While the world worries about a threatened Turkish military incursion into Iraqi Kurdistan, which has prompted oil prices rise to a record $88 a barrel, officials in Erbil say lack of funds – for a big public sector wage bill and infrastructure projects – is a more immediate threat.
The Kurdistan Regional Government (KRG) may be sitting on a fortune in terms of oil and gas, but the regional government’s budget is already entirely spoken for, officials told Emerging Markets.
Herish Muharam Muhamad, chairman of the KRG Board of Investment, which issues licences to foreign investors, said: “75% of the money goes to pay salaries, and 25% goes for projects started in the past two or three years.”
Private investment is needed in every sector, because, financially, “time is running out very quickly for us. ... People are in need of more services, but the government cannot afford to provide them.”
Diplomatic, government and international business sources in Erbil all downplayed the Ankara parliament’s decision to authorise the Turkish army to enter northern Iraq in “hot pursuit” of PKK terrorists.
This was a gesture intended for Turkish domestic consumption, rather than a step towards armed conflict, a senior official in Erbil told Emerging Markets.
Turkish rhetoric ratcheted up prior to Prime Minister Recep Erdogan’s landslide election victory in July, but “after the election things got better”, Kurdistan Interior Minister Osman Haji Mahmoud said – and the current escalation is part of the same pattern.
A senior Western diplomat said: “There is conflict, but also cooperation.” He predicted a trend of “improving relations” between Turkey and the KRG. “The problems will be solved politically rather than militarily.”
Yarkin Cebeci, senior economist at JPMorgan Chase in Istanbul, said: “Although the AKP [Turkey’s ruling party] has been pushing for a peaceful solution to the Kurdish problem, it felt the need to bring some military measures to the table, given the popular outrage caused by recent terrorist activity.”
Along with the US Congress’s proposal to legislate on last century’s Armenian genocide, the hot pursuit proposal has meant a “rise in political noise”, but Cebeci noted it “had no major impact on the Central Bank, which speeded up the easing cycle this week by cutting its key overnight borrowing rate by 50 basis points to 16.75%” – double the expected 25 basis points cut.
Iraqi foreign minister Hoshayr Zebari’s October 17 statement that the PKK should leave Iraqi soil as soon as possible “is another indication that Turkey’s hard stance is paying off and that a cross-border operation might not be necessary”, Cebeci said.
Another tension-reducing factor is the expansion since 2003 of Turkish businesses in Iraq. Turkish construction companies have taken a large proportion of new infrastructure projects and thousands of other firms have moved in.
Kurdish officials said this group constitutes a new “lobby” that could help to reduce tensions over the PKK – which Iraqi President Jalal Talebani, himself a Kurd, has said the Baghdad administration will tackle.