The Effect of the Islamic State on the Economy
In early August, Kurdistan received a reality check as IS (Islamic State) formerly known as ISIS gained more ground and started closing in on the Kurdish capital of Erbil, taking the Kurdish city Makhmur in the process. Erbil is recognized for stationing head offices for many international companies, with a good number of them being part of the oil and gas business – the life line of the country’s economy and one can go as far as to say the country’s stability. These oil companies include some of the world’s giants like Exxon Mobil, Chevron, and Gazprom, along with smaller yet successful companies like Genel Energy and Talisman.
Due to security concerns many of the oil companies have evacuated their personnel and have shut down operations. The effects of the evacuation are far reaching and detrimental to the region/s economy on both a large and small scale. Ninety percent of the KRG of the KRG (and also Iraq) revenue comes from oil exports and most of the revenue is set aside to pay the salaries of bureaucratic employees. Unfortunately, most of the Kurdish population depends on governmental jobs to maintain a living. With issues not yet resolved with Baghdad, the KRG continues to struggle to make up for the budget it is supposed to receive from the central government. The KRG depends on its oil and gas resources to maintain its economy and as much stability as possible, and anything that poses as a threat to the oil and gas companies operating in the region is also a threat to the region’s economy and stability.
Looking at the picture on a grander scale, Kurdistan’s oil and gas resources are essential for Turkey and Europe. Even though Turkey has natural resources of its own and attracts tourists from all over the world, it lacks the hydrocarbon resources necessary to supply its people with energy. Kurdistan allows Turkey to meet local energy demands and through convenient transportation means. Turkey and the KRG have made deals and have invested in each other for mutual benefits, these decisions followed by the construction of two major pipelines for exportation. Furthermore, more than friendly relations between the KRG and Turkey also put Turkey in a position to where it has to start considering the rights of the Kurds living within Turkey.
In addition, Kurdistan is a strategic area for supplying many of the countries in Europe with fuel. Most of Europe’s energy is currently being provided by Russia, led by the infamous Putin. Over the past years and after Russia’s energy cut to Ukraine, the West has become more suspicious of Russia’s intentions. Many are concerned that Russia will use its role in providing Europe with energy as way to monopolize power. In 2010, Europe leaders came together to discuss the possibility of a pipeline that provides oil and gas from the Middle East rather than from Russia. The possibility has become a solid plan with large sums of money being invested in the pipeline, and of course with Kurdistan serving as a key player. Instability in and around Kurdistan delays this project as Russia continues to grow more powerful and more threatening.
Of course the situation caused by the IS and the necessary evacuation that resulted from the situation have also hurt many of the companies operating in Kurdistan economically. Most of the companies are on the stock market, and because the region is currently not stable and not as promising in terms of safety as it used to be, investors are less willing to place their eggs in the Kurdistan basket. Consequently, share prices have gone down, ranging from numbers as small as 2% to less attractive percentages in double digits.By: Bery Majeed Sulaimani, Kurdistan