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Update No: 121 - (26/05/13)

Summary: Final results show that Maliki’s coalition did not do so well in the provincial elections of April and in fact lost considerable ground. Overall fragmentation has increased, voters have shown some attraction for hard-line sectarian politics and Maliki’s chances of winning next year’s parliamentary elections are in doubt. In the meantime violence is reaching the highest level in five years, while Maliki is now trying to appease the Kurds, after his efforts to ease tension with the Sunni Arabs achieved little last month. Among Iraq’s Shiites there is a growing body of opinion which favours Kurdish independence – not out of sympathy but because without the Kurds, controlling Arab Iraq would be much easier for them. The realists among the Iraqi Shiites realise that they might not overcome a Sunni Arab-Kurds coalition. Add in the deteriorating Turkish-Iraqi relations and the prospects for the Kurds and Baghdad growing further apart seem quite strong.


Peak in violence
The on-going and worsening campaign of terrorist violence threatens to undermine Maliki’s image of being a strong leader; he is now saying that he will revise his security strategy and that heads will roll in the security apparatus. The number of those killed in the violence in April and May is now the highest in five years - although still well below the peak of violence of 2006-7. There is enough violence to make many fear that an serious insurgency might be taking off in the Arab Sunni heartland and a Sunni-Shiite civil war might be in the offing in the country as a whole. The situation is compounded by continuing street demonstrations by Sunni Arabs and the bitter confrontation between Sunni and Shiites in next door Syria.

Provincial elections results
The results of Iraq’s local elections are now complete and indicate mixed outcomes. Maliki’s State of Law party got about 115 seats overall out of 378, probably less than they expected and a loss of 38 on the 2009 results. Its former allies of ISCI got 80 seats, improving their position significantly. The Sadrists, increasingly hostile to Maliki, got 50 seats, which represents a poor performance. The now fragmented Iraqiya list of Maliki’s rival Allawi got 70 seats, but Allawi’s own faction won very few of those seats. Two hard line Shiite parties, Badr Organisation and Fadhila, also did well; Badr is allied with Maliki. All the Shiite groups which expressed support for the Arab Sunni protesters against Maliki did badly in the elections: Allawi and Sadrists first of all. This is in part because the protesters have been openly rejecting be-Baathification and have expressed nostalgic views for the status quo ante (positions which cannot be popular among Shiites and Kurds). On the positive side for Maliki, a list of pro- Maliki Sunnis (a fraction of Iraqiya) did rather well, but the majority of Sunni votes unsurprisingly went to Mutahidun, the main anti-Maliki list. Among the smaller parties, a coalition of secular groups led by the Communists has also done rather well. Maliki’s coalition wanted to gain control over the Shiite cities, but will instead have to rely of multiple alliances to run most councils. His pre-electoral alliances with a number of small groups has not paid off. In particular, he was weakened in Basra, where he lost 6 seats.

If these results are projected onto the parliament (elections are due next year), Maliki might well fail to win enough votes to form a new majority, although it is not clear who could take the lead in his place.

Reconciliation with the Kurds, or salami tactics?
Maliki once again showed that difficulties do not intimidate him. He raised the stakes of the confrontation with the Kurds by replacing two Kurdish ministers, who were boycotting the meetings of the cabinet in protest at Maliki’s attitude towards Kurdish rights in the production and export of oil. The ministers of foreign affairs and trade have been temporarily replaced by two cabinet colleagues. Probably in order to probe the intentions of the Kurdish regional government, the Cabinet decided to meet in Erbil, the capital of Iraqi Kurdistan. Many Kurdish MPs have voiced opposition to allowing this meeting and the reaction of the Kurdish authorities will be the litmus test of whether there is still some appetite for reconciliation. Perhaps Maliki has decided that he cannot fight on two fronts and that the resolution of the crisis with the Sunni Arabs has to take precedence over the confrontation with the Kurds. This is why many Kurds argue that moving towards reconciliation now will only serve to allow Maliki to squeeze his enemies one at a time.


Forecast 2013
What is in store for Iraq in 2013 is extremely uncertain, given Maliki’s brinkmanship, the interference of regional powers and the complex Iraqi political scene. Plunging back into civil war is a possibility, even if right now nobody really wants that. Many want to see Maliki gone, but if Maliki does not graciously concede, then the worst could happen. The sectarian divide is still strong, despite some Shiites supporting politically the Sunni opposition for opportunistic reasons (in order to get rid of Maliki). The fact that interest in the oil and gas sector is not diminishing suggests that most business observers do not think the worst will happen, somehow.

