MARK CORCORAN: From the minute the aircraft touches down, it’s apparent that there’s something quite different about this corner of Iraq. Marching across the tarmac are businessmen, not soldiers, the advance guard of foreign investment lured here by a slick PR campaign.

TV COMMERCIAL: In the Kurdistan region of Iraq, investors aren’t just building an airport. We are building a democracy. Come see what’s happening in the other Iraq, Iraqi Kurdistan. See the promise. Share the dream.

MARK CORCORAN: On first impression, Kurdistan’s capital Erbil appears to match the corporate hype. No street battles or car bombs, just the clamour of construction. Massive new projects rise out of the plain, complete with the Kurdish version of the all-American dream home.

Kurdistan is an autonomous region of Iraq that already acts like an independent country. Recently the Iraqi national flag was banned. Now it’s the Kurdish colours that fly over this frenetic activity. The centrepiece is the massive Erbil city scheme, taking shape under the direction of Lebanese Project Manager Jack el Boustany.

JACK EL BOUSTANY: The total project is one million square metre built up area. It has four towers. Every, each tower is thirty, thirty stories high. It will have around ten thousand shops, around two thousand offices.

MARK CORCORAN: And what’s that costing?

JACK EL BOUSTANY: It’s costing around four hundred million dollars.

MARK CORCORAN: Kurdistan had a long head start on the rest of Iraq. Since 1991, its autonomy protected by a US military no fly zone but it wasn’t until after Saddam’s downfall in 2003 that things really took off.

JACK EL BOUSTANY: This project actually is unique. I think it is one of the biggest now happening in the Middle East – even in the Gulf area. I think maybe just Dubai might think of going that big.

MARK CORCORAN: What Kurdistan now has to offer is peace, a precious commodity that commands a high price.

Where’s the money coming from?

JACK EL BOUSTANY: It’s mainly local investors.

MARK CORCORAN: When you say local, Kurdish or Iraqi?

JACK EL BOUSTANY: Kurdish, and there are many Iraqi investors who are coming here from Baghdad investing in this area.

MARK CORCORAN: About the only area off limits in this construction boom is the city graveyard. It remains an unintended monument to the decades of suffering endured by Kurds, systematically suppressed and massacred under Saddam’s rule.

HARRY SCHUTE: The people here view it as a liberation, not an occupation.

MARK CORCORAN: This ‘other Iraq’ has architects you won’t see in the promotional videos.

HARRY SCHUTE: You know the story here is that there’s no story if you will. The story here is success.

MARK CORCORAN: American Harry Schute arrived in 2003 as Colonel Schute and was US military commander here before resigning to become security advisor to the Kurdistan Government.

HARRY SCHUTE: Yeah I mean you know these people here are all in agricultural pursuits for the most part. The school right here on the left.

MARK CORCORAN: He takes us on a road trip through his Kurdistan – the tense unforgiving world of counter-terrorism.

HARRY SCHUTE: Yeah I mean if you were to take a person who was here with me in that first year and put them back in here now, they wouldn’t recognise the city. There’s been that much change, that much development here.

MARK CORCORAN: For Harry Schute, this corner of Iraq has become home. He recently converted to Islam and married a Kurdish woman but the omnipresent team of bodyguards is a reminder that he’s still a target for insurgents.

So you’re well known around here?

HARRY SCHUTE: You might say, yes. When I was in uniform I was doing a weekly press conference and so I became a little more well-known then I’d like at some point.

MARK CORCORAN: Who are these guys then?

The sentries belong to Kurdistan’s eighty thousand strong Peshmerga security forces. No Iraqi National Army units are permitted here and the US has only a couple of hundred of soldiers in the entire region.

HARRY SCHUTE: Yeah this is a Korean military vehicle. I don’t know if these guys are coming back in from... you know, one of their reconstruction visits or what.

