Iraqi Kurdistan's referendum has backfired, markedly increasing the territory's business and political risk.
On 25 September, the Kurdistan Regional Government (KRG) held a referendum on independence from the central government in Baghdad. Although the referendum was non-binding, the KRG leadership intended to use it to put additional pressure to secure concessions from the government. Following an overwhelming affirmative result
, Baghdad responded quickly.
Military units, supported by paramilitary militia forces, immediately seized control of the disputed territories that had been under effective KRG control since the collapse of the Iraqi military in the face of Islamic State's campaign in the summer of 2014. These territories held symbolic value for the Kurds. Holding them demonstrated Kurdish military capability and allowed them to control key energy resources.
These territories held symbolic value for the Kurds.
The swift reaction from the central government accompanied by widespread condemnation from the international community took the Kurdish leadership by surprise. President of Iraqi Kurdistan Masoud Barzani, who personally championed the referendum, resigned on 1 November. Despite occasional skirmishes, Kurdish military units immediately retreated to Iraqi Kurdistan de jure territory, rather than attempting to defend the disputed territories.
Kurdish lawmakers have aggressively pushed a narrative of Kurdish competence in the face of Iraqi mismanagement. The 2014 disintegration of Iraqi forces at the hands of Islamic State shored up this argument, creating an impression that Kurdish military units were significantly more capable than their Iraqi Arab comrades. Female Kurdish fighters have been featured in pro-KRG propaganda, images which have resonated throughout Western social media.
Meanwhile, the KRG's provincial capital Erbil has seen a host of new development and infrastructure-improvement projects come online, including a modern new international airport, as it sought to promote itself as a more secure financial and commercial centre than Baghdad or Basra in the south. The Kurds were aided in this by their more secular legal environment. Alcohol is not forbidden in Iraqi Kurdistan, and bars populate the Christian-dominated areas of Kurdish cities, whilst hotels cater to the expatriate crowds.
This narrative was destroyed in the referendum's aftermath. Iraqi Kurdistan's economy has been stalled for a number of years. A reliance on oil revenues via the Kirkuk Ceyhan oil pipeline has led to a lack of diversification in alternative sectors. In line with other rentier states, an inflated public sector provides a soak for domestic employment, and large state-level infrastructure construction projects underpin private sector construction.
The KRG's mishandling of the referendum has undermined its position, as the resignation of Barzani clearly demonstrates. Anger from pro-independence sections of the population could translate into street protests. The night Barzani announced his resignation, an angry mob penetrated the Kurdish parliament, beating up at least one lawmaker in the process. Further demonstrations are likely, and will be well-attended. Specific trigger-events for disorder could include:
- Parliamentary action by Baghdad
- The encroachment of central security forces into Kurdish territory de jure
- Kurdistani elections
There will be a substantial risk of violence at such occasions, due to the strength of local support for independence.
Managers of staff stationed in Iraqi Kurdistan should ensure emergency withdrawal, shelter-in-place and crisis-communications plans are fit for purpose and capable of being enacted with little- warning. Staff stationed in the territory should drill actions to take in the event of major disorder on a regular basis. Although A2 does not predict that the situation will completely deteriorate, full-scale civil unrest remains a high-impact low-probability risk, and companies should factor it into their emergency response plans.