Should the flow of investment be maintained (it has in fact so far been relatively modest considering the size of Iraq’s oil reserves), the economic prospects of Iraq are inevitably upbeat, despite the inefficiency of the government and the tendency to waste resources in patronage. The world needs Iraqi oil to keep international prices down, so one should expect American, European and Chinese powers to do their best to maintain a degree of stability. But the game in Iraq is not being played by world powers: it is a regional game for supremacy, over which the rest of the world has little say.

Undaunted by the growing political mess, oil companies continue their labours to identify lucrative agreements which would justify their investment. Iraq just announced the first discovery of a new oil field in many years, the first result of resumed prospecting. BP seems interested in investing in the contested area of Kirkuk, which both Baghdad and Erbil claim as their own. Here oil fields are badly in need of some overhaul to boost productivity. A Chinese company seems interested in replacing Exxon in West Qurna, partnering with Lukoil.

In the background, the Kurdish regional government has now suspended exports through the government pipeline and is instead beginning to use tankers to move oil by road, as the dispute over payments with Baghdad has not yet been resolved.

The Iranians appear increasingly worried by Maliki’s brinkmanship, which risks causing the disintegration of Iraq and civil chaos, something that Iran has no interest in. Maliki has benefited from extensive Iranian support in the past, but has by now managed to create his own power base, and is no longer so easily manageable by Teheran, whose attempt to defuse tension among Iraqi factions are not achieving much. In particular, the Iranians have sought to mediate between Maliki and the Kurdish regional government in the north of Iraq, with which they also have good relations. Their failure in this means that the Kurds are tempted to join an anti-Maliki coalition which is led by Arab Sunnis and is supported by Saudi Arabia, Turkey and Qatar. The Iranians seem to be undecided about what to do in the face of Maliki’s stubbornness. They see that their other main ally in the region, after Bashir Al Assad in Syria, is now clearly at risk. Their influence is at jeopardy of being drastically reduced. Should they back-up Maliki with all means, risking another Syrian situation, or engineer the replacement of Maliki with a more pliable Shiite politician?

Maliki has been facing civil unrest for weeks in the Sunni heartlands of Iraq’s north, where the influence of the Syrian insurgents is beginning to be felt. (In fact the Al Qaida element in the Syrian insurgency originates from the Iraqi branch of Al Qaida, so the connection was always there). Recently, however, the border tribes have shifted their support towards the Syrian insurgents, facilitating a spill- over in Iraq. At the same time the Kurdish militias and the Iraqi army are facing-off against each other, on the borders of the Kurdish region. Now one of the Shiite factions most uneasy about Maliki, Muqtada As-Sadr’s movement, is also joining the opposition to him.

Maliki now faces the risk of being impeached by the Parliament. His pressure on Sunni Arab politicians hostile to him has gone too far with the targeting of Al Issawi, the finance minister, and instead of splitting the Sunni opposition, co-opting part of it, the result has been tribal mobilisation in Anbar province, whose militias maintain considerable military power, enough to start a new civil war in Iraq.

The tactic of arresting women, to put pressure on the protest leaders also backfired, as the tribes are taking that as a major breach of their honour.

Maliki first closed down the border with Jordan, in order to put economic pressure on the protesters, but then had to reopen it and has already made further significant concessions to the demonstrators, accepting to water down the de-Baathification law, which he was previously pushing very aggressively.

He also allowed the release of numerous political prisoners from jail. For now, however, these concessions seems to have emboldened the protesters, rather than appeasing them.

Maliki is still trying to shore up his position internally. The parliament voted at the end of January to bar him from running for a new term as Prime Minister, but Maliki and his party argue this vote is illegal and are challenging it in the federal courts. The fact that President Talebani remains sick and incapacitated after a stroke, is making it even more difficult than usual to mediate among factions in Iraq. Talebani was seen as one of the few Iraqi politicians with sufficient credibility to mediate. Maliki is increasingly being accused of asserting his direct control over the armed forces, thanks to the failure of the parliament to approve the necessary regulations which would at least in part insulate the armed forces from political interference. The country is still being shaken by constant demonstrations of antagonists and supporters of Maliki, who has been trying to remove from his post the speaker of the parliament, Nujaifi.