MARK CORCORAN: The main Coalition presence is provided by more than two thousand South Koreans – here because their government believes this to be the safest place in Iraq. Even so, half of this force will soon be going home.

For a while Kurdistan appeared to be on the same slide to anarchy as the rest of Iraq, hit by a wave of car bombings orchestrated by the Kurdish Islamic Militants of Ansar al Islam. But in mid 2005 the attacks stopped after three hundred members of Ansar were driven out. They headed south to join forces with Arab insurgents.

Harry Schute shows us the simple but highly effective defence deployed against the car bombs – a three metre deep ditch that now rings the capital Erbil – forcing all traffic through just five check points.

How effective has that been?

HARRY SCHUTE: Well knock wood it’s been a hundred per cent effective so far. So you know it’s done its job up to date.

MARK CORCORAN: So it’s been what eighteen months since the last serious attack?

HARRY SCHUTE: Well I guess June of 2005 was the last attack of significance here. A car bomb came in from the south. Yeah, so since then.

MARK CORCORAN: An equally important defence is Kurdistan’s homogenous makeup. Ninety five per cent of the population is ethnic Kurd – predominantly Sunni Muslim though largely secular – the Kurds are proud of their own distinct language and culture.

Well this is the frontier between Kurdistan and basically the rest of Iraq. This point has effectively become an international border. The Kurdish security forces are here and as you can see they check every vehicle and every individual that crosses over here and although they’re reluctant to admit it, the Kurdish authorities do engage in profiling. Any Iraqi Arab in particular, has to have an extremely good reason to be permitted beyond this point to gain entry to Kurdistan.

Exceptions are made for Baghdad’s Arab elite seeking refuge from the war. Those with something to offer, wealthy businessmen, doctors and engineers, are quietly welcomed to start a new life in Kurdistan.

GUARD: I told you to get out!

MAN IN CAR: I didn’t hear you.

MARK CORCORAN: For now, the security measures seem to be working but everyone is acutely aware the ‘other Iraq’ image could be shattered with just one well placed car bomb.

HARRY SCHUTE: In this kind of a security environment, when you are a security provider you have to be perfect every... every minute, and the bad guys just need to get lucky one time and they may achieve some degree of strategic success.

MARK CORCORAN: Massoud Barzani has spent a lifetime fighting for a Kurdish State. Now as President of the Kurdistan region, his fervent nationalism has been replaced with pragmatism. Kurdish independence is opposed by Sunnis and Shias in the Iraqi National Government and by his close allies, the Americans.

PRESENT BARZANI: Independence is our natural right. We do not hide our wish to declare it but we have to look at our national interest. We could face difficulties if we declare independence now, that we may not face in 10 or 15 years, when the world is changed. We want to get away from all this chaos and fighting.

SOLDIERS MARCHING SINGING: I’m the Peshmerga of Kurdistan. I’m the Peshmerga of Kurdistan.

MARK CORCORAN: The Kurds are still driven by the cult of their legendary guerrilla fighters – the Peshmerga – literally translated as ‘those who face death’.

SOLDIERS MARCHING SINGING: I will never surrender! I will never surrender!

MARK CORCORAN: No matter which they turn, the Kurds see enemies. They view themselves as the victims of geography and history.

SOLDIERS MARCHING SINGING: This life is just death and torture.

MARK CORCORAN: More than twenty five million Kurds are scattered across the region. Only five million are in Iraq. None of Iraq’s neighbours welcome an independent Kurdish state in their midst. Turkey is fighting its own Kurdish separatist movement, the PKK, which operates from sanctuaries inside Iraqi Kurdistan. If Kurdistan ever formally declares independence, Turkey threatens to invade.

PRESIDENT BARZANI: If Turkey gives itself the right to cross our borders then we will no longer respect Turkey’s borders. If Turkey thinks it can bring fire into our home they have to know they’ll also be caught by fire.

