Low global oil prices are wreaking havoc on Iraqi Kurdistan’s finances. Although the cash-strapped Kurdish government has managed to export oil independently of Baghdad since June 2015, it will increasingly rely on foreign support the longer oil prices remain depressed, regardless of how much control it has over its oil export revenue. The Kurdistan Regional Government (KRG) will rely heavily on Turkey to keep oil exports and revenues flowing as it struggles to address both its own disintegration and the profound effect that the financial strain is having on the morale of peshmerga fighting the Islamic State.
Even if oil prices rise enough to enable the Arbil-based government to meet its spending needs — or even start to repay its estimated $14 billion in debt, $4 billion of which is owed to oil companies alone — many of the legal challenges to the KRG’s authority will remain. So far, Baghdad’s attempts to use legal claims to dissuade customers from buying the Kurdish government’s oil have been unsuccessful. However, Arbil’s recent move to sell Iraqi oil from Kirkuk, which lies outside the Kurdish autonomous region, will invite further legal disputes with Baghdad. These challenges will push the KRG even closer to Turkey, paving the way for a greater role for Ankara in Iraq’s Kurdish region.
An Unsustainable Drain on Finances
Arbil’s financial concerns are great and growing. At its heart, Kurdistan is a region that supports its people by putting them on the government’s payroll; roughly 1 in 6 Iraqi Kurds are considered employees of the KRG. Weighed down by a bloated public wage bill totaling $700 million to $800 million a month, Kurdish officials are struggling to find a way to pay the salaries of their peshmerga fighters, teachers, oil workers and other civil servants. At the same time, the KRG’s budget must somehow fund the patronage networks that form the foundation of Kurdish society. All told, Arbil’s spending commitments add up to about $1 billion to $1.1 billion per month (or $12 billion to $14 billion per year).
https://www.stratfor.com/analysis/why-iraqi-kurdistan-struggling-pay-its-bills
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