Another front still wide open is in Kurdistan. Maliki and his party, but also another Arab group in parliament, now want to reduce the Kurdish share of the state budget from 17% to 12%, a very significant reduction which is of course unacceptable to the Kurdish regional government, whose revenue would be reduced by almost a third. The 17% share had been agreed with the American occupation authorities, a fact that contributes to encourage many in the parliament to renegotiate it.

In particular, many Arabs object to the existence of autonomous Kurdish militias, which are paid through that 17%. In addition, there is a dispute over payments owed by Baghdad to Irbil over oil exports, with the Kurds claiming a figure five times higher (US$3.5 billion). All of this is seen as a provocation by the Kurds, at a time when the Kurdish militias and the Iraqi army are still facing off against each other in the disputed areas of the north.

The plans of the Kurdish regional government to export oil towards Turkey have reignited the confrontation with Baghdad. Deputy prime minister Shahristani has stated clearly that if the Kurds start the direct export of oil, that would be considered as ‘smuggling’ and that legal sanctions would follow against both the Turks and the Kurds. Baghdad is worried about the ever intensifying economic links between Turkey and the Kurdistan region. Now Iraq is Turkey’s second trading partner after Germany, but 70% of that trade goes to the Kurdistan region alone.

The Turkish government, whose AK party is particularly close to Turkey’s oil firms, is working actively to finalise a deal with the Kurdish Regional Government in Iraq over the Kurdistan-Turkey pipeline, which would greatly help Turkey diversify its sources of supply. Among Iraq’s Shiites there is a growing body of opinion which favours Kurdish independence – not out of sympathy but because without the Kurds controlling Arab Iraq would be much easier for them. The realists among the Iraqi Shiites realise that they might not overcome a Sunni Arab-Kurds coalition. Add in the deteriorating Turkish-Iraqi relations and the prospects for the Kurds and Baghdad growing further apart seem quite strong.

The Sunni Arab and Kurdish blocks in the Iraqi parliament are trying to forge an alliance to bring Maliki down; the problem is that some Sunni Arabs have allied with Maliki and that the rest fear Maliki’s retaliation, which could even be violent as a growing number of Sunni Arab leaders are being threatened with arrest. At a time when the Syrian insurgency is increasingly spreading across the border into Iraq, Maliki’s approach could be seen as adding fuel to the fire, even if he would probably describe it as a pre-emptive strike. One splinter group of the Iraqiya alliance, called Li Haal, has allied with Maliki. There are divisions among the Sunni Arabs, which Maliki is exploiting to play ‘divide and rule’.

The latest target of Maliki’s wrath is former Minister of Finance Issawi, who is now under the protection of the powerful Sunni tribes around Al Anbar. Other tribes, however, are collaborating with Maliki in chasing him down. The Shiite Arabs are also divided, but Maliki has so far been able to prevent factions hostile to him from allying with the Kurds and the Sunni Arabs. For a while the Sadrists seemed to be about to link up with the latter two, but Sadr withdrew his offer to collaborate in the removal of Maliki at the last minute, possibly having come under pressure from Iran. The other main Shiite group, led by Jafaari, is no friend of Maliki either, but does not seem likely to agree to his removal, probably for the same reason as the Sadrists. The confrontation is leading to ever escalating tension between Baghdad and those Sunni governments in the region; after Turkey, Qatar has been recently accused by Baghdad of interference in Iraq’s affairs. Regional politics does not help either: Iran is being drawn deeper and deeper into the Syrian civil war, playing a key role in the formation of Shiite militias allied with Assad but trained and advised by the Lebanese Hizbollah and the Iranian Pasdaran.

During spring, relations with the Sadrist movement of Muqtada As-Sadr worsened as they started threatening for a while to withdraw their ministers from the cabinet for good and vote against the government, a move which would deprive the government of its majority, as Kurds and most Sunni Arabs have already walked away. Commentators hint that Muqtada As-Sadr might be motivated by the fear of a poor electoral show in the late April local council elections; Muqtada would in this interpretation be making some noise to attract attention, but would not be seriously planning to opt out.

The growing pressure has probably played a role in Maliki’s decision to ease pressure on at least one front: at the end of March he agreed to meet the demands of the Sunni Arab demonstrators in various provinces, which included amending arrest procedures, amnesty for prisoners, the release of female detainees, amending de-Baathification and direct negotiations with a delegation representing the protesters. It is not yet clear, however, whether this move will be enough to defuse the situation and whether it hails some kind of Sunni-Shiite détente.