MARK CORCORAN: Just down the road, President Barzani faces a more immediate crisis. Kurdistan survives on this black market fuel, smuggled in from Turkey and Iran and openly sold at roadside stalls. It’s ironic, given that Iraq sits on some of the world’s largest oil reserves. But the insurgency has crippled fuel production and the major oil fields still functioning, lie outside of Kurdish control.

This petrol comes from Iran and costs about one dollar a litre. Eight times the price paid before Saddam was deposed.

MOHAMMED ALI: The current Iraqi government and Saddam Hussein are alike - they have no differences. Saddam was even better because he didn’t let us go without kerosene, gas and food. Everything was cheap, now it is too expensive. Don’t be fooled by what you see. People are poor.

MARK CORCORAN: Oil and nationalism are a volatile mix and for the next leg of our journey we’ll need the protection of the Peshmerga. We cross Kurdistan’s border into the uncertainty that is the rest of Iraq, towards a city that may ignite yet another conflict.

And this is our destination, Kirkuk, lying just outside Kurdish territory. This city of more than a million people will have to vote this year on whether to join the Kurdistan region or stay with the rest of Iraq. The referendum, a key condition of Kurdistan supporting a Federal Iraqi Government.

We can’t go into the city today because our Peshmerga escorts feel that it’s simply too dangerous. There’s too much insurgent activity happening. Kirkuk is a contested city. The Kurds claim that it should be part of Kurdistan proper, the only problem is it’s also claimed by Iraq’s Arabs and some ethnic minority groups. Compounding these ethnic tensions, is the fact that Kirkuk also sits atop vast quantities of oil and if Kurdistan is to have any chance of economic independence, it needs to get access to this oil.

Peshmerga concerns for our safety were well founded. In the weeks following our visit, there’s been an increase in insurgent attacks, and tensions between all ethnic groups are escalating rapidly. Kirkuk’s future is complicated by its past. Once a mixed community of Kurds, Turkoman and Arabs, the city was ethnically cleansed during Saddam’s reign.

HARRY SCHUTE: Over the course of the time of Saddam’s time in power, he conducted a very, very aggressive campaign in all of the Kirkuk Governorate to move Kurds and in some cases Turkoman out of Kirkuk and move Arabs in from the south. You know the coin was termed ‘Arabisation’.

MARK CORCORAN: Turkey regards the city’s sizeable Turkoman minority as brethren and warns Kirkuk’s incorporation into Kurdistan is unacceptable. But President Barzani says his demand for Kirkuk is not negotiable.

PRESIDENT BARZANI: Turkomans are citizens of this country and all their rights have been preserved. They are participating, and they have been given every right, therefore they have no problems… there is no sensitivity. If Turkey gives itself the right to intervene in Kirkuk because of 200-300 thousand Turkomans, remember there are 25-30 million Kurds in Turkey.

MARK CORCORAN: Nationalism aside, the Kurds simply can’t afford to wait for Kirkuk to be resolved. Kurdistan now relies on the national government in Baghdad to provide its budget. It’s a tenuous financial lifeline at best.

Just north of Kirkuk, we’re back in Kurdish territory approaching one of the regions most sensitive installations – the heavily guarded oil facility of Taq Taq. The Kurds have long known vast reserves of oil lie untapped here.

What are the reserves? How much oil are you sitting on here?

HOSHYAR NORI ABBAS: [Oil geologist] According to our document, we have about two billion capacity.

MARK CORCORAN: Two billion barrels.

HOSHYAR NORI ABBAS: Two billion barrels you know?

MARK CORCORAN: By the end of this year, production will begin in earnest. Despite the cross border tensions, a Turkish company has the three billion US dollar contract to build the wells, a refinery and ultimately a pipeline to Turkey.

Officially all of Iraq’s oil industry is controlled from Baghdad but the view here is what’s produced in Kurdistan will benefit Kurdistan.

