Iraq: a house of Kurds?

For companies in South Iraq, the state of the fractious power-sharing deal struck to keep Nouri al-Maliki’s government in power has implications for security, tendering and investment.

The Soufan Group, an international strategic consultancy group that advises governments, corporations, and institutions on policy, strategy, security, and risk management, gives its take on the current political situation in Iraq, arguing the power-sharing deal in Baghdad is in terminal decline, and the government is entering a new and pivotal phase – possibly collapse – that could have significant implications for the upstream industry there.

Overview

Two years after an indecisive election in Iraq, with a destabilized Syria on its West, an increasingly aggressive Iran to its East, a bellicose Turkey to the North, and an unforgiving Kuwait to its South, Iraq is potentially on the point of internal political meltdown.

We are increasingly concerned that the fragile power-sharing agreement brokered over many months is on its last legs, and we may be on the point of seeing what in effect could become a political coup.

Given the presence of major U.S. corporations in Iraq, including ExxonMobil, Schlumberger, Halliburton, Weatherford and Baker Hughes, and the huge revenues they generate, which in turn generate large tax revenues for the beleaguered US Treasury, Iraqi national security and stability has a transnational economic imperative as well as a regional stability criticality. Our analysis is set against this context.

Analysis

The catalyst for the assessment lies in our monitoring of a rapidly growing wave of coordinated political opposition to Prime Minister (PM) al-Maliki being managed by the largely Sunni political bloc of Iraqiya, headed by former PM Iyad Allawi, and the Kurdish Regional Government (KRG) led by President Masud Barzani and PM Barham Salih.

Iyad Allawi has been in the capital of Kurdistan, Irbil, in the last few days meeting with President Barzani and PM Barham Salih. The Kurds have meanwhile just cancelled meetings with Baghdad, which were intended to discuss PM-al-Malikiʼs failure to implement the 19-point plan. This plan was the list of political concessions the Kurds had delivered to PM al-Maliki as the price for their continued political support. These concessions included a referendum on Article 140 of the Iraqi Constitution, which would decide the status of the city of Kirkuk — previously ‘Arabized’ under Saddam Hussein—but now claimed by the Kurds. Kirkuk sits on top of a supergiant oilfield with reserves of oil numbered in the hundreds of millions of barrels.

The role of the U.S. forces in Kirkuk has been fundamental in keeping the peace. Although the U.S. has handed over the day-to-day responsibility for patrolling the city to the Iraqis and the Kurds, there are very real fears that the uneasy truce between the two sides could easily break down, raising the specter of inter-sectarian strife which, if unchecked, could presage a much wider conflagration.

Political Quicksand and Electoral Algebra

Meanwhile, and simultaneously, Allawi has stated the best solution for the current Iraqi political crisis is the holding of early elections. His view is there are no Iraqi political positions, only “Iranian and American.” This of course is a rallying call to the Sunnis (anti-Iranian) and the Sadrists (anti-U.S.). The Kurds are closer to the Iranians than the Sunnis, but the continued Iranian military operations in Kurdistan against the fighters of the Party of Free Life in Kurdistan (PJAK) have seen a rapid cooling of previous tepid, if not warm, relationships between Irbil and Tehran.

As was noted by Rebin Rasul, a noted Kurdish analyst, the Kurds are: “seriously studying the calls of the political public to topple Maliki’s government and support Iyad Allawi in the coming era”, pointing out that “the presence of Allawi in the region and his meetings with the Kurds is no coincidence.”

The question is, therefore: does Al-Maliki needs the Kurds and the Sunnis more than they need him?

The political math is critical. The Baghdad Parliament is 325 seats. To change the balance of power, any opposition has to harness 163 seats. The parties most opposed to al-Maliki for one reason or another are as follows: Iraqiya, as part of a broad Sunni Coalition have 91 seats. The Kurds have 57 seats (Kurdistan Alliance: 43, Goran: 8; Kurdistan Islamic Union: 4; Islamic Group of Kurdistan: 2.) The Sadrists have 40 seats. Total: 188 seats.

188 seats is more than enough to declare a vote of no-confidence in the Iraqi government and demand elections. This would have the potential to create considerable political instability and threaten the fragile security gains made over the last few years. Simultaneously, it would also increase the potential threats to U.S. and other international partners working in Iraq.

