Differences between Baghdad and Erbil: Economic and Political Consequences and Early Elections

EPC | 18 Aug 2020

Intensive negotiations are reported to be underway between Baghdad and Erbil to develop a comprehensive agreement on the pending differences over the past decade, including oil, the budget, and the deployment of Peshmerga forces in the disputed areas. The negotiations are held with the support of the United Nations Assistance Mission for Iraq (UNAMI) headed by Jeanine Hennis-Plasschaert, but are facing several difficulties in terms of the current Iraqi complications, which were exacerbated by the announcement by Iraqi Prime Minister Mustafa al-Kadhimi that early elections would be held in June 2021.

Repercussions of the economic crisis for the relationship between Baghdad and Erbil

The relationship between Baghdad and Erbil during the government of former Prime Minister Adel Abdul Mahdi (2018-2020) witnessed a relative calm. The political alliances that led to the formation of that government forced Shiite powers to retreat from their criticism of the Kurdistan Region, most notably the Fatah Coalition led by Hadi al-Amiri, which closely aligned with the former President of the Kurdistan Region Masoud Barzani.

For its part, Erbil did not hide its happiness with the Abdul Mahdi government, which concluded an agreement that requires Baghdad to pay all the salaries of the Kurdistan Region for the first time since 2014. In return, Erbil would deliver the revenue of 250,000 barrels of oil out of nearly 500,000 barrels that Kurdistan exports independently. When Erbil did not adhere to this agreement almost completely, Abdul Mahdi's government condoned it, and the breach of the agreement was not revealed until he resigned and Kadhimi came to power.*

The intensity of the differences between the two sides often subsides at times of financial abundance. However, with the emergence of the coronavirus pandemic crisis and the subsequent suffocating economic crisis suffered by Baghdad in conjunction with the collapse of oil prices since April 2020, where Baghdad lost nearly 60 percent of its steady revenue, the government of the new Prime Minister Mustafa al-Kadhimi found itself facing difficult choices.

In May 2020, Kadhimi decided to stop paying the salaries of the Region’s employees, amounting to nearly 500 million dollars per month, due to the financial crisis that made him face the risk of finding difficulty in paying the salaries of employees in ministries and federal institutions. Consequently, a series of intensive negotiations began, namely visits by the Region’s senior officials to Baghdad, including the Region’s President Nechirvan Barzani and Deputy Prime Minister Qubad Talabani, all of which have so far failed to reach an agreement.

Names close to the Kadhimi government and officials in the Kurdistan Region underline that despite his personal relationship with the leaders of Kurdistan, Kadhimi explicitly informed them of the difficulty of fully paying the Region’s financial receivables due to the deep financial crisis that hit the country, bringing it close to bankruptcy. The Kadhimi government had to borrow five billion dollars from abroad and from local banks to provide the salaries of June, July and August 2020. If oil prices remain unchanged below 50 dollars, then Iraq will face an economic crisis in the last quarter of 2020, which will be the largest after 2003.

According to Kurdish media reports, Kadhimi underlined to the Kurdish delegations that the Constitution is the decisive factor in resolving the existing disputes between them, especially the financial ones. The federal government demanded all the revenue of the Kurdistan Region in exchange for paying only 453 billion dinars to the Region, which is equivalent to less than half the salary expenses in the Kurdistan Region, as well as the opening of a new border crossing under the direct control of Baghdad between Turkey and Iraq through Mosul, alongside the Ibrahim al-Khalil crossing. This represents a Turkish request that dates back several years to the opening of the Corava (Ofakoy) crossing, which was rejected by the Kurdistan Regional Government. The Kurdish delegations considered those demands as new conditions for reaching an agreement with the Kurdistan Regional Government. A delegation from the Region is scheduled to pay a new visit to Baghdad during August 2020 to discuss a new round of talks.

In light of the raging dispute between Baghdad and Erbil, the economic repercussions cast a shadow on the country and appear more in the Kurdistan Region. Baghdad's decision to stop the payment of the salaries of the Region’s employees will force the regional government to return to the compulsory savings system and pay half a salary every three months, as was the case after the independence referendum was held in September 2017, when Baghdad stopped the payment of salaries, which exposed the Region to an economic crisis that was the most severe after 2003. Returning to compulsory savings means growing dissatisfaction among the Region’s citizens with their government, and the possibility of widespread popular protests, which the Patriotic Union of Kurdistan (PUK) would seek to use in order to topple its rival the Kurdistan Democratic Party (KDP) which holds the bulk of the decision-making process in the Region.

