To the victor belong the spoils – so goes the old adage. Iraq’s Kurdish community would surely disagree. Instrumental in the military victory over the Islamic State (IS), Kurdistan has fared poorly since the caliphate’s destruction. An abortive independence referendum, spiralling economic fortunes, and international abandonment followed their triumph over extremism – but now, tentatively, things seem to be looking up for the fiercely proud Middle Eastern region.

At the cost of 2,000 military lives – and countless more civilians – the Kurds fought back IS’ brutal three-year onslaught, clearing the group of Iraq’s borders in 2017. Baghdad-controlled Iraqi forces had largely melted away in the face of the extremists’ assault, leaving Kurdistan’s military – the Peshmerga – to pick up the pieces. A feeling of betrayal entrenched itself among the Kurds, which – coupled with the elation of victory – breathed fresh life into shelved independence plans.

A referendum on secession, held in September 2017, passed with a staggering 93% support. But it proved a hasty and ill-thought-out move by the Kurds. Iraq’s federal government had not endorsed the vote and was swift to reject its legitimacy. An international flight ban was imposed on Kurdistan’s main airports, and budgetary support for regional authorities severed. As the crisis deepened, Baghdad dispatched troops to the oil-rich city of Kirkuk, which had been under Peshmerga protection since the fall of IS.

Amid the escalation, Kurdistan’s foreign allies turned their backs on the region. The US expressed support for a “unified, stable and a federal Iraq”, and Turkey – the Kurds’ foremost regional partner – branded the referendum a “grave mistake”. The situation soon became untenable for Kurdish president Masoud Barzani, who promptly annulled the vote and resigned from office.

His legacy was one of power vacuum and economic crisis. Nearly nine-in-ten Kurdish households were bringing in less than $850 per month, data from 2018 showed, with some 20% of young people out of work. Tumbling oil prices and Baghdad’s punitive financial measures ripped through the impoverished and war weary nation.

A change of government in both Baghdad and Erbil has marked a shift in fortunes for the Kurds, however. The recent appointment of Adil Abdul-Mahdi, Iraq’s prime minister, has eased tensions between the neighbours. He is a long-standing friend of Kurdistan, and has already negotiated a new budget for the region. Peshmerga troops are now entitled to a salary, and Kurdish civil servants – all 1.2 million of them – have started to receive their first full pay packet in years.

Nechirvan Barzani, Kurdistan’s new president, looks to be a unifying force in the region’s fractured politically landscape. Power-sharing negotiations between the leading Kurdish parties have resumed, with Barzani winning the backing of two key players – the KDP and Goran – in recent weeks.

International flights have been restored and the economy is on the rise. The exodus of foreign investors has tailed off, with global businesses once again taking an interest in the oil-rich province. Almost $4 billion was injected into the Kurdish economy by foreign companies in 2018, figures show, a five-fold increase on the year before – and “we expect the investment to grow [even] more in the coming months,” said Sarbast Khidr of the region’s investment board.

As state coffers are replenished, authorities are keen to reinvigorate public spending projects. Over 60% of investment schemes in education, health, transport and public services have now resumed, reports suggest. In Erbil, a huge road infrastructure project has been revived, with work recommencing on a major section of the city’s main highway. The region’s oil and gas industry is also recovering well, with aspirations to begin supplying other areas of Iraq by next year – and then Europe, via Turkey, by 2022.

The resurgent Kurds are not without their challenges, however. A steady increase in IS activity in and around Kirkuk has been observed in recent months. Just last week, three civilians were reportedly murdered by the Islamist militants – a reminder that the broken caliphate still poses a deadly threat. And then there’s the issue of IS prisoners. Kurdish officials say they hold more than 5,000 fighters – captured during the war – and warn that they can’t detain them indefinitely.

International tribunals should be established, the regional government has said, allowing suspects to be tried and sentenced in their own countries. Western nations have responded coldly to such suggestions though – most want nothing more to do with terror-minded former citizens. “We’re not looking at that right now,” said a decisive James Jeffrey, the USA’s special representative on IS.

Kurdistan is also wrestling with endemic political corruption. While lower than in Iraq as a whole, levels of malfeasance are “relatively high compared to other countries in the region,” according to the Anti-Corruption Resource Centre. In the last year alone, 198 corruption cases have been submitted to courts by the region’s ‘Integrity Commission’. But progress is slow, says the commission’s boss Ahmad Anwar. He has just 13 officials looking into 800,000 public sector employees. “Without necessary investigators, the commission is like a university without teachers,” he said.

The Peshmerga’s political integration also hinders democratic progress, experts warn. The KDP and PUK – major political parties – both control units within the Kurdish military – and though there have been moves to break these ties, reform is slow.

But Kurdistan has faced off greater challenges in recent years. A potent mix of war, economic collapse and international abandonment might’ve destroyed another state, but the Kurds have proven themselves a resilient people. Dreams of independence have been shelved for now – and perhaps indefinitely – but the grit and determination displayed in the fight against IS has won the region powerful backers. The path ahead may be rocky, but the Kurds’ potential is clear to see.

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