With plunging oil prices, fight against Islamic State and thousands of refugees, allies must support Kurdistan but financial aid should be coupled with reforms

Oil is a black gold that all is too great when prices are sky-high. It can easily balance the national budgets of many a country. At the same time, an inefficient and unbalanced economy can be easily papered over with the huge windfall from oil revenues.

The oil honeymoon of recent years when prices were at record highs is now replaced by rattled markets and oil based economies who have continuously revised down expectations of the floor in oil prices.

Even low-level estimates of $45 USD a barrel priced in for many 2016 national budgets is been rapidly revised with current prices of $30 USD a barrel.

The ramifications of the oil price drop can be felt across the Middle East but none more so than the Kurdistan Region. Kurdistan was already feeling the burden of financial constraints in 2014 as Baghdad halted budget payments. The first half of 2015 was hardly much better as budget disputes with Baghdad meant that Kurdistan was left with no choice but to resume independent oil exports.

But this isn’t any normal economic crisis. The financial crisis has intensified at a delicate and unprecedented juncture for the region. Kurdistan is at the heart of a vicious war with the Islamic State (IS) that naturally warrants significant expenses in addition to catering for 1.8 million refugees and internally displaces persons that need food, medicine and shelter.

Simply put, the Kurdistan revenues are insufficient to cater for refugees, Peshmerga, military equipment and supplies and public wages with the majority of the people directly relying on salaries from the government.

The current revenues are largely from oil sales but one must not forget that this oil is not been pumped for free. The International Oil Companies operating in the region under already tight financial regimes must be paid.

An obvious solution is of course to pump more oil, but since prices have continued to tumble, this is hardly a rewarding ploy and at the same times the upgraded infrastructure to do this costs significant money.

All these factors point to an unsustainable situation for the region. The economic cloud should not mask the need for economic reforms, decreasing the heavy reliance on oil revenues, tightening of budgets, implementing new tax reforms, reducing the high dependence on imports and of course addressing the heavy reliance on the state for salaries.

However, the current situation is simply unmanageable and Kurdistan needs to be supported by the United States and its key allies at this difficult juncture. Iraq, with its own financial conundrums, can hardly be relied on or trusted to come to the aid of the Kurds.

Kurdistan cannot ignore 1.8 million refugees nor can it lighten its burden against IS. Kurdistan must be given the credit it deserves at the forefront of the coalition fight to oust IS from Iraq and Syria.

It must be given the military aid and financial assistance required to shore up its finances but at the same time must embark on an extensive economic reform programme of its own to safeguard and own its destiny.

First Published: Kurdish Globe

Other Publication Sources: Various Misc