Economy of the Kurdistan Region

Foundations of a semi-autonomous economy (1991–2003)

After the failed 1991 Iraqi uprisings against Saddam Hussein, the United States, France, and United Kingdom established a no-fly zone in northern Iraq. This enabled de facto Kurdish autonomy and the formation of proto-regional institutions like the Kurdistan Region Parliament in 1992. ^[13][16]

After withdrawing its forces from Kurdistan in October 1991, the Iraqi government imposed an economic blockade over the region, restricting its oil and food supplies.^[17] The United Nations' embargo on Iraq also significantly affected the Kurdish economy, preventing trade between the Kurds and other nations. As such, all economic dealings between Iraqi Kurdistan and the outside world were done through the black market.

On 19 May 1992, general elections were held in the region, to elect the president and the 105 members of the Kurdistan Region Parliament.^[18] The two largest parties, the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK), won 50 seats each. The results led the two parties to arrange a power-sharing agreement that divided all executive and legislative positions equally by a strict 50–50 division (commonly called the "50–50 split").^[19][20]

The equal division of governmental positions between the KDP and the PUK delivered many opportunities for corruption and increasingly for competition between them over revenue. During that time, the major resources for the political factions were the oil trade and tariffs from the Ibrahim Khalil border crossing with Turkey, which was under the control of the KDP. Jalal Talabani (the leader of the PUK) once remarked that the KDP obtained more than a million dollars per day from transit fees in the export of oil and the import of goods. The PUK felt that the economic disparity between the factions was a violation of the political 50–50 principle of power sharing.^[20]

The government lasted until May 1994, when the Kurdish Civil War broke out. The war lasted until 1998, which divided the Kurdistan Region into a PUK-controlled zone in the southeast and a KDP-controlled zone in the northwest.^[21] The conflict left devastating effects on the region. It is estimated that it led to the deaths of thousands of Kurds and resulted in hundreds of missing persons and the deportation of tens of thousands from their homes. After years of internal fighting, on 17 September 1998, the two parties' leaders signed the Washington Agreement, which was brokered by the US.^[20]

From 1996 to 2003, the region benefited from both international aid and the UN Oil-for-Food Programme, which provided funds and resources for the region and both parties. With the implementation of the programme, the Kurdistan region received 13 per cent of the total budget, which was distributed by the UN agencies among the governorates according to population size. Both the KDP and the PUK had largely benefited from it through the profitable contracts they had for local distribution and infrastructure projects as part of implementing the programme.^[20]

Oil boom and economic expansion (2003–2014)

Following the removal of Saddam Hussein's administration and the subsequent violence, the three provinces fully under the Kurdistan Regional Government's control were the only ones in Iraq to be ranked "secure" by the US government. According to the KRG website, not a single coalition soldier has died nor a single foreigner been kidnapped since the 2003 invasion of Iraq in areas administered by the KRG.^[22]

The relative security and stability of the region has allowed the KRG to sign a number of investment contracts with foreign companies. In 2006, the first new oil well since the invasion of Iraq was drilled in the Kurdistan region by the Norwegian energy company DNO. Initial indications are that the oil field contains at least 100 million barrels (16,000,000 m³) of oil and will be pumping 5,000 bbl/d (790 m³/d) by early 2007. The KRG has signed exploration agreements with several other oil companies, including Canada's Western Oil Sands and the UK's Sterling Energy and Gulf Keystone Petroleum.^{[citation needed]}

The stability of the Kurdistan region has allowed it to achieve a higher level of development than other regions in Iraq. In 2004, the per capita income was 50% higher than in the rest of Iraq. By 2009, this was 200% higher. The highest growth rates achieved was around 12.7% in 2005–2008, and 11.5% in 2010–2012. Since 2012, the growth rate has stabilized between 7% and 8%. The government continues to receive a portion of the revenue from Iraq's oil exports, and will soon implement a unified foreign investment law.

Crisis and economic diversification (2014–present)

Despite objections from Baghdad, the Erbil governate says the KRG has signed contracts with 42 oil companies from 17 countries^[23] with more favourable terms than those offered by Iraq's central government.^[24] As recently as 2014, KRG officials claimed to sell 200,000 bpd and optimistically predicted exports of 1 million barrels annually.^[25]

The Kurdistan Regional Government began exporting crude oil by truck to Turkey during the summer of 2012.^[13] In 2013, the Kurdistan Regional Government completed a pipeline from the Taq Taq field through Khurmala and Dahuk to Faysh Khabur on the Turkey-Iraq border, where it is connected to the Kirkuk-Ceyhan pipeline. This 36-inch (910 mm) diameter pipeline has capacity of 150,000 barrels per day (24,000 m³/d). It allows the export of oil from the Taq Taq and Tawke oil fields.^[26] On 23 May 2014, the Kurdistan Regional Government announced that the first oil transported via the new pipeline was loaded into tanker at Ceyhan.^[27]