On 25 September a non-binding referendum for independence was held by the Kurdistan Regional Government (KRG) in the Kurdish-controlled areas of Iraq. As expected, 93% of the votes were in favour of independence. The vote was strongly opposed by the central government in Iraq, by Iran and by Turkey. While Iraq is worried about its territorial integrity, Turkey and Iran are worried that the referendum might encourage the Kurdish population in their country to push for independence.
Impact on country risk
The referendum has significantly increased tensions between the KRG and the central government in Iraq. The central government has responded by demanding that the international airport be handed over to federal employees. The refusal to do so triggered a halt in international flights to the Kurdish region. Iran has threatened to close its border with the region. However, the strongest threat came from Turkey. The Kurdish territory exports its oil via a pipeline through Turkey and the oil revenue from these exports represents an estimated 90% of all revenues of the KRG in Iraq. After the referendum, Turkish President Recep Tayyip Erdogan threatened to block the pipeline. This already happened in 2016 in relation to a PKK bombing in Turkey.
Since the Islamic State is present in Iraq, the territories controlled by the Kurdish region are seen as a more stable part of Iraq that is more business-friendly. A number of companies have therefore resettled to cities like Erbil, which are controlled by the KRG. The fallout over the referendum is now threatening the business environment in the regions controlled by the KRG, additionally due to the fact that the central government of Iraq has threatened to block international transfers on banks in the Kurdish region. This would significantly hurt businesses in the region. In the short term the KRG will probably try to use the referendum as leverage in order to negotiate more autonomy. With 2018 being an election year in Iraq, this will be difficult to achieve. In the longer term the referendum fuels aspirations for cession, and thereby instability in the region.
Analyst: Jan-Pieter Laleman, email@example.com