part-bubble.

Momentous decisions must be taken by the Kurds and their neighbours when the pipeline to Turkey is finished. One expert on Kurdistan asks “is Turkey playing a game of bluff or will it give up on Baghdad? Do they see it as having fallen permanently into the hands of Iran?” The Kurds are gambling for high stakes in balancing between Turkey, Iran and Baghdad. They have hitherto done so with success but they are in danger of over-playing their hand.

Where are they now? Hans Blix

Few people were more qualified to find out whether Saddam Hussein was hiding weapons of mass destruction than Hans Blix.

As director general of the International Atomic Energy Agency (IAEA) from 1981 to 1997, he was in charge of overseeing inspections of the country’s nuclear programme. During that time Iraq concealed the programme from inspectors – it was only discovered after the 1991 Gulf War. As head of the UN team responsible for searching for weapons of mass destruction, Mr Blix returned to Iraq in December 2002 and remained until the week before the war began in March 2003. In his final report to the Security Council, Mr Blix reported minor infractions by Iraq, but said there was no compelling evidence that it had a hidden arsenal or was blocking the work of the inspectors. He repeatedly called for more time to search for the WMD.

Following the 2003 invasion, Mr Blix became a fierce critic of the US and the UK. The 82-year-old Swede is now retired, but Blix has warned against making the same mistake, this time with Iran. “Today there is talk of going on Iran to eradicate intentions that may not exist. I hope that will not happen.”

Further reading:

Ten years on from the war, how the world forgot about Iraq - The Legacy - Day 1: A nation in crises

How Baghdad became a city of corruption - Iraq - The Legacy - Day 2: Money talks

The Sunni rise again - Iraq - The Legacy - Day 3: A nation divided

How the Shia are in office but not in power - Iraq - The Legacy - Day 4: The Shia

A disaster waiting to repeat itself - Iraq - The Legacy - Day 6: The mistakes