Oil-rich and violence-hit Iraq stands at an extremely momentous juncture in its democratic avatar. The outcome of the current election process will decide the course of the nation, which has seen escalating violence in the past six months.
However, the situation in the country has been further complicated over a decision by the Kurdistan Regional Government, KRG, to export oil with or without Baghdad’s consent, starting May 2.
Analysts at Bank of America Merrill Lynch say: “We believe KRG president Massoud Barzani’s announcement that independent Kurdish oil exports would start on May 2, with or without Baghdad’s consent, could exacerbate tensions with the federal government.
“In part, this is due to the negative read-through to the potential territorial integrity of Iraq, in our view. Note that his announcement appears to have been echoed by Turkish Energy Minister Yildiz.
“In our view, Barzani’s announcement reflects a confluence of factors, namely:
1) the paucity of federal transfers to KRG this year, given the ongoing standoff, and the ensuing delicate fiscal situation;
2) the necessity to improve the operating environment for IOCs in Kurdistan;
3) the need to boost KDP popularity ahead of contested elections; and,
4) the need to strengthen the KRG’s hand to extract concessions from PM Nouri Al Maliki in his quest for a third term.
“The potential formation of a new KRG Cabinet could assist Kurds in negotiating with Baghdad. Still, there are a number of uncertainties that may prevent the KRG flow of oil for now, in our view.
“KRG’s perceived political aspirations may drive a backlash from Arab factions. Potential buyers of Kurdish oil may be deterred by the repeated threat of litigation emanating from Baghdad given the treaty governing the Kirkuk-Ceyhan pipeline.
“The details of the payment mechanisms remain unclear. Also, the economics of independence are not currently in favor of the Kurds. We had calculated that, at market prices, the KRG may need to boost exports to c0.6 million bpd (versus current capacity of 250kbpd) to fully balance out the 17 per cent expenditure share allocated to the KRG by the federal government,” reads a BofAML statement.
One of the major concerns for Iraq is the weakened fiscal position. The bank says: “Continued political volatility poses headwinds to the robust medium-term macroeconomic potential of Iraq. Near term, the political standoff is likely to further delay the adoption of the (very expansionary) 2014 budget.
“This is particularly as the KRG finds its terms punitive in terms of the Kurdish export target (400kpbd) and claw-back mechanism. The lack of a budget may nevertheless moderately support the federal government’s fiscal balance, given that the IMF indicates a large fiscal deficit would have been recorded in 2013.
“Northern oil exports from Kirkuk have been stopped since March on sabotage, weakening federal revenues. Concurrently, the large drawdown in the DFI balances ahead of elections is concerning and credit-negative. The last officially reported DFI balances stood at US$10.8bn in November 2013, from the peak of cUS$25bn
“They aren’t likely to have come down much further, highlighting both increased fiscal fragility and the mutual need for a KRG-Baghdad deal,” say analysts from Bank of America Merrill Lynch.
On the political side, the ongoing elections in Iraq are likely to see further divisions among religious communities. Research firm IHS’s senior analyst Zaineb Al Assam told TRENDS: “One of the key differences between 2010 and 2014 elections is that the Sunnis have fragmented; whereas in 2010 the Iraqiyya bloc, though not an explicitly Sunni list, would have captured many Sunni voters, now there are several competing Sunni lists.
“The 2014 elections will be more sectarian than those in 2010 given the increased polarization between the two communities arising from Nouri Al Maliki’s policies over his two terms as prime minister.”
The current election is seen as the referendum on the Iraqi prime minister. “Prime Minister Nouri Al Maliki’s supporters and opponents alike have presented the election as a referendum on his leadership,” said Zaineb, adding: “ Maliki’s return to power would greatly increase the risk of sectarian violence as Sunnis, already feeling disenfranchised, will probably be more inclined to facilitate an expanding insurgency.
“The limitations of the security forces will lead to the increased remobilization of Shia militias, particularly in areas where Islamic State of Iraq and Levant and others are making their presence felt,” she told TRENDS from her London office.
In her analytical note, Zaineb highlights that main issues facing Iraqis. They are:
“SINGLE COALITION UNLIKELY
Iraq’s electoral system makes it very unlikely that a single coalition will achieve 165 of the 328 seats in the Council of Representatives required for a ruling majority. Instead Maliki will have to enter into alliances with other parties to gain the seats required to form the next government.
As the 2010 elections showed, it is this process that matters. Maliki’s State of Law Coalition had received fewer seats than his opponents in the secular Iraqiyya bloc (89 to 91). However, Maliki was able to gain the support of the main Shia parliamentary bloc, the National Iraqi Alliance, which allowed him to form the next government.
SUPPORT FOR THE SUNNI INSURGENCY; AREAS OF DISCONTENT
Although Maliki has attempted to paint the insurgency as almost exclusively perpetrated by foreign and Baathist Al-Qaeda militants, Sunni discontent with the government’s perceived sectarian policies is the underlying driver of insurgent violence.
These areas of discontent include: the overwhelming number of security operations being focused on Sunni areas; arrests and raids targeting Sunni leaders, including former vice president Tareq Al Hashemi and former finance minister Rafi Al Issawi; the suppression of anti-government protests in Al Anbar province; and the government’s suspension of financial support to the Sunni tribal Awakening Movements (Sahwa) following the US withdrawal from Iraq.
SHIA MILITIAS LIKELY TO REMOBILIZE
Currently, the Iraqi army lacks the numbers and weapons to prevent Sunni insurgent groups such as Islamic State of Iraq and the Levant (ISIL) from proliferating. Without broad tribal support, the government has little prospect of eradicating insurgent groups, including ISIL, from Al Anbar province. Shia militias such as Asaib Ahl Al Haq and Kataib Hizbullah, which have benefited from training they received while fighting for the Assad government in Syria, will therefore be increasingly relied upon.”
Iraqis have voted for more than 9,000 candidates from more than 140 parties, including 40 blocs and coalitions, competing for 328 seats.