ISIS Threatens Kurdistan, the Acceptable Face of Iraq

Euromoney, July 2014

The growing strength of the ISIL movement in may cause regional and western banks to reconsider plans to build a presence in Iraq.

Despite the dismal security situation, banks have been weighing up the relative merits of safety versus first-mover advantage in the oil-rich state. An increasing number have erred on the side of opportunity: Standard Chartered, for example, opened a head office in Baghdad in November 2013 and followed it with a branch in Erbil in March. Abu Dhabi Islamic Bank is also present in both, while a range of other regional players – from Bahrain-based Arab Banking Corporation to Iran’s Bank Melli and Parsian banks, Lebanon’s Byblos Bank and Turkey’s Isbank. Other foreign houses bolstering operations in Iraq, if not an on-the-ground presence, include JP Morgan and Citi, which operates an Iraq desk from Amman, Jordan.

Earlier this month Euromoney spoke with the chief executive of a leading regional Middle East bank who said he was planning a presence in Iraq. But here’s a crucial point, and little understood: though he was technically accurate in saying Iraq, what he meant was Iraq’s Kurdish Autonomous Region. That is where one finds Erbil, where Stanchart and ADIB have set up.

This matters because Kurdistan is a special case, the palatable side of Iraq. It has its own borders, its own visas for access. Foreigners can fly there without having to go anywhere near Baghdad; Lufthansa flies there, and Austrian, and Turkish.  The British government’s travel advisory on Iraq commences: “We advise against all but essential travel to Iraq, except the Kurdistan region.” Better still, the Kurdish Autonomous Region is where a great deal of Iraq’s oil is. There is an investment conference held there, run by Rabee Securities, about to enter its fourth year; most westerners can pick up a visa when they land in Erbil.

From the vantage point of Kurdistan, one can evaluate Iraq’s considerable opportunities in relative peace. Emerging market research group FMG noted in March that this was a country where oil production has tripled in a decade, where GDP annual growth rates are topping 10%, when the market cap of the stock exchange has tripled in three years. Citi has predicted it could become a $2 trillion economy by 2050 and the IMF has said Iraq could gain $5 trillion in revenues from oil exports between now and 2035. Nowhere has shown faster EPS growth rates in the last five years than the Iraq Stock Exchange, and HSBC and Morgan Stanley have shown with the Asiacell IPO that deals can be launched successfully.

But a look at the map of ISIL activity makes for alarming viewing. Mosul, whose occupation made ISIL a globally familiar name, is roughly as close to Erbil as Liverpool is to Manchester. Kurdish forces have been instrumental in fighting ISIL recruits. And if the Kurdish region loses its uneasy status as a relative safe haven, then international banking ardour for Iraq’s long-term opportunities may fade.