Iraqi Kurdistan was tense end-September with the announcement of somewhat contentious election results, and the staging of a rare terrorist attack. Inevitably, the overall effect was to dampen business confidence. However, are these mere pinpricks, or more ominous signs?
Erbil doesn’t yet have that most accurate of all measures of business confidence, a sophisticated, broad-based, and large stock market. In most other places, it’s simple to gauge the state of the economy, just by looking at the bourse. Yet this will also be the case in Kurdistan next year with the announcement in October that NASDAQ is helping to set up a trading system for the Erbil Stock Exchange to start operating in June. Along with existing firms, the Kurdistan Regional Government (KRG) plans to trade shares on the bourse of new joint ventures with private partners in agriculture, tourism and industry. Estimates in Kurdish investor circles are that trading will begin with a daily volume of $4 to 5 million, and that around 25 companies will list shares on the Erbil exchange by the end of 2014. Of course that is tiny compared to other exchanges, but the prospects are good, thanks to massive amounts of oil on which Kurdish prosperity is based.
The Kurds estimate their crude reserves at 45 billion barrels, and are building an oil pipeline as a step toward economic self-sufficiency. Based on such wealth, coupled with stability, consumer confidence is much higher in Kurdistan than in Baghdad or the northern non-Kurdish governorates, according to TNS MENA, a market research organization that recently unveiled a study of the country.
Of the two parts of Kurdistan’s winning combination — oil and a stable political environment — the former is underpinned by continuing growth of production. The latest example came in October when a multinational consortium received approval from the KRG for the first phase in the development of the Atrush block, located 85 kilometers northwest of Erbil; this is expected to initially produce approximately 30,000 barrels per day (bpd) with the first output due by early 2015. Discovered in 2011, the block is operated by TAQA Atrush, a subsidiary of the Abu Dhabi National Energy Company, which holds a working interest in the block along with the US company Marathon Oil, and others.
Approval by the KRG gives TAQA and its partners 25 years to recover resources. The group plans to invest more than $300 million during the first phase of the work, including drilling three production wells and constructing a central processing facility, while preparing to drill a fourth well. Subject to appraisal and KRG approval, Phase 2 development is expected to include another 30,000 bpd of production, while TAQA and its partners will also evaluate the feasibility of producing associated natural gas.
As for stability, the September explosions in Erbil — apparently the work of Islamist extremists — were the exception that proved the rule: since 1991, when the Kurds achieved autonomy, the region has been peaceful compared to the rest of Iraq. As such, the recent terrorist attack is seen as an isolated incident, not the beginning of major instability.
Meanwhile, the election for the regional parliament, which took place a week before the explosions, called attention to public frustration over alleged corruption by politicians in a healthy democratic way. The Kurdistan Democratic Party (KDP) secured 38 seats in September’s vote for the 111-seat regional parliament, having previously held 30. The main opposition party Gorran (Kurdish for “change”) won 24 seats (compared to 25 last time) and the Patriotic Union of Kurdistan, which ran in coalition with the KDP in the last election but on its own this time, won only 18 seats, sharply down from last time’s 29. The results do not upend the domination of the KDP and its leader, KRG President Barzani, who is seen as having brought prosperity to the region. He has also been skillful in managing disputes with the government in Baghdad over territory, natural resources, and power sharing. Keeping this friction under control, and eventually resolving differences with Iraq’s central government, remain challenges for the KRG, but ones that can be addressed. In the meantime prosperity will continue.
Riad al Khouri is senior consultant at the Institute for Democracy and Election Studies (IDES) at the University of Jordan, Amman