Financial (and Oil) Federalism for Iraq

For Iraq, federalism is key to whatever chance of future stability exists. U.S. policy to further empower the Shia-dominated central government in Baghdad pushes Sunni tribal leaders toward Sunni ISIS. If ISIS were to be crushed in the coming months, Sunni regions would still be dealing with vengeance of Iraq’s Shia militias and military.

The main regional military forces opposing ISIS are Kurdish, and they continue to be throttled by the Iraqi central government with the apparent support of the U.S. state department. Earlier posts discuss the advantages of allowing the Kurds to sell oil directly to world markets and to purchase modern weapons with oil revenues [posts here].

The February 8, 2015 WSJ article provides the latest sad chapter: “Oil Earnings From Kurdistan Prove Elusive.” [gated, search full title with Google]

Starting last year, oil began coursing through a new pipeline running from Iraqi Kurdistan to Turkey, seemingly the first payoff for a handful of companies with the opportunity to drill in one of the world’s biggest untapped oil patches. 

A year later, the firms still haven’t been fully paid, highlighting the conundrum of Kurdistan’s oil: Its reserves are among the cheapest to access, but they are a potential target of Islamic State militants and the subject of a paralyzing dispute in Iraq that is only now being resolved

And, from Iraqi Business News, February 16, 2015, this update on recent meetings between Iraqi and Kurdish officials:

The main objective of the meetings was to discuss the implementation of the agreement reached last December between the Kurdistan Regional Government and the Federal Government of Iraq on oil export and budgetary issues. 

During the meeting, it became apparent that due to the financial crisis in Iraq and the lack of liquidity, the Iraqi government is unable to pay the Kurdistan Region’s share of January and February from the federal budget. 

Imagine if U.S. policy had all revenues from oils sales in, Texas flow to the U.S. federal government first, and then shared with Texas when and if the federal government felt financially able to release the funds.

How much oil is there in Iraqi Kurdistan? According to WSJ article above:

Situated in northeastern Iraq, the Switzerland-sized region is estimated to hold 45 billion barrels of oil. That’s roughly equivalent to the amount BP PLC, Royal Dutch Shell PLC, Exxon and others have extracted from the U.K.’s North Sea since the 1970s.

U.S. policy toward Iraq (and Libya and Syria) should be strongly pro-federalism, pushing for decentralization of political and economic power. Texas oil belongs to Texas landowners with subsurface mineral rights. They earn a percentage of the sale price for oil found and pumped from their land. The state of Texas taxes oil revenue, so it takes a percentage too. Why not the same policy for the west and east of Libya and for the south of Iraq (Shia territory) and the north (Kurdish territory)?

Many article discuss federalism for Iraq. Here is a 2014 New Republic article, “How to Save Iraq,”

Here is a July post on Cato at Liberty by Doug Bandow:

Baghdad must engage Sunni tribes and former Baathists who allied with ISIL to oust the national government from Sunni areas of Iraq.  In any case, Washington should drop its insistence that Iraq stay together.  Extensive federalism/partition may be the only way to prevent endless killing.

A great many lives have been lost and blood shed since the 2009 publication of the Independent Institute’s Partitioning for Peach: An Exit Strategy for Iraq, by Ivan Eland. From the Detailed Summary:

Iraq is an artificial country with only a recent national history. Mesopotamia was united for only 68 of the more than 1,300 years of Islamic rule in the Middle East between 600 CE and the creation of Iraq from three provinces by the British after World War I. Almost all of Iraq’s tribal and ethno-sectarian groups place loyalty to their group above allegiance to the nation. This situation has made the Iraqi state dysfunctional from the start. Iraq might survive as a single country only if controlled by an iron-fisted ruler.

And:

Whether the Bush administration admitted it or not, its chief commander in Iraq, General David Petraeus, implicitly gave up on creating a unified democratic Iraq and recognized that stability required an acknowledgement of the fragmented reality on the ground. Petraeus trained Iraqi security forces, which are heavily infested with Shi’i militias. He did not challenge the Supreme Islamic Iraqi Council, which controlled most towns in the Shi’i south. He did not pursue the militant Shi’i militia of Moqtada al-Sadr, but instead aided al-Sadr by working with his group to provide aid and services in certain Shi’i areas and by pursuing only more radical renegade factions of that militia. Finally, Petraeus subsidized, armed, and trained former Sunni guerillas to police Sunni areas and fight al Qaeda. Thus, the United States will likely have trained and armed most of the factions in a multisided civil war.