For its part, Baghdad will not currently be affected greatly by the existing differences. However, it will suffer with regard to the issue of adherence to the agreement to reduce oil production (the OPEC Plus agreement), which was approved in April 2020. Iraq had to reduce its production by nearly a million barrels from its normal production of 3.5 million barrels. However, the difficulty that Baghdad faces in the control of oil exports carried out by the Region without Baghdad’s knowledge is deducted from Iraq's share in OPEC. Reports indicate that the Region now exports more than 600 thousand barrels per day due to its dire need of funds.

Security arrangements in the disputed areas

Since the Iraqi army forces regained in October 2017 central control of the Kirkuk Governorate and the disputed areas, extending across a strip starting east from Diyala, passing through Salah al-Din and reaching southwest of Nineveh, the Region feels that it has received one of its biggest geopolitical losses after its failure to organize the independence referendum. The Region used to keep control over all those areas after the collapse of the Iraqi army in 2014 following the attack by the Islamic State of Iraq and Syria (ISIS).

Since 2017, security in Kirkuk and the disputed areas has been maintained through multiple federal forces that include the army, the federal police and the counter-terrorism service, in addition to pro-Iran Shiite factions. While the Arab and Turkmen inhabitants of those areas have welcomed the new arrangements and hope that they are preserved at any cost, the Kurds feel that they have been abandoned and deported from areas that they consider an integral part of the historical Kurdistan Region.

Despite the good relationship between the Region and both Adel Abdul-Mahdi and Mustafa al-Kadhimi, the issue of the disputed territories remained a red line that was not resolved. Iran puts pressure on its allied Shiite parties not to return the Peshmerga to Kirkuk and the other disputed areas. Sunni Arabs and the Turkmen also fear the return of the Peshmerga. Both factors prevent the return of the Peshmerga to what it was before 2017.

In July 2020, the Kadhimi government announced that it would discuss new security arrangements with the Peshmerga forces. This was met with a violent response from Shiites, Sunnis, and Turkmen, although the announced agreement between Baghdad and Erbil stipulated that four joint security centres be formed in the disputed areas in Kirkuk, Diyala, Makhmour, and Mosul, to cover the vacant space on the line of contact between the army and the Peshmerga to prevent the activities of ISIS. However, opponents of the agreement considered it a step that paves the way for the return of the Peshmerga to the disputed areas.

On the other hand, the Kurdistan Regional Government had reservations about a federal proposal to deploy forces from Baghdad’s border guards at the borders of the Region to prevent incursion into Iraqi territories by the Turkish troops participating in the Turkish military campaign Tiger's Claw against the Kurdistan Workers’ Party (PKK), after both Baghdad and Erbil felt that the goal of the campaign goes beyond chasing PKK militants. Erbil rejected the proposal nonetheless.

Impact of the Kurdish-Kurdish dispute

One of the most prominent crises that face the Kurdistan Region and affect its relationship with Baghdad is the internal Kurdish division in recent years, which intensified with the failure of the independence referendum and the accusation by the KDP of its counterpart the PUK of betrayal and coordination with the Iraqi army to enter Kirkuk.

The relationship between the two parties deteriorated and reached what could be considered a near-collapse of joint cooperation, accompanied by the economic crisis that hit the Region, the repercussions of the coronavirus, the collapse of oil prices, the features of the outbreak of popular protests among Kurdish citizens due to the faltering payment of employee salaries, poor living standards, and the collapse of the tourism sector that used to contribute to the employment of the work force among non-employees.

The Kurds often show strength and will to resolve problems when they are united, but the current circumstance is not conducive to achieving unity. On 19 July 2020, the PUK bloc announced a boycott of the Region's Parliament, and its media apparatus began to launch wide campaigns against the KDP which maintains the posts of the Region’s President and Prime Minister. A few days ago, the regional president Nechirvan Barzani succeeded in persuading the PUK bloc to return to Parliament, but it was a cosmetic return. There are no signs of a comprehensive settlement of the differences between the two Kurdish parties despite their awareness of the difficult stage the Region is going through and their need more than ever to unite and work together.

On the other hand, Baghdad finds itself reluctant to enter into a serious dialogue with the Region due to the Kurdish divisions that make it difficult to obtain a unified Kurdish position. The federal government does not want to conclude a comprehensive and decisive agreement as it plans in light of the current divisions.

The other problem in the Kurdistan Region is the new generation of Kurdish leaders emerging at the level of Kurdish political decision-making. Masoud Barzani resigned as the Region’s President, and his nephew Nechirvan Barzani is the President of the Region, while Masoud’s son is the Prime Minister, both of whom belong to the third generation of Kurdish leaders, a generation that has no experience in dealing with Baghdad and immerses itself in the idea of ​​independence.

On the other hand, the PUK witnessed similar developments. While the deep disagreement between the PUK’s divided wings was expected to be resolved after the death of its founder Jalal Talabani through internal elections that took place early 2020 after a long wait, the Talabani family assumed sole leadership of the PUK through a joint presidency between Talabani’s son Bafel and the family friend Lahur Sheikh Jangi, both of whom also belong to the third Kurdish generation, with no political experience; indeed, they do not even speak Arabic.

