The Status of Erbil-Baghdad Relations

In Iraq, politics is personal, and the politics of Baghdad-Erbil relations is no exception. Improvements and deteriorations in this relationship have largely been dictated by interpersonal dynamics, such as the rapport and mutual confidence between leaders. In May 2020, the Kurdistan Region’s major political parties played an unusually decisive role in having Mustafa Al-Kadhimi selected as the Prime Minister (PM) of Iraq. The Kurdistan Democratic Party and Patriotic Union of Kurdistan declared their support for his designation before he was officially nominated by the Iraqi President, Barham Salih. The Kurdistan Regional Government (KRG) leaders knew Al-Kadhimi personally and had enjoyed good working relations with him when he was the chief of intelligence. Importantly, they believed that demonstrating early support was a worthwhile investment that could help to extend the period of tension-free engagement between Erbil and Baghdad, similar to what they experienced with Al-Kadhimi’s predecessor, Adil Abdul Mahdi.

After a period of frozen relations that followed the Kurdish referendum for independence in September 2017, Erbil-Baghdad relations regained a degree of normality in the run up to the 2018 elections and were further bolstered by the appointment of Adil Abdul Mahdi, a personal friend and close associate of many KRG leaders. In 2019, Baghdad agreed to send Erbil 12.67% of the federal budget; in return, the KRG agreed to offer Baghdad 250,000 barrels of exported oil per day. For various reasons, the KRG never delivered the oil or its revenue, and the Shia political parties exerted unbearable pressure on the PM to cut the KRG from the national budget altogether. Nevertheless, Abdul Mahdi’s government continued to send the Kurdistan Region its share of the budget. Negotiations continued, and both sides eventually reached a comprehensive agreement to resolve the revenue issues from the KRG’s oil sales and border crossing customs. These negotiations, as well as the implementation of previous agreements, were suspended upon the resignation of Abdul Mahdi’s government at the end of November 2019. Nevertheless, budgetary payments to the KRG, minus the calculated revenue from the agreed KRG oil exports, continued until April 2020 (total IQD 454b, c. $278m). Unexpectedly though, in the final few weeks of his premiership, Abdul Mahdi ordered the finance ministryto halt the delivery of the KRG’s public-sector salary payments.

This order was quickly reversed in May 2020 when Al-Kadhimi assumed office. His Finance Minister, Ali Alawi, pledged to continue the budgetary agreement as long as the KRG remains committed to full accountability and transparency on oil exports and border crossings revenue. However, the initial payment proved to be a singular event, followed by no additional payments until late August, when Al-Kadhimi agreed to continue paying monthly instalments of 1QD 320b (c. $270m) to the KRG for the rest of the year, in partial fulfilment of the budget law. He also vowed to address all outstanding issues with Erbil, of which the oil budget is only one. Equally protracted issues include disputes over relatively vast territories, including the oil-rich province of Kirkuk, and a dispute over the security and administrative provisions in those Disputed Territories.

Baghdad-Erbil relations are incredibly complex, and far beyond the ability of any one PM to resolve, let alone an interim PM who assumed office as a compromise candidate without institutional backing from any political party or parliamentary faction. However, given Iraq’s multi-layered, multi-disciplinary crises, Erbil is the least of Al-Kadhimi’s worries. He has numerous other political, security and economic challenges of much greater magnitude to navigate, and he needs the cooperation of KRG leaders to succeed. Importantly, Al-Kadhimi’s ultimate focus is on the survival of his government – up to, and possibly beyond, the next election.

Despite these challenges, Al-Kadhimi has pledged to reach a comprehensive agreement with the KRG, and several rounds of negotiations have been initiated between the two sides. Both entities appear to have broken down complex issues into separate components with the aim of tackling them one by one. For example, on the regulation of border crossings, negotiations are progressing well, and Erbil has agreed to share 50% of all border crossing income with Baghdad; that said, the two sides need to agree on financial and technical mechanisms of implementation first. The Federal Government also announced in July that it would discuss new security arrangements with the Peshmerga forces in the Disputed Territories, where security has long been maintained through multiple forces, including the army, the federal police, the counter-terrorism service and several Popular Mobilisation Units, as well as armed local tribes. Tensions remain high in the Disputed Territories and many zones between the Peshmerga and Iraqi security forces remain unsecured. Now, four joint security centres will be formed in these areas to fill the void that ISIS has exploited.

In the presence of political will, resolving issues between Baghdad and Erbil is not impossible. However, the prospect in the current climate is not promising, and the future can be unpredictable. Even Al-Kadhimi’s relations with KRG leaders may become strained with time, as both sides may experience pressure from their peers to get more out of the other. Moreover, Al-Kadhimi may develop new ambitions to renew his premiership after the next elections, which will require him to engage in new alliances at the expense of existing ones. The Kurdistan Region’s political leaders, divided as they are, may not reciprocate at an equal pace with Al-Kadhimi. The Shiites and Sunnis are even more divided and are likely to undermine the government in the run up to the elections. The ongoing US-Iran rivalry may also influence events in a largely unpredictable manner.

Importantly, Iraq’s leaders have lost their inherent institutional resilience and determination to tackle the root causes of major problems. Their recent history is full of failures on all issues, including the implementation of the 2005 constitution for centre-periphery power sharing, resolution of the Disputed Territories (Article 140) and management of the country’s security, economy and finances. Iraqi politicians had all the international political, financial and security support at their disposal to institutionalise dialogue, promote the rule-of-law and good governance, diversify the economy, and provide basic public services to all. Yet, embarrassingly, the ruling elite have collectively failed on every count. Instead, Iraq has squandered historical opportunities to get on track for recovery, lost hundreds of billions of dollars to corruption, and watched its communities become armed and divided. Ultimately, the state has lost its sovereignty, functionality and every prospect of a speedy recovery. And now, with the Covid-19 pandemic and a drop in oil prices – which had a devastating impact on the country’s finances – both Baghdad and Erbil are strapped for cash, unable to cover their operational costs, let alone invest in infrastructure and the modernisation of public services.

Paradoxically, these common challenges and crises, as well as new international engagements, bring with them useful opportunities to fix Iraq in the long term and improve Baghdad-Erbil relations in the short term. In particular, Erbil’s critical dependence on the national budget, the resurgence of a common enemy in ISIS, the Turkish cross-border operations, the US-Iraq dialogue for a new strategic agreement and Iraq’s re-engagement with several Arab countries provide sufficient incentives for constructive engagement between Baghdad and Erbil and, ultimately, the pursuit of a win-win outcome. In this context, international partners can play an important role in encouraging both sides to adopt strong confidence-building measures. The US President Donald Trump did just that during Al-Kadhimi’s visit to Washington in late August, and so did the French President Emmanuel Macron during his visit to Baghdad on the 2nd of September. Leaders in Baghdad and Erbil, therefore, have no reason to hesitate in seizing these timely opportunities to put the past behind them and build a better future.

First publish on ispionline, 4 September 2020.

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