The Kurdistan region of Iraq's Catch-22: structural contradictions of independent revenues and federal budget allocations

The Kurdistan Regional Government’s relationship with the federal structure of Iraq was, and continues to be, premised on securing the autonomy of the Kurdistan Region of Iraq – whether as part of federal Iraq, or as an independent entity, if and when circumstances allow. A key requirement for securing this autonomy is financial independence, enabled by independent revenue streams, with the budget being the vehicle through which this independence is exercised. This paper’s focus is the region’s budget, and the structural contradictions of the budget’s revenues that make financial independence structurally unachievable. Its main argument is that the region’s budget needs both of its independent revenue streams (oil and non-oil revenues), and its share of the federal budget to meet its expenditures; however, this share can only be received if it transfers a large share of its oil production and of its non-oil revenues to the federal government – in the process substantially reducing overall revenues, a case of ‘Catch-22’. Breaking the catch requires a reset of the relationships governing Iraq’s federal structure, grounded in a shared conception of that structure and expressed through the enactment of a federal oil and gas law; together with the institutions needed for its operation, regardless of the political makeup of the federal and regional governments. This would preserve the integrity of the country’s federal structure, including the KRI’s autonomy, which paradoxically is enhanced by a deeper integration in the federation rather than by the pursuit of independent revenue streams.