President Barham Salih felt wronged and betrayed after he obtained promises from Bafel to support him for the leadership of the PUK. While Saleh tries to achieve progress in the Kirkuk file and correct the conditions in the city, he does not want this to be counted in favour of his party in the city, which is considered a main stronghold of the PUK, while the new PUK leadership does not have experience in resolving the Kirkuk issue with Baghdad without going through President Salih.

The consequences of the Baghdad-Erbil dispute

1. The complicated dispute between Baghdad and Erbil has recently led to the encouragement of both Iran and Turkey to carry out military operations within the Region’s borders, due to their awareness of the sharp Kurdish divide, the weakness of Baghdad's authority in the Region, and the preoccupation of the new Kadhimi government with complicated internal files and deep conflicts.

2. The dispute between Baghdad and Erbil diverts attention away from crucial issues for Iraq. The hot and urgent issue now is the endeavor by the Kadhimi government and a wide spectrum of political and civil actors to confront Iranian influence at the present time which constitutes an opportunity to benefit from the decline of that influence and the economic pressures suffered by the Iranian regime, and the broadening Iraqi popular discontent with the Iranian role.

3. The dispute between Baghdad and Erbil impedes the unity of the Iraqi decision in important foreign arrangements related to the future of the relationship with the US and the fate of US military forces in the country. A comprehensive dialogue is taking place between Baghdad and Washington in this regard. In addition to the US, the Europeans, Arabs and the Gulf countries in particular would be reluctant to provide support in the absence of an internal Iraqi consensus.

4. The dispute between Baghdad and Erbil hinders development efforts to meet the requirements of the Arab and Kurdish populations in Iraq in general. The severity of the economic crisis escalates with the increasing population and the increase in the number of the unemployed without creating a stable economic climate. This strengthens the wave of protests in the country and makes the plans of the federal government and in the Region insufficient to counter popular anger.

Possible scenarios for the future of the relationship between Baghdad and Erbil

First scenario: the continuation of the dispute between Baghdad and Erbil without a clear horizon for radical solutions to the differences. The scenario assumes that in light of the inability of Kadhimi’s government to negotiate strongly with the Region due to his preoccupation with the home front in Baghdad, specifically managing the relationship with the pro-Iran Shiite parties that target his government, and because of Kurdish divisions as well, it is difficult to reach a decisive agreement.

The Kurdistan Region insists on rejecting proposals presented by Baghdad on the issues of oil management and border crossings, considering that they are difficult to fulfil due to the contradictory Kurdish loyalties. On the other hand, the Kadhimi government is incapable of imposing those issues on the Region or developing acceptable settlements, considering that Kadhimi lacks a strong political base in Baghdad.

This scenario tends to keep the situation as it has been in the past three years, so that the crisis is managed temporarily and disagreements are resolved before they reach the edge of the abyss through formal understandings, pending a favourable political atmosphere to achieve radical solutions. Kadhimi's announcement that early parliamentary elections would be held in June 2021 reinforces this option, in the sense that both parties will wait for the results of the upcoming elections to act accordingly. This scenario is the more plausible.

Second scenario: the possibility of concluding quick agreements that include the issues of employee salaries and oil and exclude border crossings. To achieve this, the United Nations (UN) and influential countries, such as the US, Europe and the Gulf states, must persuade Kurdish leaders to engage in a constructive dialogue with the Kadhimi government, while strongly supporting Kadhimi in Parliament. Kadhimi needs such support to achieve his ambitious plans towards addressing the escalating crises in the country.

Perhaps Kadhimi's announcement of the date for early elections in June 2021 would drive the Kurdish blocs to intensify dialogue with Kadhimi, especially since those blocs reject the election law in its current form. On the other hand, the Prime Minister has the authority to dissolve Parliament with the approval of the President of the Republic, which is what Erbil fears at the present time. The Kurdish parties may seek to win Kadhimi's favor at the present time and make some concessions in exchange for delaying the election date in order to have a greater opportunity to negotiate the election law.


* It is noteworthy that the government of Adel Abdul Mahdi ignored Erbil's breach of the agreement with Baghdad on the delivery of the oil revenue from the beginning of 2019 until March 2020. When the date of the transfer of power to the new Kadhimi government approached, Abdul Mahdi issued a decision to stop the salaries of the Region on 26 April 2020, and formally demanded that the Region’s government return the sums paid by Baghdad to the Region during the last period. When Kadhimi took office in May 2020, he decided to pay the Region's dues for April 2020 only, which was chargeable to Abdul Mahdi's term of office, but stopped paying the Region’s salaries as of May 2020.


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