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Iraqi Kurdistan's battle with Baghdad over oil revenues

A Kurdish Peshmerga fighter Image copyright Getty Images
Image caption A Kurdish Peshmerga fighter standing guard on the frontline, 25 miles (40km) south of Erbil

In Iraqi Kurdistan, the Kurds' battle with Islamic State has been complicated by the halving of global oil prices over the past year and a dispute with the central government in Baghdad that has seen the region's revenues dry up.

Many in Kurdistan have not been paid for months.

Commander Faridon Jwanroyi holds up his AK-47 rifle and fires off a few rounds, purely for my benefit.

"I wish there was Islamic State here, I could fire at them!" he jokes.

I would have asked for a more dramatic display, but the Peshmerga - the Kurdish fighting force here - are a bit short on weaponry.

In fact they're a bit short on ammunition, too. And since December, they've even run out of money to pay their soldiers.

"Some haven't been paid in three months," he confides, when we met in late March.

"It's hard. They have to pay for their rent, for the children's clothes. But still, we fight on. We have belief."

Weaker oil prices

But with talk now of a combined Iraqi-Kurdish operation to liberate Iraq's second city, Mosul, it is an open question whether belief alone can bring victory.

Indeed, a financial crisis has been brewing for several months.

The halving of the global oil price - undercutting Kurdistan's main source of revenue - and the effect of the war have both had a deleterious effect, especially after fighting in August saw the black flags of Islamic State (IS) come just 19 miles (30km) from Erbil, the capital of the Kurdish autonomous region in northern Iraq.

"When IS is at the door, logically it's hard to convince foreign investors that Erbil's safe and nothing's wrong," says Govan Haji Akravi, chief executive of Fastnet, an internet systems provider for foreign companies in the city.

"Almost from one day to another, many of them packed up and left."

Image caption Some Kurdish fighters have not been paid for three months, says their commander, Faridon Jwanroyi
Image copyright Getty Images
Image caption Islamic State fighters came within 19 miles (30km) of the regional capital Erbil last summer

Displaced people

There's also been a major refugee crisis.

Some one-and-a-half million displaced people have arrived in Kurdistan, fleeing the fighting in Syria and northern Iraq. That's a 30% increase in the population of the region, leading to huge extra stresses, I'm told, on local services like water and education.

The refugees are mostly housed in improvised camps.

One of the more bizarre is the Ankawa Mall - a half-built shopping centre on the outskirts of Erbil. Like many building projects, it was abandoned by its developer as the crisis hit last year.

Now the raw concrete shell is occupied by some 4,000 Iraqi Christians from the Mosul region, sleeping in alcoves created for designer boutiques. A makeshift wickerwork crucifix hangs over the entrance.

One of the refugees, Issa, charges about 30 cents for a haircut and shave in his makeshift barber's shop in the main atrium at the foot of two massive escalators that are now derailed and disintegrating.

"I'm cheaper than the Kurdish barbers here," he tells me. "No one wants to look hairy like the guys from Islamic State, so they come to me!" he laughs.

But the smile quickly fades.

Life in the shopping centre is miserable, he says: "It's like a camp for chickens." He dreams of escaping to Europe.

Image caption About 1.5 million refugees have fled to Kurdistan
Image caption The population of the region has risen by 30%
Image caption "No one wants to look hairy like the guys from Islamic State," says Issa, a barber in one of the refugee camps

Dispute with Baghdad

Perhaps the biggest economic challenge for Kurdistan stems from its troubled relations with central government.

For the last year, Baghdad has only fitfully been paying the regional government in Erbil its share of the national budget.

Under the constitution, Baghdad requires the Kurdish Regional Government (KRG) to share its own oil production with the rest of the country. The Kurds should then be reimbursed with 17% of the total nationwide budget, which is currently set at $105bn (£71bn).

Baghdad has accused Erbil of selling oil illegally, without its authority, and of failing to meet production quotas - allegations the Kurds deny.

"Baghdad knows very well we are selling oil - we have to pay people's salaries," says Dr Ali Sindi, the KRG's minister of planning.

"Meanwhile five million Iraqi citizens have been cut off from their rightful share of the nation's resources. This is a threat to the stability and the sustainability of the region," he says.

The anger in Kurdistan is all the greater since Baghdad is continuing to pay salaries to government workers living under Islamic State.

Even some refugees - civil servants displaced from Mosul - are, it is said, receiving their salaries from within the camps, whilst some of those caring for them haven't been paid since December.

In the last three weeks, Baghdad has announced a breakthrough, saying it is renewing budget payments, although so far these amount to less than half what is owed for just March alone.

Salaries for most workers, including soldiers, remain many months in arrears.

The Iraqi Prime Minister, Haider Al-Abadi, has been quoted as blaming delays on a wider economic crisis in Baghdad.

Image caption Under Iraq's constitution, the Kurds have to share their own oil output with the rest of the country
Image copyright Getty Images
Image caption Kurdistan should be getting $105bn (£71bn) from the central government in Baghdad

'We don't give up'

"If we don't reach a lasting solution, we will have to handle it through our own export of oil," says Dr Sindi. Kurdistan is this month said to be completing a new pipeline to its northern neighbour, Turkey.

But despite the threats, few in Erbil believe Kurdistan has the political power to cut its own deals with the wider world.

In the meantime, some state employees are getting desperate. Civil servant Najad Amin and his wife Iqbal say they expect the last of their savings to run out in the next month.

They've started growing vegetables in their back garden, to help feed the family.

Do they blame the politicians in Baghdad or in Erbil, I ask?

"They're all to blame," they say. "But we Kurds are used to depending on ourselves. We will find a way. We don't give up, absolutely."

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