Iraq's northern Kurdish region is thriving as foreign investors pour in, lured by its investment-friendly policies, security and vast oil reserves. The once sleepy city now has an air of Dubai grandeur. (Ernesto Londono/The Washington Post)

To land at the gleaming new airport in this booming regional capital is to glimpse what the United States hoped a decade ago that all of Iraq might become.

Cranes swivel across a skyline whose glittering high-rises and five-star hotels bring an air of Dubai grandeur. Modern malls with brightly lit boutiques do a brisk business. Modern, wide highways include pedestrian bridges, some with escalators.

This is Iraqi Kurdistan, a region that was semiautonomous even under Saddam Hussein, but one that has been transformed in remarkable ways since the American invasion of 2003. While the rest of Iraq remains saddled by scars and trauma from the conflicts the U.S. invasion unleashed, the Kurdistan region increasingly stands apart, with its own fractious, impoverished past mostly a distant memory.

But Kurdistan can only be held up as a success story with significant caveats. Security has come at the expense of the repressive features of a police state. Two ruling political parties have held on to power through a vast network of patronage that has given the opposition little breathing room.

Perhaps most alarmingly, its historically acrimonious relationship with Baghdad has become downright poisonous since the last U.S. soldiers left the country last December — casting a pall over the sustainability of its aspirations. 

Knitting students practice on looms at the textile museum in the Irbil citadel. Iraqi Kurdistan has been tipped by newspapers and magazines to be a new travel destination in 2011. (Sebastian Meyer/For The Washington Post)

“If the other Iraq cannot lift itself you will have a gap, and that gap will lead to conflict,’’ Fuad Hussein, chief of staff to Kurdistan’s president, Massoud Barzani, said in an interview in his office in Irbil.

Under Hussein, Kurdistan sat on vast oil reserves, but there were no commercial flights into the region. The gray, drab architecture spoke of a bygone era. Roads were rudimentary. Kurdish politics were infused with mistrust and the deeply entrenched grudges of a civil war.

Today, a combination of security, investor-friendly policies and the allure of unexplored energy reserves have attracted an increasing number of oil companies, including the world’s largest, Exxon Mobil, which last year signed a landmark deal with Kurdish officials.

At the same time, the social, cultural and political gaps between Kurdistan and the rest of Iraq have widened in recent years as the northern region, which was largely insulated from the insurgency and had virtually no U.S. military presence during the war, continues to prosper while the rest of the country remains beset by violence.

“The Kurdistan region, in terms of development and economic growth, has the potential to become the Iraq the U.S. had hoped for the entire country,” said Denise Natali, a National Defense University professor who has studied the Kurds for decades.

‘The other Iraq’

Irbil’s new airport, completed in 2010, offers direct flights to Vienna, Dubai, Istanbul and Cairo, and it has been expanding steadily. Most foreigners can enter Kurdistan without a visa or may obtain one at the airport, unlike in Baghdad, which manages a cumbersome and expensive visa system that has long bedeviled prospective foreign investors. 

The construction boom in virtually every corner of Irbil stands in sharp contrast to the dilapidated city of Mosul, just 50 miles east, where vast sections lie in ruins as a result of years of bombings by al-Qaeda in Iraq. To enter Kurdistan from the parts of Iraq controlled by Baghdad, Arab Iraqis must apply for special permission from Kurdish authorities, then navigate a series of checkpoints manned by Kurdish soldiers who often make little attempt to hide their contempt for Arabs. 

Kurdistan now markets itself as “the other Iraq,” with a revenue base that had grown to more than $10 billion this year, mostly from oil exports and Turkish investment, from just $100 million in 2003. Its battles with the rest of the country revolve around how to distribute oil wealth and whether the Kurds should be allowed to formally incorporate vast new areas into the region.

The growing schism has fueled the hopes for statehood that Kurds have long held. Zhenar Bakhtiar, 21, a salesman at a perfume shop in a sleek mall in Kurdistan’s second largest city, Sulaymaniyah, said he dreams of the day when he will no longer bear an Iraqi passport.

“Five years from now, the Kurds will have their own state,” he said on a recent afternoon. He identifies himself as Iraqi only when he travels abroad and must present his passport. “I’m a Kurd.” 

Competing visions on oil

At first glance, the prospect of Kurdish statehood might seem plausible, if not inevitable. But the two regions remain intrinsically linked in two vital ways: Kurdistan gets its budget from Baghdad and must export the bulk of its oil through a pipeline the central government controls. 

Baghdad and Irbil have laid out competing visions for how Iraq’s vast oil reserves should be explored. In the absence of an agreement, the two administrations have signed separate contracts with international oil companies in recent years. Officials in Baghdad are particularly irked by the nature of the Kurdistan region’s contracts, which give the oil companies a direct stake in the reserves. 

The deals Baghdad has signed offer a flat rate per barrel of oil to international companies running the field, a less attractive type of deal. The dispute has prevented Iraqi lawmakers from producing a new hydrocarbons law. The recent Exxon deal was particularly jarring to Baghdad because it includes fields in disputed territories

“Right now there are no negotiations, no process whatsoever,” between Baghdad and Irbil over the oil law, said Joost Hiltermann, an Iraq expert at the International Crisis Group. “This can only go on for so long. Once these fields start producing, Baghdad may draw a line and if the Kurds ignore that you can end up with a conflict.” 

During its final years in Iraq, the U.S. military came to view the disputed territories along Kurdistan as one of the country’s most potentially destabilizing problems. American officials drew up plans to maintain large diplomatic missions in the provinces that border Kurdistan, in large part to act as honest brokers. Those plans were later scaled down as it became apparent that the United States would not be able to leave behind a small number of troops in Iraq. 

As oil production soars, and more money is at stake, anger among Arabs who live in the disputed territories is likely to flare up, said Abdullah Humaid Alyawar, the leader of the influential Shammar tribe. “When citizens see their political officials disappointed them, we will see them rely on themselves and their tribes,” he said.

Left to their own devices, Iraqis are unlikely to reach a solution, said Mahmoud Othman, a Kurdish lawmaker. 

“It needs an influential broker,” he said. “Between political blocs themselves we can’t solve it. The issue will stay as it is.”