and improves prospects for investment in energy, telecoms, construction
Key Points
- Iran’s vocal support for Iraqi Kurdistan president Massoud Barzani greatly increases the likelihood of him extending his term beyond 19 August without prolonged negotiations.
- Improved KRG-Iran relations would increase the prospects of Iranian businesses securing contracts in the region, particularly in the construction and energy sectors.
- These developments reduce the prospects of an independent Kurdistan in the three-year outlook as Iran would use its increased leverage over the KRG to arbitrate in disputes between Erbil and Baghdad.
EVENT
Iran is seeking to improve ties with Kurdistan’s governing Kurdistan Democratic Party to increase its political leverage and secure economic contracts.
An Iranian delegation visited Iraq’s Kurdistan Region on 28 July and held meetings over the course of a week with the region’s main political parties. The delegation was led by the assistant secretary general of Iran’s Supreme National Security Council (SNSC), Ahmed Amiri. Kurdish media outlet Bas News reported on 4 August that they emphasised the importance of Kurdistan Region president Massoud Barzani remaining in position after his current term expires on 19 August. This position was reiterated on 4 August by Iranian General Qassem Suleimani, commander of the Quds Forces. Iran’s strongest relations in the Kurdistan Region are with Barzani’s main political rivals: the Patriotic Union of Kurdistan (PUK) and the Gorran Movement. So Iran’s support for Barzani increases the likelihood of an unproblematic extension of his term, and this reduces the risk of an extended period of negotiations and protests after 19 August, as IHS previously assessed.
Iran’s support for Barzani is especially important given recent developments with the Kurdistan Region’s primary regional ally, Turkey. The Kurdistan Regional Government’s (KRG) acquiescence to Turkish airstrikes against Kurdistan Workers’ Party (Partiya Karkerên Kurdistan: PKK) positions in the Qandil Mountains in northern Kurdistan Region, risks popular criticism of the KRG, especially given the PKK’s role in halting the Islamic State’s advances in August 2014. Popular disgruntlement over these airstrikes is probably what motivated Barzani’s 3 August statement that Kurdish Peshmerga forces will force the Islamic State out from Sinjar and annex the area into the Kurdistan Region.
Another pressing concern is ongoing electricity and fuel shortages and the resultant protests, particularly in the PUK and Gorran strongholds of Sulaymaniyah and Halabja provinces. On 5 August, protesters threw stones at police seeking to disperse them from Malawi Street in central Sulaymaniyah and further protests are likely here and in areas such as Saray Azadi (Freedom Square).
Regional developments
Poor relations between Iran and Barzani’s Kurdistan Democratic Party (KDP) stem from Tehran’s support for Iraq’s federal government in Baghdad in its disputes with the KDP-dominated KRG in recent years. Crucially, this has involved Iran vocally opposing the Kurdistan Region’s moves towards greater autonomy. However, with the Kurdistan Region already having implemented many of the measures Iran opposed – independent oil contracts and exports – Baghdad, weakened by the Islamic State, and with the KRG a bulwark against the group, these issues are now less urgent. Indeed, for the KRG, Iran has the potential to be an important trading partner and source of foreign direct investment (FDI) that would their reduce dependence on Turkey; especially following July’s P5+1 nuclear agreement. The extent to which the KDP has improved relations with Turkey over the past decade underlines Barzani’s willingness to co-operate with former enemies. It also forms a blueprint for Iran, which would seek to use any improved relations with the KRG to apply pressure on the region to remain within Iraq, and to refrain from providing assistance to the separatist Iranian Kurdish group Partiya Jiyana Azad a Kurdistanê (Free Life Party of Kurdistan: PJAK).
The KDP appears equally willing to improve relations with Iran, with Kurdistan Region prime minister Nechirvan Barzani stating on 17 December 2014 his desire to strengthen bilateral relations. He subsequently hosted an Iranian trade delegation in February where he praised Iranian support against the Islamic State and discussed exporting crude oil to Iran in return for gas and refined products to ease the region’s energy shortages.
Iran is already the Kurdistan Region’s second largest trading partner after Turkey, with annual trade levels exceeding USD4 billion. There is scope for this to rise considerably, along with an increase in Iranian FDI inflows to the Kurdistan Region. Although the Kurdistan Region’s oil exports have increased significantly in recent months, it has yet to receive its full allotted budget payments from Baghdad and it struggles to pay public sector salaries and fees to international oil companies (IOC) – although on 3 September the Kurdistan Region pledged to honour monthly payments to IOCs from September. Iran will capitalise on the Kurdistan Region’s stretched finances, offering FDI to develop infrastructure and reduce dependence on Turkey. For Iran, the Kurdistan Region represents a substantial and easily accessible new market for its domestic companies. For the current Iranian government, this would help counter concerns about Iranian firms, especially those linked to the Islamic Revolution Guards Corps (IRGC), losing domestic market share to foreign investors as international sanctions are gradually lifted. Moreover, strong relations with the KDP would enable Iran to act as an arbiter in Erbil-Baghdad disputes, placing it in a stronger position to prevent Kurdish independence and preserve Iraq’s territorial integrity.
FORECAST
Iran is likely to support Barzani’s presidency, initially aiming to improve prospects for Iranian companies securing contracts within the Kurdistan Region across multiple sectors, particularly power and utilities, energy, telecoms, and construction. Furthermore, Iran would aim to expand its leverage over the incumbent KDP, Turkey’s main partner in the Kurdistan Region. Although this would be received negatively by Turkey and the Gulf States, the Barzani administration would probably prioritise the economic advantages of Iranian investment to reduce dependence on Turkish patronage. This is likely to develop gradually over the next three years, since in the meantime the KRG cannot afford to lose Turkey as a trading partner and oil export route. Meanwhile, Iranian investment in the Kurdistan Region would ease the regional government’s financial burdens, reducing non-payment risks to foreign investors and reducing the challenges facing Erbil’s proposed issuance of its first international bond.