ANDREW McFADYEN

FROM the moment we land at Irbil's plush new airport, it looks and feels like we are in a separate country. Kurdistan's red-white-and-green tricolour flutters over the terminal building and our passports are stamped with Kurdish visas.

The Kurdish regional government's website describes it as "the other Iraq" and, here at least, the ousting of Saddam has provided the foundation for a startling economic boom.

Kurdistan's oil minister, Ashti Harami, told us there are no limits to the success they can achieve: "You could create a new Dubai in every city in Iraq. We could be the financial centre of the Middle East."

His comparison with Dubai seems gloriously over-ambitious when hotels here still have regular power cuts. Each evening, as we filled up on hummus and flatbread, we would be plunged into darkness.

However, development in this ancient city is undeniably racing ahead. The frame of a giant shopping mall is taking shape in Irbil's centre and family apartments valued at more than £100,000 are being built on the edge of town.

Jim Covert, the tanned American developer of a suburban housing estate, said each of his 400 homes was designed with a garage big enough to fit a Hummer. He adds they are selling out fast.

Kurdistan's security is guaranteed by a ring of military checkpoints which effectively seal it off from the rest of Iraq. Although a suicide bomber killed two people in Sulaimaniya last week, the region is an oasis of calm compared with the violence further south.

We were able to eat in local restaurants, use hotel taxis and film openly in the street for Channel 4 News - things which would be unthinkable in Baghdad, where journalists have to hire armed guards for protection against kidnappers.

So far, Kurdistan's economic boom is simply a product of political stability and security, but the country floats on an ocean of oil. There is so much of it, we saw natural seepages of the sticky black liquid bubbling up from the ground like geysers in Iceland.

Last year, Kurdish ministers signed 15 contracts with foreign companies, which they hope will produce more than one million barrels of crude oil a day. Ashti Harami said: "Exports will begin from this region very soon."

Norwegian oil company DNO is one of those to secure drilling rights and the first foreign firm to open a new oil field in Iraq for decades. Magne Normann, who is in charge of the operation, learned his trade in Aberdeen.

DNO has spent £150m shipping a modern production facility from Alabama in the United States and building the infrastructure that will enable them to pump crude oil directly into Iraq's main export pipeline to Turkey.

With more than a glint of pride, Normann said: "We were the first international oil company that had the guts to go to northern Iraq. We didn't just talk about it, we did it and we made a discovery on the first exploration well we drilled."

But despite his optimism, there is a problem. Iraq's central government regards the contracts that Kurdistan has signed with foreign companies as illegal and a political challenge to its authority.

Ministers in Baghdad refuse to recognise the agreements made by the Kurdish regional government and say the Kurds must wait until a new oil law is agreed by parliament before exports can begin.

Tariq Shafiq, who helped draft the oil law, says that if Kurdistan decides to go ahead on its own, it will create damage beyond repair: "If they can do this, I think it means the disintegration of the country and they better seek a separate state."

Oil and gas contribute 90% of the Iraqi budget. Kurdistan might not win international recognition or a seat at the United Nations, but if the Kurds can assert control over the natural resources within its borders, they will be independent from Baghdad in all but name.

At its heart, then, this is a political struggle about what kind of country the new Iraq will be. Baghdad aims to stop the Kurds from making unilateral deals with foreign companies because of the dangerous precedent it sets for the Shia population in the south.

Worries about the birth of an autonomous Kurdistan are shared by Iraq's neighbours. There are large and restless Kurdish minorities in Turkey, Syria and Iran, each with their own aspirations for self-government.

Last month, Turkey sent 10,000 troops into Iraq in pursuit of Kurdish rebels. Turkey's government defended their eight-day incursion as an anti-terrorist operation, but it was seen in Kurdistan as a deliberate assault against their fledgling state.

Turkish warplanes reportedly bombed Kurdish rebel hideouts in northern Iraq yesterday, on the eve of today's important Nowruz festival.

Even oil cannot guarantee good neighbours and the Kurds have an old saying that they have no friends but the mountains'. For now, though, they seem to be the only clear winners from the American invasion of Iraq.

  • Andrew McFadyen is a producer for Channel 4 News. You can see more on this story at 7pm on C4 this evening.