Politics in Iraq over the past 15 years have demonstrated repeatedly the costs of failing to resolve the issue of federalism arrangements between the KRG and the federal government. The text of the 2005 constitution, which outlines a formula that gives primacy to regions and provinces over the centre, and which severely limits the powers of the federal government and its sovereign competent authority, reflects a unique moment in time. The balance of political forces was then overwhelmingly in favour of Iraq’s Kurdish leaders, who, with the support of SCIRI and the US, were able to drive through their vision of a loosely federated Iraq state at the expense of the opinions of many of their Arab partners. However, as the federal government became more coherent and more powerful, its non-Kurdish leaders quickly rejected the notion of giving up power and the patronage that came with control in Baghdad, leading to the blockage of legislation that would have cemented the constitutional model. In the interim, Erbil has been able to preserve its exceptionalism in the Iraqi state, but it has lacked the financial resources, and the political and military power, either to impose loose federalism on the centre, or to secede.
As a result, the question of federalism has become a matter of enduring dispute between Erbil and Baghdad that has created continued enmity between the two sides and, on occasion, has been destabilizing for the country at large. As it has seeped into critically important areas such as the hydrocarbon sector, it has also resulted in the loss of considerable net revenue to the country overall, with the KRG arguably faring worse than the federal government in this regard. At the same time, it has led to lasting military tension in disputed territories, the status of which has been impossible to resolve while the wider federalism question has remained alive.
Yet, despite these pressures, a relatively stable status quo has been established between the federal government and the KRG over the past decade and a half. While Kurdish ambitions and demands have been challenged by Baghdad, the federal government has recognized the region’s exceptionalism (at least within the borders that it presently controls). The mechanisms for managing various aspects of the relationship between the two, including financial and revenue-sharing frameworks, have been a source of regular dispute, but short-term solutions with long-term applications have been found. Throughout this period, the status of the KRG as an autonomous entity with its own exclusive government, institutions, laws and military forces has generally been recognized. Erbil has consistently called for the full implementation of the constitution and for legislation that would enable a loose form of federalism to be implemented across Iraq. Nevertheless, the KRG has increasingly come to terms with the reality that the federal government is unlikely to take any measures that will significantly reduce its own power.
Finding a way to codify the compromises that circumstance has forced Baghdad and Erbil to reach could offer an effective way to resolve the federalism question once and for all. The basis for confidence-building first steps lies in a variation of the export-for-revenue formula that has been discussed in recent budgets, especially as any enduring mechanism will require deals that go to the heart of the federalism dispute: revenue-sharing; defining legal competent authority; hydrocarbon sector management; and, territorial control. To make this work will require the political will to promote the formula, rather than insisting on maximalist agendas, and to cement these arrangements in new laws and, eventually, a new constitution.
If fiscal arrangement can be mutually agreed, it could offer new avenues for addressing wider federalism-related questions, such as resolving disputed territories and long-term security cooperation. Moreover, once the existential fear associated with decentralization has been eased, it could convince the government to introduce more systematic transfer of authority in the rest of Iraq that will empower local governments and address their demands for improved administration and power-sharing.
