Kurdish Policy Analysis

A new Tony Blair Institute report argues that countries such as Iraq and the Kurdistan Region should stop chasing frontier AI models and instead build open-source ecosystems that strengthen sovereignty, innovation, and economic resilience.

A Tony Blair Institute report argues middle powers should embrace open-source AI to strengthen sovereignty, innovation, and economic competitiveness.

Why Middle Powers Must Win the Battle for Open Source

For much of the past three years, governments around the world have viewed artificial intelligence through a narrow geopolitical lens. Headlines have focused almost exclusively on a competition between the United States and China to build the world's most powerful AI models. The assumption has been simple: countries that fail to build frontier models risk becoming permanent technological dependents.

A new report by the Tony Blair Institute for Global Change challenges that assumption.

Instead of asking whether middle powers can compete with Silicon Valley or Beijing in developing the next generation of frontier large language models (LLMs), the report asks a far more practical question:

How can countries that will never dominate frontier AI still become winners in the AI economy?

Its answer is both simple and strategically significant.

Middle powers should stop trying to replicate OpenAI, Google, Anthropic or Chinese AI giants. Instead, they should invest in open-source ecosystems, strategic data, AI adoption, digital government, research capacity, and innovation.

For countries like Iraq and the Kurdistan Regional Government (KRG), this may be one of the most important technology policy lessons of the decade.

The Wrong AI Race

Much of today's global discussion treats AI as an arms race dominated by the largest economies.

The United States possesses enormous computing infrastructure, world-leading universities, deep venture capital markets, and companies capable of investing tens of billions of dollars annually.

China possesses similar advantages.

Very few countries can realistically compete at that scale.

The Tony Blair Institute argues that this should not be viewed as failure.

Instead, governments should recognize that most economic value will not come from inventing frontier models but from deploying AI across every sector of society.

Healthcare.

Agriculture.

Oil and gas.

Education.

Banking.

Public administration.

Justice.

Transport.

These sectors—not the AI models themselves—will determine which countries gain the greatest economic productivity.

Why Open Source Changes Everything

The report argues that open-source AI has become a strategic equalizer.

Instead of paying enormous licensing costs for proprietary systems, governments can adapt existing open models to their own languages, institutions, and priorities.

Open-source ecosystems also encourage:

• local startups
• universities
• software developers
• researchers
• government agencies

to innovate together rather than relying entirely on foreign vendors.

Ukraine provides perhaps the strongest example.

Its digital platform Diia transformed public services while relying heavily on openness, public-private cooperation, and digital infrastructure rather than attempting to build its own frontier AI models.

Why This Matters for Iraq

For Iraq, the report's recommendations arrive at an important moment.

The country continues to invest heavily in infrastructure, energy, and digital transformation.

Yet its AI strategy remains relatively underdeveloped.

Rather than investing scarce public resources in building expensive national LLMs, Iraq could achieve greater returns by focusing on:

• digitising government services;
• developing Arabic and Kurdish language datasets;
• creating secure public-sector AI applications;
• modernising healthcare and education through AI;
• supporting local technology startups; and
• encouraging universities to participate in open-source AI development.

Such an approach would reduce dependence on foreign technologies while building domestic expertise.

What It Means for the Kurdistan Regional Government

The report is particularly relevant for the Kurdistan Regional Government.

Unlike larger regional powers, the KRG cannot realistically compete with global AI laboratories.

However, it possesses several comparative advantages.

The Kurdistan Region has a relatively young population, expanding universities, increasing digital connectivity, and an entrepreneurial private sector.

An open-source AI strategy could allow the KRG to position itself as Iraq's innovation hub.

Potential priorities include:

• Kurdish-language AI models built upon open foundations.
• AI-assisted education for universities.
• Smart public services.
• Digital investment platforms.
• Agricultural AI.
• Tourism applications.
• Public administration modernization.

Rather than attempting technological sovereignty through expensive infrastructure alone, the KRG could pursue functional sovereignty by owning its data, applications, and adaptation layers.

The New Meaning of Sovereignty

Perhaps the report's most important contribution is its redefinition of sovereignty.

Traditional discussions assume sovereignty means owning every technology.

The Tony Blair Institute argues otherwise.

In the AI era, sovereignty increasingly means possessing the capability to adapt, govern, and deploy technology effectively—even if the underlying frontier models originate elsewhere.

That distinction matters enormously.

Countries that control their strategic data, maintain digital infrastructure, develop skilled workforces, and build competitive AI ecosystems can exercise considerable technological independence without owning frontier models.

Implications for Iraq

The report carries several important lessons for Baghdad.

First, AI should become part of Iraq's broader national development strategy rather than remaining a niche technology issue.

Second, digital transformation should focus on public service delivery, reducing bureaucracy, improving transparency, and combating corruption.

Third, Iraqi universities should become active participants in AI research rather than passive consumers of imported technologies.

Finally, public procurement should encourage domestic innovation rather than reinforcing dependence on external vendors.

Implications for the Kurdistan Regional Government

For the KRG, AI offers an opportunity to diversify beyond hydrocarbons.

An open-source strategy could support economic diversification by strengthening:

• higher education;
• startup ecosystems;
• digital entrepreneurship;
• e-government;
• health technologies; and
• regional competitiveness.

Such investments would complement the Region's broader ambition to attract foreign investment while creating higher-value employment opportunities for young graduates.

Regional Implications

Across the Middle East, AI competition is increasingly becoming an element of geopolitical competition.

Saudi Arabia, the UAE, Qatar, Israel, and Türkiye have already announced ambitious national AI strategies.

If Iraq delays, the technological gap could widen significantly.

However, the report suggests that catching up does not require competing directly with the United States or China.

Instead, success depends on rapidly adopting AI across government and the economy while building national capabilities around openness.

Conclusion

The Tony Blair Institute challenges one of today's biggest misconceptions about artificial intelligence.

The future will not belong only to those who build the largest AI models.

It will belong to those who deploy AI most effectively.

For Iraq and the Kurdistan Region, this is encouraging news.

Neither needs to become the next OpenAI.

Instead, both can build competitive advantages through open-source innovation, strategic data, skilled talent, modern public institutions, and practical AI deployment.

The AI race is no longer simply about inventing technology.

It is about who applies it fastest, governs it best, and turns it into lasting economic and geopolitical influence.

➜ Related: "Investment Without Sovereignty? Why Iraq's Economic Ambitions Depend on State Authority Over Militias"

Economic transformation depends not only on physical security but also on technological competitiveness. As Iraq seeks to attract investment and diversify its economy, digital governance and AI adoption could become as important as infrastructure and energy reforms. Building an open-source AI ecosystem would strengthen investor confidence by demonstrating that Iraq is preparing for a knowledge-based economy alongside its traditional industries.

➜ Related: "Beyond Oil: How the Strait of Hormuz Crisis Could Quietly Redraw Iraq's Economic Future with GCC Trade"

As Gulf states accelerate investments in artificial intelligence and digital infrastructure, Iraq must avoid falling behind. Diversifying trade and economic partnerships with GCC countries will increasingly require digital compatibility, innovation, and modern public services. AI is no longer simply a technology issue—it is becoming an essential component of regional economic integration and long-term competitiveness.

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