Political Marriages of Convenience and Inconvenience

Although the idea that the broadly secular and Sunni-backed Allawi and hard-line Shi’a Muqtada al-Sadr might be prepared to join forces might seem far-fetched, it is worth recalling the July 2010 meeting in Damascus between Allawi and al-Sadr. The meeting took place ironically when it seemed Allawi, as the numerical winner of the popular vote, was mandated to form a government before being outmaneuvered by Al-Maliki.

During this meeting al-Sadr praised Allawi’s party as “ready to compromise” to form a government. When asked about whether or not he would be prepared to work with Allawi, whom al-Sadr had previously described as a tool of the Americans, al-Sadr responded he could “forget all previous differences for Iraq, so that the political process can move forward.” At the same meeting, al-Sadr reiterated his opposition to al-Maliki becoming PM again. Al-Maliki had, in 2008, deployed US and Iraqi security forces against al-Sadr’s extremists in Basra in Operation Charge of the Knights. Al-Sadr said: “I haven’t even met [Maliki] – how can I ally with him”? Despite the current parliamentary marriage of convenience in Baghdad, we believe that underlying position has not changed.

Change of Political Heat State

The $64k question: should Al-Maliki be worried? We believe yes—and, furthermore, he is. Recently there was a fascinating item carried in the Arabic section of Al Sumaria TV news where, in a particularly terse and frankly menacing statement, al-Maliki stated Iyad Allawi “is no longer an acceptable partner in the political process.” Allawi is no longer acceptable presumably because he refuses to go along with Baghdad’s increasingly ridiculous political machinations and persists in pointing out how al-Maliki has reneged on the political agreements made solely and demonstrably to keep himself in power.

It is worth reflecting that over the last year, the Iraqi Prime Minister has retained in his own hands the portfolios of Defense, Interior and Security; it was only a month ago he relinquished Defense to a trusted loyalist who was nevertheless only appointed an interim minister. However, cynics note the transfer of portfolio was a mere transfer of responsibility for a deteriorating security situation, which, in turn, would allow al-Maliki to sack the interim minister if the security situation did not improve. He has also tried, with varying degrees of success, to take personal control of the Iraqi Central Bank, the Independent High Electoral Commission, and has Special Forces units that answer only to him, forces that were funded and trained by the U.S.

Mid 2010, Iraq’s Federal Court (prompted by al-Maliki) ruled that members of the country’s Parliament could no longer propose new legislation; only al-Maliki’s cabinet or the Iraqi president could propose new laws, which would then be passed to Parliament for a vote. In other words, he is trying to centralize key military, intelligence , security, electoral, financial and legislative powers on himself.

In 2009, the U.K. left of center Guardian newspaper described al-Maliki’s rule as “authoritarian,” and they were promptly sued by the Iraqi National Intelligence Service (INIS). In November 2009, the Iraqi Al-Karakh primary court ruled the report was defamatory and ordered the Guardian to pay a fine of 100m dinar ($85,500). However, the Iraqi appellate court ruled the article did not cause any defamation or harm to al-Maliki or the INIS,
overturning the earlier court ruling.

Power-Sharing in Terminal Decline

The net result of al-Maliki declaring Iyad Allawi unreliable is effectively also to sound the death knell for the tattered remnants of the power-sharing agreement that in theory exists in Baghdad.

The political fallout of such a political falling-out will be as bad and as widespread as any post-nuclear event. It could in fact lead to the collapse of the Iraqi government—and we should be under no illusions—Iraq is rapidly approaching a decisive moment in its political trajectory at the precise point when the U.S, is packing up its bases to leave under the Status of Forces Agreement, which still remains in force.

We examined the most recent press release from the KRG on as recent high-level meeting between Irbil and Baghdad: “The meeting emphasized the importance of respecting the alliances and agreements on the basis of which the current federal government was formed following the Barzani initiative, and expressed its concern for the excessive delay in implementing important clauses in these signed agreements…… The meeting called on all parties in the Iraqi government to act responsibly towards their people and country, and do all they can to overcome the current issues, in particular to abide by the Constitution and the principle of consensus.”

If you reverse the polarity of the statement above, it basically means that what the Kurds have created they can break asunder—and we suspect they will. Their patience is running out, and the fiasco over the hydrocarbon framework laws might well be the straw that broke the camel’s back.

And there a large number of U.S. firms in Kurdistan who are watching with huge interest and not a little trepidation to see what might happen next. We will be in a better position to see what may happen once the narrative emerges of further discussions between Allawi and Barzani, but all the preconditions for a period of seriously elevated strategic political risk are all very firmly in place.

Elevated strategic political risk inevitably has a knock-on effect on business risk, and a large number of U.S. businesses could become exposed to these risks.