Iraq’s Abadi mulls taking full control of penniless Kurdistan as riots spark worries of new crisis

MPs in Baghdad must have pinched themselves when a KRG delegation recently asked them for money. It might have been straight forward if Iraq’s PM could pay government salaries for taking control of the country.

But then the French got involved and elections are being rushed.

Barely weeks before, Iraq’s Kurdish Regional Government (KRG), heralded by Masoud Barzani its (then) President, soldiered ahead with the independence referendum plan, despite being told quite clearly not to do so by Baghdad and other regional players who had geopolitical and economic investments in Iraq. That led to a spectacular blunder as within days of the euphoria fading, oil fields in the Kirkuk region had been taken back by Iraqi forces making the elite in Erbil look at best stupid, and at worse, like a corrupt posy of amateurs playing monopoly with other people’s money.

The loss of Kirkuk cannot be underestimated in its political and economic impact. Until then, the KRG was producing 600,000 barrels of oil a day and barely managing to meet the (then) monthly overheads of a semi-autonomous state of around $700 million a month. The list of foreign investors who were not being paid monies promised in advanced oil sales for cash, was also growing.

According to British energy journalist Patrick Osgood Kurdistan Bureau Chief for the Iraq Oil Report, the KRG was frantically taking money from some deals to pay off others. “Recently, we know that Rosneft leant the KRG 1.3 billion dollars of which one billion was immediately to creditors in the UAE,” he told me.

According to other sources in Erbil who are fearful of reprisals for speaking to the press, “ministers recently brokered high interest rate loans with western energy consortiums just to make token payments into the central bank”.

Panic was the order of the day. The independence referendum was a byproduct of that frenzy which led to the present day catastrophe which has led to the climb down from the elite – which is made up of two ruling families, Barzani and Talabani. Today, that same double act is holding out the begging bowl to those who they considered to be brutal colonialists who they were apparently escaping from in the first place.

Abadi’s next move with the KRG

“If the Iraqi government doesn’t send the budget, we cannot pay the monthly salaries on time with the income we will be getting in 2018” is what the KRG-friendly news website Rudaw English reported was said in the Baghdad parliament on December 13. 

The worry for both the KRG and Baghdad is that the country is about to collapse into a plume of chaos. It is believed that the central bank is only receiving a fraction of the $550 million (dropped from $700 million as state salaries have been slashed) it needs to pay government ministries and salaries and only has around $2 billion in reserves. The historical blunder by Erbil, combined with endemic corruption of public funds (which even irks the Americans), wide scale nepotism, and a wholesale contempt for anything which whiffs of democratic reform, has all culminated into a crisis building up which recently sparked street protests with a number of people shot dead. The corrupt elite in Erbil didn’t have any master plans to rebuild the economy and attract foreign investment for their own country, only how to continue the practice of the pyramid selling schemes with western oil firms which has now reached breaking point.

According to experts, the money from all of these investments – Russian and Turkish being the biggest ones – has all vanished into the black hole of infamous, secret public spending via the infamous Kurdistan International Bank. It’s not just that the KRG is broke, it’s also up to its neck in crippling debt. And it’s the fast and loose ‘loans’ which have brought the economy to its knees with a recent loan via a Swiss-based firm – doubling money for investors – which spooked the ex-prime minister of Kurdistan Barham Salihi so much, when I asked (via a third party) for a response. “He is too afraid to talk about that deal as he might be killed,” I was told.

The knuckleheads in Erbil have run out of answers. The Barzani-Talabani elite now are pushing for presidential and parliamentary elections in 2018 – ideally before Iraqi’s own elections in May – and desperately needs to retrieve a trace of credibility with voters in the country. Getting a bail out from Baghdad might help.

Show me the money. The real money

But the price the KRG is asking is high. According to an Iraqi MP, Saad Al Muttalibi, Prime Minister Haider al-Abadi is not keen to help as the Kurds are being stubborn about transparency. 

