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Turkey's to strike at the Kurdistan Workers Party, better known by its Turkish PKK acronym, has drawn the attention of Iraq watchers this week.

However, it would appear that Ankara's moves against its long-time Kurdish nemesis has coincided after financial support was transferred to the separatist group by the United Arab Emirates (UAE), raising fears of northern Iraq becoming a between rivals Ankara and Abu Dhabi. 

On the domestic front, Iraqi Prime Minister is now facing widespread public anger for curbing public sector pay-outs and paring back pension schemes. Iraq operates a multi-tiered pension system where one person may be entitled to one or more different pensions that were instituted following the US-led invasion in 2003.  

For Iraq's economy to diversify and recover, it must move away from an overreliance on public sector jobs fuelled by the country's vast oil wealth.

However, with a population accustomed to finding employment within a bloated public sector, Iraqi lawmakers face the prospect of not being re-elected if they make moves to diversify the work force into the private sector and to attract investment and foreign capital.

Turkey launches strikes against PKK in Iraq

Turkey has launched two operations into northern Iraq this week against Kurdish militants, leading Baghdad to for its military action against the PKK who are hiding in the mountainous regions of Iraqi Kurdistan. 

Turkey's twin operations to strike at the Kurdistan Workers Party has drawn the attention of Iraq watchers this week

Turkish state broadcaster TRT reported on Monday that the Turkish armed forces had destroyed at least 81 PKK "hideouts and supply chains" in an operation dubbed "Claw-Eagle".

Turkish Defence Minister Hulusi Akar said that Claw-Eagle involved the use of fighter jets and drones that were guided by satellite imagery and kept in the air with fuel tanker planes for a sustained aerial bombardment campaign that lasted all day. Turkey then launched another offensive into northern Iraq two days later on Wednesday, this time dubbed "Claw-Tiger".

Claw-Tiger is not just an aerial attack but involved Turkish soldiers being airlifted and deployed into the mountainous Haftanin region where PKK militants are thought to be in hiding.

The Turkish defence ministry claimed to have destroyed "more than 500 [PKK] targets" in the first 36 hours of the operation, yet did not clarify if this meant that it had neutralised Kurdish militants or had simply attacked ammunition dumps and other strongpoints.

Turkey's decision to launch the twin operations comes as reports indicate that the United Arab Emirates may be seeking to support the PKK in their separatist campaign against Turkey, which has lasted for almost four decades and cost 40,000 lives. 

°®Âþµº's Arabic-language service reported on Monday that a security source within the Kurdistan Regional Government (KRG) based in Erbil had confirmed they had managed to trace multiple instances of , leading them to impose restrictions.

The source said the KRG has asked to obtain "proof of approval" from authorities of transfers from the UAE's foreign exchange office and bank accounts for security clearance.

The source added on Sunday that the measure will be put in place for transfers exceeding $1,000 in Erbil Duhok and Suleimaniyeh.

Sarkot Ali, a Kurdish politician, said monetary relations between the UAE and Kurdish opponents to Turkey stretch back to about four years, which is alleged to have happened under the guise of society organisations or relief missions for the displaced.

The UAE and Turkey have found themselves on opposing sides of numerous regional disputes and conflicts, most recently in Libya

Those affected by the war are located in various regions of Iraqi Kurdistan, especially those located on the border between Turkey and Iran, where the Kurdish opposition movements are active.

The UAE and Turkey have found themselves on opposing sides of numerous regional disputes and conflicts, most recently in Libya where Ankara supports the internationally recognised Government of National Accord (GNA) while Abu Dhabi has poured billions into renegade strongman Khalifa Haftar who was recently defeated at the walls of Tripoli in large part thanks to Turkish military support.

The UAE is also at loggerheads with Turkey over its support for Qatar where it has deployed troops to defend the diminutive Gulf Arab country from a coalition led by the Emiratis and Saudi Arabia.

It is therefore unsurprising that the UAE would seek to destabilise Turkey by supporting separatist groups such as the PKK. However, this exposure also risks having Abu Dhabi labelled as a state sponsor of terror considering the PKK are a designated terrorist organisation in not only Turkey, but also the United States and the European Union.

While it is unlikely the UAE will suffer a similar designation due to the US' support for PKK-aligned groups in Syria, it does provide Turkey with an opening to inflict damage to the Emiratis' carefully crafted public relations image as a state dedicated to fighting terrorism. 

Further, even with Emirati assistance, the PKK is unlikely to be able to destabilise Turkey to the point where it is unable to pursue its foreign policy priorities. Almost 40 years of conflict have shown the PKK is limited in its ability to cripple Turkey, though it will obviously remain a significant domestic menace. 

Instead, Turkey is likely to continue its long-standing programme of cutting deals with the KRG who have tacitly approved of Ankara's recent military operations , and continued escalations could turn Iraqi Kurdistan into a proxy battle between Turkey and the UAE. 

Protests over public sector cuts 

Demonstrators have once again taken to Baghdad's streets this week as Prime Minister Mustafa al-Kadhimi announced steps last week to take a number of austerity measures, including decreasing pensions. 

While Kadhimi  that the pension cuts last week were deliberate and chose to blame it on "a lack of liquidity", according to AFP, the public's outrage at the prime minister's plans for public sector and economic reform led to lawmakers stepping in and blocking his proposals. 

Continued escalations could turn Iraqi Kurdistan into a proxy battle between Turkey and the UAE

Iraqis expressed their anger and frustration at pensions and public sector jobs facing cuts, with some telling  that they were "entitled to a job from the government".

Iraq operates a multi-tiered pension and stipend system. One person can get a state pension for time served in a public sector job, and they could also be entitled to a pension for either being a war widow or even a political prisoner of the former Baathist regime. 

Iraq's consecutive economic crises are the result of Saddam-era socialist style economic policymaking colliding with post-invasion corruption and economic ineptitude that was exacerbated by foreign powers, namely the United States and Iran.

Iraq's public sector is monstrous in size and severely bloated, relying on mass public hiring, subsidies, and stipends. Since 2003, public sector employment has more than trebled, while salaries and benefits have ballooned nine times over, according to a study by Iraqi economist Ali Mawlawi. 

Almost four million Iraqis are employed by the public sector, with a further three million receiving pensions and other stipends. One million Iraqis are also in receipt of social welfare payments.

To keep the public sector running, Iraq needs an income of more than $5 billion monthly. However, it only managed to rake in $2 billion in oil sales in May, far short of what it needs simply to break even

With oil representing more than 90 percent of Iraqi revenues and with the commodity at record lows with increasing oil cuts expected of Iraq as part of its agreements with oil cartel OPEC, the Iraqi public purse is not likely to look healthy any time soon.

Iraq's economy is in need of root-and-branch reform. It is no longer feasible for the state to finance a glut of public sector employment and spending by relying on oil, a commodity which has witnessed incredible instability in recent years and reduced importance in the face of "green energy" initiatives. 

To remain viable and competitive, the Iraqi economy needs to shift from a public sector model financed by oil to gradually increasing private sector enterprise, creating a less corrupt and more profitable investment environment to attract foreign capital, and to invest in services and products to export to gradually wean itself off oil dependency.

While lawmakers may fear losing out on re-election opportunities if they side with the government and legislate to curb the public sector and encourage private enterprise, this is a painful pill that Iraqis may be forced to swallow or else they risk being a non-viable rentier state which would be catastrophic for the country's long-term economic prospects.

The Iraq Report is a fortnightly feature at °®Âþµº.

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