As Iraq enters election season, Baghdad-Erbil tensions soar

In recent weeks, tensions between Iraq’s federal government in Baghdad and the Kurdistan Regional Government (KRG) in Erbil have escalated over control of the hydrocarbon sector and the budget.

These political questions overlie economic turmoil in the Kurdistan Region, where the government often struggles to pay its civil servants.

This combination of intractable constitutional disagreements and insidious economic problems is exacerbated by the upcoming Iraqi elections in November and growing conflict around the Middle East.

The latest round of tensions between Baghdad and Erbil flared up in late May after KRG Prime Minister Masrour Barzani announced two major contracts with US-based energy companies during a visit to Washington.

The deals are worth a reported $110 billion over their lifetimes and were framed as an opportunity to provide desperately needed natural gas feedstock to power plants in Iraq and the Kurdistan Region.

“We have the capacity to produce more resources, more gas, so we can have more electricity not only for Kurdistan but for the rest of Iraq,” Barzani said.

The federal government immediately rejected the contracts as “null and void” because the KRG had deliberately excluded it from negotiations.

“Natural resources belong to all Iraqis, and any agreement to invest in them must be made through the federal government, not in defiance of the law and the constitution,” the federal Ministry of Oil said.

The ministry subsequently filed a lawsuit asking the federal judiciary to declare the contracts illegal. The courts have not yet ruled on the issue.

This disagreement is part of a long-running contest over the nature of federalism in Iraq. How much and what powers should the semi-autonomous Kurdistan Region wield? And which powers should firmly remain under the federal government?

Both sides cite vaguely written constitutional articles to boost their arguments, but the lack of implementing legislation creates grey areas where each feels emboldened to implement self-interested agendas.

“Normally in a federal system, oil and gas, as well as foreign policy, have to be managed by central government,” Rebwar Rawf Salih, a professor at the University of Halabja, told The New Arab. “But you have to understand that Kurdistan is a [distinct] region,” he added.

“Federal governments are new to the Middle East. Almost no one understands the system and how it works in the region and in societies in Middle East. They're not used to sharing power,” he added, emphasising that most states in the region are highly centralised.

The specific dispute over control of oil and gas goes back to the mid-2000s when the KRG began signing oil contracts with international oil companies (IOCs) without federal approval.

It escalated significantly in 2014 when Erbil began exporting oil independently through a pipeline to Turkey. In retaliation, the federal government cut off all budget transfers to the KRG and precipitated a period of economic struggles that has lasted until today.

The oil exports gave the KRG an independent source of income, but it was not enough to make up for the lost budget funding from the federal government.

As an austerity measure, Erbil either skipped monthly disbursements to public servants and pensioners, of which there are currently an estimated 1.2 million, or cut them by as much as 70%.

It also instituted a hiring freeze that has made it difficult for hundreds of thousands of young people to enter the workforce, as the public sector is the Kurdistan Region’s most important employer.

These austerity policies cause significant public resentment, as well as serious economic losses that extend into the private sector. Protests and strikes by government workers, particularly teachers, occur when disbursements are delayed and are often quite large. If they are not paid, public servants cut back on spending, which ripples out across the economy.

Budget transfers resumed in 2018. However, the federal government usually suspends them when there are disagreements with the KRG.

On 28 May, it used this leverage again and declared that the KRG had exceeded its share under the 2023-25 budget, taking into account what has already been transferred for public sector salaries, what Erbil has collected in non-oil revenue, and the value of the oil smuggled to Iran.

While Baghdad did not expressly link the suspension to the gas deals signed by Erbil, but the timing of the move was unmistakable.

The decision may mean that public servants will not be paid for the rest of the year if there is no deal to resume transfers.

Kurdish politicians, particularly from the Kurdistan Democratic Party (KDP), responded with fiery rhetoric. In a message marking Eid al-Adha, KDP leader Masoud Barzani said that “the salary cuts and the policy of mass starvation of the Kurdish people are no different from the Anfal, chemical attacks and the genocide committed by the previous regime against the Kurdish people”.

Some politicians in Baghdad responded in a similar vein. For example, Asaib Ahl al-Haq (AAH) leader Qais al-Khazali said that “many in Kurdistan’s leadership are not fully invested in a unified Iraq”.

Iraq is scheduled to hold parliamentary elections on 11 November. Undoubtedly, the current tensions and their deeper constitutional roots will provide ample fodder for the campaign.

“When it's a pre-election, things get very obvious. They are doing it because of the election,” Salih said. “They will use it against each other in order to get votes from their own populations.”

Since the latest flare-up began, the regional context has changed significantly amid an open conflict between Israel and Iran.

Both Iraq and the Kurdistan Region wanted to stay out of the war. Historically, regional conflicts have pulled them in with outside antagonists inflicting violence on Iraqi territory, often at the cost of civilian lives.

Both Baghdad and Erbil condemned Israeli’s initial strikes, and the former urged Washington to use its influence to deny Israel the use of Iraqi airspace.

Since 7 October, Iran’s proxies have been significantly weakened across most of the region, but Iraq is the exception. The country’s Iran-backed militias like AAH and Kataib Hezbollah (KH) remain largely unscathed and are domestically influential with the Shia Coordination Framework (SCF) that dominates the federal cabinet.

In the past, they have launched attacks on US bases and energy infrastructure in the Kurdistan Region. Some had threatened to do so again.

In the context of Baghdad-Erbil tensions, increased regional conflict could draw in these Iran-backed groups and precipitate attacks on targets in the Kurdistan Region. Always provocative, any attacks at this particular moment would be particularly destabilising and would make ordinary campaign rhetoric seem tame.

At this moment, however, the future is deeply unclear. Asked to make a guess about what might happen, Salih gave a blunt answer: “To be honest, I cannot say…It's not predictable.”

Winthrop Rodgers is a journalist and analyst based in Sulaymaniyah in Iraq's Kurdistan Region. He focuses on politics, human rights, and political economy.

Follow him on Twitter and Instagram: @wrodgers2