War, low oil hit Iraq Kurdish region

Regional capital Arbil is littered with halffinished or abandoned building projects

$12b What Kurdish officials want from Iraq’s budget.

Less than two years ago, Iraq’s northern Kurdish region was booming as oil revenues poured in and foreign investors flocked to a rare island of stability in a turbulent region, but that all began to change when the black flags of the Islamic State group darkened the horizon.

Kurdish forces backed by US-led air strikes repelled a Daesh assault in the summer of 2014 and have been among the most effective forces battling the extremists. But low oil prices and a long-standing dispute with the central government over revenues, along with an influx of refugees, have crippled the local economy.

The regional capital, Arbil, is littered with half-finished or abandoned building projects — hotels, offices and apartments that many had hoped would one day transform the largely autonomous region into a Kurdish Dubai. Foreigners attracted to the region by business opportunities and liberal social mores are leaving, civil servants haven’t been paid for months and day labourers gather on street corners, hoping for work.

“The economy today has very bad indicators. Savings are running out, people are starting to borrow and cut their expenses, which is directly affecting the market’s direction,” said Nabeel Al Ethari, an economic analyst and chairman of Development Iraq, a consultancy firm based in Arbil.

“The housing sector is declining in a way that has never been seen before, the trade sector, including car sales, is also seeing declines, and all this is connected to the important fact that the region’s market is disconnected from its customers and markets in central and southern Iraq.”

The relatively secure region was largely spared the unrest that convulsed Iraq following the 2003 US-led invasion, but local authorities have been locked in a long-standing dispute with Baghdad over the sharing of oil revenues.

Kurdish officials say the regional government is entitled to 17 per cent of Iraq’s budget, or about $12 billion (Dh44 billion) a year. But the central government has withheld much of those funds to punish the region for exporting oil independently, and in the first half of 2015, the government received just $2 billion.

Low oil prices have exacerbated the economic crisis, as have fears about Daesh, which is manning front lines some 38 kilometres from Arbil. The region has also taken in more than a million refugees from Syria and other parts of Iraq, costing local authorities some $1 billion last year. “It’s all interrelated. The Daesh issue is connected to the economic situation,” said Amjad Rafat, 35, a household appliances salesman in Arbil.