Oil is the paradoxical treasure and curse. For oil producing countries, exporting oil at a high price normally results in revenue windfalls with enough to assemble large cash reserves.

But this is where the oil curse strikes. It becomes too easy to rely on your immense oil reserves as a simple and effective source of income. But when prices plummet as they have done in recent months, hardship strikes, economic woes kick-in, budget deficits are rife and social upheaval inevitably settles in as the economy goes in decline.

All oil producing countries have felt the bite in falling oil prices, even Saudi Arabia with its huge cash reserves is suddenly feeling the pinch. But for Kurdistan, the economic bite from falling oil prices was much sterner for a number of reasons.

The region was already struggling to pay salaries, even before the decline in oil prices, as Baghdad froze budget payments. Add a fierce war with the Islamic State (IS) that has dragged on for almost 2 years and 1.8 million refugees into the mix and the situation becomes even more fraught.

To compound matters, any attack on its oil pipeline through Turkey quickly leads to an even bigger crisis.

Oil exposes cracks in economies and Kurdistan is no different. Heavily reliance on oil revenues has crippled the region and any country whose fortunes are merely dependent on the spot price of oil is bound to be gripped by turbulence, instability and lose control of its destiny.

So what happens when oil prices begin climb as they inevitably do when they have bottomed out? Oil prices have climbed from 12 year lows to just over $40 a barrel in recent weeks. As welcome as the rise may seem, does Kurdistan breath a huge sigh of relief and look forward to brighter times again or does it truly address the numerous economic cracks that the decline in oil prices have exposed?

Simply put, an ambitious Kurdistan with eyes on independence needs wide economic reforms. Any rise in oil prices should not transform the horizon as the stability and welfare of any country, particularly one surrounded by so much regional fire and volatility, should never be tied to a daily commodity chart that can radically swing.

Kurdistan needs to divest its economy and source of revenues. The overwhelmingly reliance on the population for government salaries is untenable even if the oil prices reach new heights and there needs to be a sustained drive towards self-sufficiency.

When oil prices were high and economy activity was in full swing, the countryside slowly emptied and the cities became more crowded. Kurdistan has a strong reliance on imports for basic goods and its agriculture sector, the bread basket of any economy, needs to be urgently bolstered.

Oil will no doubt remain a key source of revenues for Kurdistan and further declines in economy based on any future drop in oil price is inevitable but by taking new economic reforms, the region will have a much better cushion to ride out the storms.

First Published: Kurdish Globe

Other Publication Sources: Various Misc