HOSHYAR NORI ABBAS: We want to use the oil to develop... to develop our region... because you know before, the Iraqi regime used the oil as a weapon against the Kurdistan region. Now, no. Now all the system is changing… we want to produce the oil to build - to build for the new system.

MARK CORCORAN: The winter snows finally arrive in Suleimanieh – Kurdistan’s second city - the plunge in temperature highlighting the urgency to get oil facilities up and running. Here, electricity is rationed to just two hours a day. A barrel of heating oil now costs one month’s salary. Taxi drivers queue for kilometres in the bitter cold, waiting for their meagre ration of official fuel.

DRIVER: Sometimes we are in the queue from 7 pm till 3 pm the next day, waiting for fuel – and then told to come another day.

BAKHTYAR SAEED: [Lawyer] There’s no electricity. No other resources for Kurdish people now so good example of the lack of the basic shortages.

MARK CORCORAN: Lawyer Bakhytyar Saeed spells out the common complaint that few dare express publicly. He claims the energy crisis is being worsened by endemic government corruption.

BAKHTYAR SAEED: The Kurdistan Regional Government has monopolised the income it receives from the Central government. It’s a lot of money, and they used it as capital. Part of it was sent to overseas banks and only a small amount of it was spent on the people. According to the International Anti-corruption Watchdog’s report, the level of corruption in Iraq and Kurdistan is 80%.

MARK CORCORAN: During our visit, Kurdistan’s cherished peace would be broken – not by protestors or insurgents – but by Kurdistan’s closest ally, the United States.

PRESIDENT GEORGE BUSH: [television address] A democratic Iraq will not be perfect but it will be a country that fights terrorists instead of harbouring them.

MARK CORCORAN: As President Bush announces his decision to send more US soldiers to Iraq, there’s another unexpected troop movement in Kurdistan.

[Looking at building] Certainly turned this place over.

US Special Forces have raided this Iranian Government Mission in Erbil.

Well the Americans have hit the Iranian mission in the early hours of the morning. As you can see, they’ve turned the place over. There’s not a chair or table or desk left unturned. They’ve taken away five Iranians for questioning. However it hasn’t all gone the American’s way. Another unit of US troops nearby here who were part of this operation, were confronted by Kurdish security forces. There was a tense stand-off for a number of hours before both sides backed down. Kurdistan’s President Massoud Barzani is furious.

PRESIDENT MASSOUD BARZANI: It was a very, very stupid act for the U.S. Such behaviour is not acceptable to us. Our regional integrity is important. Any behaviour that is abusive to us Kurds, I cannot accept – from the Americans or any other country.

MARK CORCORAN: Been smashed or shot out. Another door downstairs obviously has been blasted open.

The Americans say the Iranians captured here were secretly supporting insurgent groups but the Kurds claim the mission functioned merely as a visa office for the many Kurds with close personal and business links with Iran. Whatever the truth, by the time we arrive, there’s not much evidence left to support either case.

Looks like some kind of communication facilities here. Lots of gear’s obviously been ripped out and taken away.

The Kurds feel betrayed by the US, believing that the raid undermines their hard won autonomy.

PRESIDENT MASSOUD BARZANI: the Americans went to the wrong place. If they are looking for Iranians – those conspiring against them – Erbil is not a place for such plans.

TV COMMERCIAL IN KURDISTAN: Thank you America. Thank you.

NARRATOR OF ADVERTISEMENT: The Kurds of Iraqi Kurdistan just want to say thank you for helping us win our freedom.

KURD CITIZEN #1: Thank you for democracy.

KURD CITIZEN #2: Thank you America.

KURD CHILD: Thank you.

MARK CORCORAN: This ‘other Iraq’ does have a lot to be thankful for. At least here the street fights are in jest with laughter a relief from those spared the sectarian bloodbath engulfing the rest of the country.

The Kurds are extraordinary optimists but they face enormous obstacles and the dream of building a homeland doesn’t offer much warmth for people enduring winter without affordable heating, power or fuel.