Tin cupping

A friend dropped this piece in my in box:

Iraqi Kurdistan is in trouble. Last week its Deputy Prime Minister Qubad Talabani visited Washington, along with a Kurdish Regional Government (KRG) delegation of officials, including Interior Minister Kareem Sinjari and head of foreign relations Falah Mustafa Bakir, to convince the US Administration to release more funds. The delegation pitched a stark message to policy makers: Kurdistan is the most effective force fighting ISIS, but it faces a greater existential threat–the economy. That economy has come unstuck as oil and gas prices have tanked, and the Iraqi government has refused to release Kurdistan’s share of the federal budget.

Meanwhile Kurdistan’s peshmerga fighters have been spearheading the war on ISIS, even as the Iraqi-Kurdistan region plays host to 1.8 million refugees. The KRG cannot keep up with these pressures.

But the KRG’s woes are, at least in part, of its own making. The budgetary dispute with Baghdad came after repeated failures to uphold the KRG’s side of an oil production agreement. In a provocative move, the KRG signed an oil supply deal with Turkey in an attempt to further bypass Iraq, and at the end of 2015 seized deposits at two branches of the Iraqi central bank. The money went mainly to pay a vast public sector. Once Baghdad pulled the plug, the KRG was forced to make up the deficit by selling off oil. When the price of oil dropped the government fell four months in arrears for civil service salaries and three months in arrears for peshmerga soldiers. Salaries have been cut to enable payments.

Now Qubad says the KRG is running a $100 million deficit per month, down from a high of $400 million thanks to pay cuts and austerity measures. Even so, Kurdish officials know this is a huge hole to plug. The recent delegation ominously warned policy makers that if the KRG continues at this rate it will fall behind on payments again, including to its peshmerga fighting ISIS.

This is why the Kurdish delegation was in Washington. It needs money, badly. The public sector employs over 1-in-5 in Kurdistan, so the failure to pay salaries is felt broadly. The KRG has justified pay cuts to its employees as a necessary measure to allow those reduced salaries to be paid on time. If the government falls behind again, workers may reach new levels of unrest.

Given the problems the region is beset with, one might expect the KRG to shelve its long-held ambitions for independence. The US is unlikely to support an independence bid at this time: US policy has long supported a united Iraq, and that position is unlikely to change while the Kurdish economy remains a mess and ISIS remains at large.

It is surprising then, that last month President Barzani reaffirmed his support for an independence referendum, setting the timeline for “before October.” Officials and experts have suggested that Barzani is creating a distraction, trying to draw attention away from his refusal to stand down after his term expired last year. But Qubad appeared to support President Barzani when speaking at the Wilson Center in DC last Thursday. While stopping short of naming a date, he unequivocally denied that the referendum issue was a distraction.

Talabani is a member of the opposition Patriotic Union of Kurdistan (PUK). Former Kurdish officials and those who know him describe him as pragmatic on the independence issue. He understands that Kurdistan cannot expect to transition to independence while all of its prospective neighbors remain skeptical, if not outright hostile to the prospect of a Kurdish nation. It certainly cannot expect a smooth transition while its economy is already on its knees, and it is fighting a war with a frontline less than 50 miles from its capital at Erbil. His decision not to play down independence suggests Kurds may be hoping to use it as threat, if attempts to secure aid are met with uncertainty, if not outright rejection.

US aid, if it comes, will almost certainly require the KRG to drop its independence bid for now. If Kurdish officials are digging in on the issue, it bodes ill for the prospects of a swift resolution. It is possible Talabani’s decision to talk up the issue is evidence of failed negotiations with the administration and with Congress. That means there may be worse to come for Kurdistan, and US-Kurdish relations.