Oil price drop 'weakens fight against IS' Erbil warns

The recent plunge in oil prices may cause an economic 'tsunami' that will weaken the fight against Islamic State group deputy Prime Minister of Iraq's Kurdistan Regional Government Qubad Talabani said on Thursday.

Oil prices plummeted to a 12-year low of under $30 per barrel this week.

The Iraqi central government in Baghdad and the Kurdistan Regional Government [KRG] significantly depend on oil revenues.

The central governments' forecasted budget for 2016 was based on a $45 per barrel price, almost 50% higher than current rates.

"The world is focused on the war against IS but nobody wins a war bankrupt," Qubad Talabani said in an interview.

"I think this is something the coalition against IS really do need to factor into the equation."

Even before the most recent fall in oil prices, the autonomous region had been unable to pay the salaries of its own armed forces, the Peshmerga.

They are on the frontline in the fight against the IS militant group.

Talabani warned that the economic crisis will threaten advances on the ground.

"The most dangerous impact it can have is on morale. We are getting desertions. People are leaving their posts [and] it will increase," he said.

Peshmerga forces backed by US-led air strikes led the way in recapturing the city of Sinjar from IS group in November last year.

Kurdistan's economy was also hit hard in 2014 when the Iraqi government cut funding into the region as punishment for exporting crude on its own terms in pursuit of economic independence.

Current oil low prices will affect the ability of both central and regional governments to mobilise resources in the fight against IS.

Iraq has vowed to retake the major northern city of Mosul from IS after Baghdad forces captured Ramadi in December with the help of coalition of anti-extremist militias and allied tribesmen.

Yet with the IS militant group said by US government officials to have made more than $500 million in trading oil it remains to be seen how it too will also be affected by recent price fall.