Via Foreign Policy, an interesting look at Erbil where, with the Islamic State on their doorstep, Kurdish leaders have scaled back their once grandiose ambitions to focus on ensuring the survival of their enclave:

Unused escalators rise up to bare concrete floors in the Ankawa mall; particle-board dividers form makeshift living spaces. Instead of shoppers browsing Western chain stores — the most visible signs of Erbil’s recent economic boom — the unfinished mall is filled with destitute, displaced families who fled the Islamic State’s takeover of northern Iraq in August. With no money to move themselves to more permanent housing, they and tens of thousands of others will likely spend the winter in construction sites like these.

“Iraq is finished,” says a resident who fled Karakosh, a predominantly Christian community on the plains between the Islamic State-controlled city of Mosul and the Kurdish provinces. Although the stable, prosperous Kurdish region carved out of Saddam Hussein’s Iraq with U.S. air protection in 1991 will likely recover, it won’t be without a cost.

Iraq’s Kurdistan region has temporarily shelved its dreams of becoming a new Dubai — a glittering, oil-rich haven from chaos. With the fight against the Islamic State at its doorstep, Kurdish leaders are focusing on keeping their region free of jihadi violence and on navigating the treacherous waters of relations with Baghdad, Turkey, and Iran. In the midst of a deep economic crisis, their financial salvation has rested on disputed oil flowing from fields now under Kurdish control.

The military situation, at least, is better than it was a few months ago. U.S. airstrikes from outside Erbil to near Mount Sinjar have allowed Kurdish Peshmerga fighters to take back some of the territory they lost to the Islamic State in August, when the Kurdish retreat abandoned hundreds of thousands of civilians to the jihadi group. But Kurdish officials see a lasting threat from a disciplined, well-equipped, and well-funded organization that has proved capable of seizing and holding thousands of square miles of territory.

“They have geographical depth. If they are defeated here, they can reorganize themselves in Ramadi — if you fight them in Ramadi, they will reorganize themselves in Raqqa,” says Fuad Hussein, chief of staff for Masoud Barzani, president of Iraq’s Kurdish region. “This is the strength of [the Islamic State]…. They are fighting us everywhere. Five days ago they attacked us in seven places.”

The recent Kurdish gains have been most impressive in Nineveh province, where the U.S. airstrikes and weapons — such as anti-tank missiles flown in from Germany to under-equipped Kurdish forces — have allowed the Peshmerga to go on the offensive. The Kurdish fighters have retaken the strategic Mosul Dam, as well as the towns of Guwair, Makhmour, Khazir, Rabia, and Zumar.

“The Peshmerga adapted their technique and their way of confronting [the Islamic State],” says Heman Hawrami, an advisor to Barzani and head of the foreign relations office of the Kurdistan Democratic Party, the leading party in the Kurdish Regional Government. “Definitely without the airstrikes it would be very difficult to do all the achievements we did, but the airstrikes without having a force on the ground would not do anything either.”

The military gains have eased fears that the Kurdish capital, Erbil, could fall — one of the main reasons for the U.S. military intervention in Iraq. But Kurdish officials say that many fighters in their 100,000-strong force, many of them volunteers who simply took up rifles, are still lacking even basic body armor, much less the heavy weapons that could decisively turn the battle.

“Do you know how many Peshmerga were killed because they don’t have vests?” asks Hawrami, while declining to give the figure. “It’s not available even on the market.”

Baghdad has also dragged its feet on providing support, further stalling the Kurdish counterattack, according to Kurdish officials. Hawrami says Kurdish requests to the Iraqi Defense Ministry for Iraqi tanks and troops to hold Mosul Dam after it was liberated — mostly by Kurdish special forces units — went unanswered.

But Iraqi Kurds are focused on events far beyond their own enclave. It is the besieged Syrian Kurdish city of Kobani near the Syria-Turkey border has seized the Kurdish imagination. After the Islamic State swept through hundreds of Kurdish towns and villages, the group has been prevented from taking this city, where under-equipped Kurdish fighters — and the late arrival of airstrikes from the U.S.-led coalition against the jihadis — held back the Islamic State’s advance. The town has become a symbol of Kurdish resistance to the jihadis.

Most significantly, the United States brokered a deal with Turkey in October to allow 150 Iraqi Kurdish Peshmerga to cross through Turkey to fight with Syrian Kurds in Kobani. The main Kurdish fighting force there is affiliated with the Kurdistan Workers’ Party, which fought Turkey for decades and is designated by Ankara and Washington as a terrorist organization.

“This was a game-changer for the region,” says Hawrami. “Armed men with heavy weapons going through Turkey into Kobani.” The United States has also dropped Iraqi Kurdish weapons and ammunition into Kobani to resupply the Syrian Kurds.

As a convoy of artillery batteries moved out of Iraqi Kurdistan through Turkey en route to Syria in October, cheering crowds lined the roads in both countries — in some places preventing the convoy from moving.

“We look at [the siege of Kobani] as a threat to all Kurds, so that’s why it’s the duty of all Kurds wherever they are to defend the Kurdish people and the Kurdistan areas,” says Hawrami.

But the challenges facing the Kurds are not only military. They are also economic. The war against the Islamic State has coincided with the deepest financial crisis the Iraqi Kurdish region has faced since international trade sanctions during the Saddam Hussein era. In a long-running dispute with Baghdad over who is allowed to export Iraqi oil, the Iraqi government has halted transfers of billions of dollars in payments to the Kurds — halting major construction projects and delaying the payment of government workers’ salaries. An agreement reached Nov. 13 by new Iraqi Finance Minister Hoshyar Zebari, a Kurd, and the Iraqi Oil Ministry is set to restore some of that revenue.

Baghdad’s decision to cut off the stream of cash, however, has only caused Kurdish leaders to pump oil more hurriedly. They are now pumping oil from fields held by Kurdish forces since the Iraqi Army’s retreat, including the Bai Hassan and Avana fields near Kirkuk, and exporting the oil through Turkey.

Ashti Hawrami, the Kurdish government’s minister of natural resources, says the region is now exporting 300,000 barrels of crude per day, a figure he says could rise to 500,000 barrels by early next year. The Iraqi government argues that the right to sell oil belongs exclusively to Baghdad and has gone to court to prevent U.S. companies from buying oil sold by the Kurdish region.

Despite reports of tankers full of Kurdish crude circling international waters while waiting for buyers, Hawrami says all the oil offered by the Kurdish region is immediately sold. “When there is oil it will flow, we have found,” he said in early November at a forum held by the Middle East Research Institute in Erbil. “I don’t remember ever seeing stranded oil for long.”

That insatiable world demand for oil underpins Kurdish leaders’ confidence that they will weather this crisis. Iraqi Kurdistan may not become the next Dubai, but it still looks poised to weather the jihadi storm and emerge as a key player in the post-Islamic State Middle East.