Kurdistan’s capital is a boom town with a big problem

From neglected region under a brutal regime to oil boom city, the progress of Kurdistan Iraq's Erbil is impressive. But growth brings its own troubles.

Progress is impressive in the once-neglected Kurdistan region of Iraq. Stephen Kurczy / For The National

The bar sports a tequila dispenser. Outside the hotel, several Iranians are talking business while black Land Cruisers hurtle past. Lining the street to the ancient citadel that marks the town centre are shops selling Turkish home appliances, and a house that could have been airlifted from Dallas. A Burger Queen and Costa Rica Coffee look oddly familiar.

In a smart restaurant overlooking a go-kart track, lawyers are discussing property deals while western oilmen chat with well-dressed young women. The complex, built only a few years ago, is already scheduled to be demolished to build multimillion-dollar offices for the oil companies that are moving into town in force. Most road signs are trilingual, but some, omitting Arabic, are in English and Kurdish only.

This is the quintessential oil-boom city. The industry's fickle eye, trained in the late 1990s on Maracaibo, Baku and Luanda, moving at the turn of the century to Moscow and in the late 2000s to Australia's Darwin, is now turning to Erbil in the Kurdistan region of Iraq.

The progress is impressive in what was one of Iraq's most neglected regions under Saddam Hussein's government. Yet the sudden accession of oil money brings its own problems, with allegations of shady share dealings and corruption.

Jalal Talabani, the Iraqi president who is a Kurd, is proud that the number of millionaires in the city of Sulaymaniyah has increased from 12 to 2,000 since the overthrow of Saddam Hussein. Other observers are concerned about the entrenchment of patronage politics and the effective duopoly of the two main political parties, Mr Talabani's Patriotic Union of Kurdistan (PUK) and the Kurdistan Democratic Party (KDP) of Massoud Barzani, the Kurdish president. But some government officials argue that the lively opposition party, Goran, has not yet learnt the art of scrutinising legislation effectively and spends too much time on minutiae.

Many Kurds believe they could be making faster progress without the heavy hand of Baghdad, citing restrictions on flights and investments. They believe their suffering during the Anfal genocide of the late 1980s has not been acknowledged.

At the same time, numerous other Iraqis accuse the Kurds of wanting to split Iraq, of aiming to keep the central government weak, and of taking the federal allocation of 17 per cent of revenue while holding on to some of their own earnings. It is likely to remain financially attractive for the Kurds to continue this arrangement rather than going it alone.

The Kurds' Achilles heel is their dependence on Baghdad to permit oil exports. This was no doubt high on the agenda for Mr Barzani's visit to Ankara last week.

In the midst of this, international oil companies have a curious role, sometimes as pawns, sometimes as players. They are crucial both to the Kurds' and central government's plans to increase oil production.

Erbil has awarded ExxonMobil exploration blocks in areas that are disputed between the Kurds and Baghdad and were subject to ethnic cleansing under Saddam. The central government responded by inviting BP to revive the giant but decrepit Kirkuk field, itself in the disputed region and containing the symbolically important city of Kirkuk.

Kurdistan is pioneering an economic model very different from Baghdad's statist instincts - focused on attracting foreign investment and building a strong private sector. It is thus an important test case, not only for Iraq but for the region.

It may avoid the worst excesses of crony capitalism, find a modus vivendi with central Iraq, and forge a partnership with Turkey without becoming an economic fiefdom of Ankara.

But, like all oil-rich states, it must resist the temptation to take the easy path, to build flashy Potemkin villages and import luxuries rather than putting in the hard work of establishing a diversified, sustainable economy.

* Robin Mills is the head of consulting at Manaar Energy, and the author of The Myth of the Oil Crisis and Capturing Carbon

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