As the provincial elections started, there were signs of weariness among voters and turnout was initially estimated at 34%. Maliki has been given up for finished several times in the past, but this man is resourceful! Maliki’s State of Law electoral alliance has been expanded to include Shiite nationalists and former Shiite militia groups and the party expected to strengthen its position in the provincial councils. In addition, the new campaign of violence by Sunni extremists appears to be pushing the Shiites towards Maliki, whose popularity is on the rise. Regional politics, with growing Sunni-Shiite confrontations, also plays into Maliki’s hands: many believe a strongman at the top might be necessary for Iraq to survive. The main adversaries of Maliki (apart from the Kurds) have been marginalised (like Muqtada As-Sadr), or split internally by Maliki’s shrewd manoeuvring. If ‘State of Law’ effectively gains ground, Maliki’s consolidation of power will receive a new boost.

If Maliki stays on, he will increasingly benefit from positive economic news.(At least the economic forecast is positive). The IMF expects oil output to rise by 10% this year, to 3.3 million bpd. Inflation, a modest 6% last year, is expected to fall this year. The reserves of the Central Bank have already reached US$70 billion last year and GDP growth, already 8% last year, should reach 9% this year.

The forthcoming provincial elections show how the old political blocs are fragmenting internally, but the main sectarian divides remain alive and well. The Shiite parties, for example, will compete against each other in all the Shiite dominated provinces, whereas in the past they had formed Shiite coalitions. In the mixed provinces, though, they will again form Shiite only coalitions, as will their Sunni rivals and the Kurds. The latter are furious with Maliki after the new budget did not allocate enough funds for paying the oil companies operating in the Kurdistan region. This might force the Kurds either to reconcile with Baghdad in Maliki’s terms (that is reduced autonomy) or start exporting oil to Turkey directly, without the government’s authorisation. There are about 50 foreign firms now involved in the Kurdistan oil sector, with investments worth US$15-20 billion.

Inevitably Baghdad fumes at these ideas and diplomatic relations between the two countries are reaching the lowest level in many years. In fact there might already be a deal signed between Ankara and Erbil over the annual export of 10 billion cubic metres of gas, which would cover 20% of Turkey’s consumption. Already in November Baghdad barred a Turkish oil company from bidding for oil field tenders in Iraq, in retaliation against Turkey supporting the Sunni opposition to Maliki.

To make matters worse, even Exxon seems to have made its final choice to invest in Kurdistan, rather than in southern Iraq, because the conditions offered by the Kurds are more generous. Chevron, Total of France and Gazprom Neft also appear to be shifting towards Erbil. Only BP among the majors seems to be betting on Maliki and is offering to work in disputed Kirkuk without going through the Kurdish regional government. If Maliki allows that to happen, it might then be too late to redress the situation and Erbil will be able to mobilise diplomatic support on its side. Overall oil exports from Iraq reached 2.35 million bpd in January, even if production declined slightly from 3.3 million bpd to 3.2 million, due to bad weather, sabotage and some technical problems.

After some hesitation, Maliki has also decided to go ahead with his Russian arms purchases (helicopters and missiles). This could easily be interpreted as a move towards re-aligning further away from Washington and closer to US rivals in the region and beyond (Iran in particular), although the immediate cause was Washington’s refusal to sell the equipment itself.

Iraq is also targeting Saudi Arabia’s oil market share, with an aggressive pricing policy which is aimed at securing new clients. For now the competition has been relatively subdued as declining Iranian exports have made enough room for Iraq’s oil, but if Iraq were to increase production as planned, the competition could only intensify. The Saudis have already been offering discounts on their oil in response to Iraq’s aggressive pricing. Iraq’s market share on the Chinese market has already doubled and is rising in India as well. More to the point, some Indian importers are planning to reduce imports from Saudi Arabia and switch to Iraqi oil.

Even if Maliki were to eventually go, forging a new, functional coalition will not be easy. After all, Maliki’s rivals already tried to do so after the last elections, but failed after months of efforts. Perhaps now, educated by the experience of Maliki’s faltering effort to establish authoritarian rule, they will be wiser and readier to make compromises. One would be ill advised to bet on this, however.


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