The Kurdistan Region has been known as the gateway to the rest of Iraq because it has been the most secure area in the country and has an open door policy for investment. Even before ISIS (The Islamic State of Iraq and the Levant) came on the scene, the rest of Iraq had been difficult to do business with, while Kurdistan remained open for business. In July this year, however, that image of security and stability was shattered in the wake of ISIS attacks close to the region’s capital Erbil that overwhelmed Peshmerga forces.
The natural reaction for businesses was to take precautions, but the impact on the oil industry has been surprisingly minimal, as most producing fields are out of ISIS reach and continue to produce and export. The oil industry has taken measures to protect its staff that include pulling out non-essential workers, and, for a few oil companies, halting operations in certain areas. The industry as a whole, however, is still committed to Kurdistan.
Pulling out staff has affected some exploration and development activities, especially close to ISIS-controlled areas. This has, in turn, affected the service industry, which is largely run by indigenous business. ISIS now controls nearly one-third of Iraq, and trade routes between the rest of the country and Kurdistan have either been cut off or are not safe, negatively affecting the many businesses operating in Kurdistan that also cater to the rest of Iraq.
While Kurdistan has been seen as the place to set up shop in order to service the rest of Iraq, the Iraqi federal government’s decision to withhold budgetary resources from the Kurdistan Regional Government since January 2014 has had a negative impact on the financial situation in the region. Despite all the negative headlines and ISIS advances, many investors– especially the oil companies– are bullish about the future of the region, and the level of confidence remains high.
ISIS overwhelmed Kurdish forces in July, but Peshmerga troops appear to have regained the initiative and have made various advances after US airstrikes. The international community has made various pledges to help arm Kurdish forces. Some of these have been met, while others are still forthcoming. Furthermore, the US, Britain, and France have expressed support for Iraqi Kurdistan and made pledges to protect the Kurdistan Region and their interests in it.
The current crises have dented confidence in the stability of the Kurdistan Region in the short term, and it will take some time to bring back confidence for mainstream investors. Intrepid investors, however, are more bullish than before given the fact that, when the threat of ISIS attacking Sinjar and advancing close to Erbil came, the international community and the US in particular stepped up and vowed to protect the region. American intervention has boosted investor confidence by signaling the interest of the United States and its allies in the security of the Kurdistan Region, which is shared by those who have invested billions of dollars in the oil sector and other industries there. Moreover, the international community’s rush to arm Kurdish Peshmerga forces is another vote of confidence in the Kurdistan Region.