Kurds had reason to be optimistic when, in 2003, a US-led invasion ended Saddam Hussein’s decades-long threat to Iraqi Kurdistan. They had ruled northern Iraq as a state within a state for more than two decades. They received very little international aid—the UN and donor countries insisted on sending humanitarian aid through Baghdad—but they had managed to build a functioning society with schools, universities, small-scale industry, and their own defense force. The budget of the Kurdistan Regional Government was less than a billion dollars. Taxation, customs duties from the Ibrahim Khalil/Habur border crossing with Turkey, and some remittances were used to fund the budget.
Kurds believed they were sitting on vast hydrocarbon reserves. While the lucrative Rumaila oil fields in Iraq were 900 kilometers south of Erbil, oil fields on the outskirts of Kirkuk were only 50 kilometers from the Kurdish-Iraqi green line, close enough for Kurds to see the glow from the Baba Gurgur oil field and gas flare on the horizon at night.
Kurds discovered in 2003 what they had suspected for a long time: their region was relatively rich in untapped hydrocarbon. After that, there was a black gold rush. The Kurdish Regional Government sold exploration and development rights to international oil companies over various blocs and collected advances to fund the ruling families’ lavish spending. There was a lot of corruption. Investors had little recourse in the local judicial system, which was more interested in appeasing political bosses than upholding the law. A slew of international arbitration cases have been filed against Kurdish authorities. While the Kurds had hoped for a windfall, they soon found themselves in debt to the tune of more than $20 billion, a significant burden for a six-million-strong region. Meanwhile, investors pulled up stakes and fled to fields free of the corruption and greed of local leaders.
Somaliland currently has a similar opportunity. International oil companies are increasingly convinced that Somaliland has large reserves, and the Somaliland government is looking for foreign investors.
While oil proved to be a curse for Iraqi Kurdistan, Somaliland appears to be in a good position to manage and profit from the windfall. Masoud Barzani, the Iraqi Kurdish leader, and his son, Masrour Barzani, the current Prime Minister of Iraq, have always taken the stance L’Etat, c’est moi. No business can operate in the region without paying a hefty sum to prominent Barzanis and frequently enlisting their proxies as ghost partners. Somaliland, on the other hand, has a long history of keeping business and politics separate. While the rest of Somalia descended into chaos in 1991, Somaliland businessmen gathered political leaders to ensure a peaceful and stable system.
Chaos reigned supreme. The richest men in Somaliland today are not politicians, but entrepreneurs. Some commercial monopolies or duopolies, particularly in telecommunications and banking, may distort the regional economy, but they cannot and do not want to prevent energy development. As a result, rather than constraining the economy, it will expand.