Kurdistan Region’s Oil and Gas: Curse or Blessing?
SORAN, Kurdistan Region - Will oil and gas wealth lay the foundation for Kurdish independence? Or will the Kurdistan Region follow the path of countless oil-rich states whose resources ultimately weakened both their economies and democratic institutions?
This is the question that drove last week’s debate at Soran University’s first annual symposium, “Kurdistan’s Oil and Gas: Curse or Blessing?” Businessmen, academics, journalists, oil experts and students gathered for the two-day event at a new luxury resort atop Korek Mountain, to talk about the role of energy in the region.
Despite the altitude, this was not a lofty academic forum. Nor was it marked by the self-congratulatory optimism of oil and gas industry conferences. Everybody who attended agreed that the Kurdistan Region stands at a crossroads: It could become Nigeria -- where enormous oil reserves have famously de-industrialized the nation and created a class of oligarchs -- or it could become Norway, a thriving democracy that has used petrodollars to enrich the nation as a whole.
Organizer Dr. Nahro Zagros holds that the symposium transcends the usual debates over pipelines and revenue control, pitting Erbil verses Baghdad.
“We wanted to debate the bigger strategy behind Kurdistan Regional Government (KRG) oil exports, specially the KRG and Turkish relations. We also wanted to know how crucial the oil and gas really is,” he says.
“Our main target is: We don’t just want statements from officials or politicians. We want everyone to be aware about all the underlying implications of oil resources in Kurdistan. We need to develop solutions now for future oil and gas issues.”
Some speakers focused on the role oil and gas could play in leading the Kurdistan Region to independence from Iraq.
Dr, Kamal Kolo of Soran University stressed that Kurdistan was never suited to be part of Iraq. He believes low levels of oil exploration in the region before 2005 were a way of suppressing Kurdish independence ambitions. Now things have changed, as Kurdistan has taken steps of its own to harness its resources, moving closer to its natural place: Apart from its southern neighbors.
According to him, it is Kurdistan’s right to go the way of South Sudan or East Timor in declaring itself an independent state following the principle of self-determination.
This step is possible because “Iraq doesn’t have the elements of control necessary to control its sovereignty.”
In order to be ready for independence, however, the Kurdistan Region must redistribute oil revenues through direct taxation, “the best safety valve for a viable Kurdish state.”
Students rose to give Dr. Kamal a standing ovation, thrilled by the prospect of oil-financed statehood.
Robert Bell, CEO of Archomei, a marketing and logistics consultancy, believes recent events in Ukraine may compel European Union countries to recognize a Kurdish state.
“The cards on the table have been changed by Russia,” he says. “German factory owners are wary of fluctuations in energy prices,” and may look for alternate energy corridors to supply gas and oil. Not only could Kurdistan deliver oil through Turkey, it could be a transit state for Iranian hydrocarbons once sanctions are lifted.
Citing the return of a well-educated Kurdish diaspora to the region, Bell tells the audience that Kurdistan “is in the unique position to be an energy and a skills hub for the region. You have a lot of experience as a nation.”
Skills, he emphasizes, will be even more important than energy rents for lasting prosperity. This means building entire supply chains for oil, not just signing production contracts with foreign companies. It also entails supporting industries that can capitalize on oil wealth, such as hospitality and tourism.
All participants acknowledged the danger of the Kurdistan Region remaining a “rentier state,” a government whose budget relies on exporting or licensing use of its natural resources rather than taxing goods and services in the economy. Over 90 percent of Iraqi revenues come from oil.
“The Kurdistan Region is inheriting some of the historical pathologies of the Iraqi state,” says Dr. Denise Natali of National Defense University in Washington DC. “There is virtually no export diversification. Almost nothing being exported from the region is made in Kurdistan.”
This places Kurdistan in a vulnerable position if there was a fall in global oil prices. “The more a country relies on natural resource rents, the more likely it is to be unstable,” she notes. There is also a clear trend for “natural resource rents as a percentage of GDP to be negatively correlated with the democracy index.”
In order to prevent a “resource curse,” Natali suggests the creation of oil revenue management laws and a sovereign wealth fund, a dedicated public trust. Norway and the United Arab Emirates both have funds with investments worth approximately $800 billion. Plans for a fund in Kurdistan have been discussed since 2007, but never implemented.
These and other conference recommendations will be collected in a report and presented to various KRG ministries. While the politicians have been excluded from the debate, they will ultimately decide if Kurdistan is to become the next Nigeria or Norway of the Zagros Mountains.