“They are not producing all of the information about account numbers and where all the money is now, because this is all linked to [the previous President] Barzani,” he told me. “Abadi is being very stubborn right now”.

The KRG are asking for a monthly cash hand out and for its debts of around $5.5 billion to be paid, but with no transparency. Understandably, Abadi is skeptical, especially when it is known how the Barzani and Talabani clans became so wealthy – with some claiming the deputy prime minister alone is worth around $ 3 billion.

Not bad for someone who started his career as a car mechanic.

But the spanner in the works for this elite is that it is widely known, both in Erbil and Baghdad, that it has profiteered from their positions. Abadi, like many, might argue that if they want to get re-elected in 2018 that they might have to dip their hands into their own pockets.

The big question is how Abadi plays this. If he appears kind to the Kurds, he will lose votes in the elections, which he is sure to win if he is tough on them. Yet if he is too tough, it might be that the country implodes into chaos and civil war, which might mean he will have to send the Iraqi army in – and then focus Kurds' minds once again on the common enemy, which might blow up in his face. To some extent, we are already at this point as recent reports in the KRG-aligned website Rudaw are claiming that Baghdad has positioned its troops just outside the capital.

In recent days, according to a pro-Assad website, “thousands” of protesters have taken to the streets in a number of KRG towns, angry at the state of public services and civil servants’ salaries being paid in fractions. Yet the same agency claimed on December 19 that the Iraqi PM had agreed to pay KRG government salaries, but will not pay the KRG debts to Russia and Turkey, amounting to $ 5.5 billion.

If this is true, then the Kurds would have no doubt given Abadi considerable concessions on oil, while the troops sent there are expected to convince KRG leaders they should quit while they are ahead, or pay for it dearly.

“Baghdad demands the KRG cancel the result of the referendum, which delivered an overwhelming yes for independence, and to hand over control of land borders, airports and oil facilities of the Kurdistan region”, according to Reuters on December 18.

Abadi has clearly lost his patience with the billionaires in Erbil and wants the whole shooting match, an audacious move which would have placed Baghdad at the top of the pecking order with Erbil’s creditors and international patrons who have joined the KRG debacle quite late in the day and might thwart his plans.

Bargain basement hegemony…voila!

France’s Emmanuel Macron, never one to miss an opportunity in the Middle East to act as an international statesman, recently appeared on the KRG stage, desperate to place France somewhere on the Middle East’s map alongside the US and UK. According to Rudaw, now that “Lebanon is under the influence of Russia,” Elysee wants to restore its role in the region through Kurdistan. Ali Dolamari, KRG’s representative to France, told the media outlet that France wants to play a role in reconstructing Iraq after ISIS was defeated. 

Given that it was the West – and in particular the EU – which can be blamed for letting the KRG go ahead with self-imposed calamity of Barzani’s preposterous independence referendum in the first place, it seems that the Kurds aren’t learning from their mistakes. Transparency in this country is what is required and yet neither France nor the EU, is willing or able to induce it. Indeed, it is a fitting irony that when the EU sends its MEPs to “monitor” the referendum – like Scottish independence hack Alyn Smith who arrived in Erbil, and shortly thereafter began spewing journalists with tweets, press releases and articles about the KRG’s independence bid – that the same MEP can’t be reached for a comment when asked about the KRG now and the gob-smacking accounts of graft which have plunged the country into the state it is in today.

And so there is a race on between the French who would ideally like to convince the KRG that Paris is their new geopolitical big brother against Baghdad which wants much more money and oil to not send the troops in. Of course, the third option is that Abadi just loses his patience and sends in the troops anyway, dismisses the Erbil elite and talks to Macron and reconstruction. At the time of writing this, there are reports that there will be elections within three months as a certain panic is setting in and politicians are jumping ship each day, repositioning themselves before it’s too late. Macron might have to get his skates on before Abadi makes that Erbil call.