As salaries and oil revenues dispute deepen, Kurds threaten to withdraw from federal government in Baghdad

Iraq's long-running budget stand-off between the federal government and the Kurdistan Regional Government (KRG) has escalated sharply as national leaders call for constitutional solutions. At the same time, Kurdish lawmakers warn of a political withdrawal from Baghdad amid ongoing salary suspensions in the Kurdistan Region.

Prime Minister Mohammed Shia al-Sudani and President Abdul Latif Rashid, in a joint meeting on Saturday, underscored the need for "fundamental solutions" to Baghdad–Erbil financial obligations. A statement from the prime minister's office said the leaders discussed political and economic developments and reaffirmed the importance of implementing federal budget provisions and passing the long-delayed hydrocarbons law.

The meeting emphasised that the framework of the Iraqi Constitution, the Federal Budget Law, and rulings by the Federal Supreme Court could resolve disputes over salary payments and revenue-sharing.

The meeting came as the Supreme Court recently confirmed it had registered a lawsuit filed by Kurdish public sector employees, who are demanding that the Ministry of Finance resume salary payments halted in May. The suit builds off a February 2024 court ruling that obliges both the federal and regional governments to coordinate payments and localise salaries through federally monitored banks.

Last week, the Iraqi Ministry of Finance formally announced it would cease disbursing funds to the KRG, citing Erbil's failure to transfer oil and non-oil revenues as stipulated under the 2023 federal budget law. The ministry stated that the KRG had exceeded its allocated share of over 12 percent and failed to implement salary localisation measures despite repeated warnings and audit reports from both federal and regional oversight bodies. The ministry has requested that the court address the issue as per Iraq's laws; it cannot send the payments. 

"The issue stems from a combination of accumulated legal and financial problems, as well as political pressure from the Iraqi Prime Minister in the context of an early elections campaign," Kurdish political analyst Yassin Taha told The New Arab.

He added that the KRG's recent signing of oil and gas contracts with US companies has further strained relations, with Baghdad viewing the move as an international provocation.

Taha warned that if the salary crisis is not resolved imminently, Kurdish political forces may withdraw from the federal government and boycott the November elections. This scenario that could destabilise Iraq's already fragile political landscape.

The Finance Ministry also accused the KRG of refusing to hand over oil exports to the state-owned marketing company SOMO, resulting in what it described as financial losses to the federal treasury "in the trillions of dinars"—an allegation Erbil has rejected.

Kurdish leaders: "Time for withdrawal?"

Amid growing tensions, Deputy Speaker of Parliament Shakhawan Abdullah—a Kurdish lawmaker—issued a stark warning on Thursday, suggesting that Kurdish MPs could withdraw from Baghdad if the crisis persists.

Kurdish blocs issued a joint statement the same day, labelling the Finance Ministry's actions as politically motivated and urging Prime Minister Sudani to intervene. They stressed that salaries should not be used as leverage in political or technical disputes and called on Kurdish ministers and President Rashid to clarify their stances.

"The salary is a constitutional entitlement. It cannot be delayed or suspended," the statement said.

Iraq's Federal Supreme Court on Sunday announced that public employees from the Kurdistan Region had filed a lawsuit demanding that the Ministry of Finance resume salary payments halted in May. The suit invokes the court's February 2024 ruling, obliging both the federal and regional governments to coordinate payments and localise salaries via federally supervised banks.

The court stated that it had officially registered the case and expected to rule soon on a request to issue a provisional order compelling the finance ministry to act.

Earlier in the week, 43 Kurdish political parties—including the ruling Kurdistan Democratic Party (KDP), the Patriotic Union of Kurdistan (PUK), and the Kurdistan Islamic Union (KIU)—held an emergency meeting in Pirmam, Erbil province, to condemn Baghdad's decision.

In a joint declaration, the parties described the move as "politically motivated" and warned that "all options remain on the table" if the crisis is not resolved through dialogue.

The meeting notably excluded several opposition groups, including the New Generation Movement and the Kurdistan Justice Group, who argued that such discussions should take place in the Kurdistan Parliament. The parliament has remained inactive since its inaugural session on 3 December, having failed to elect a speaker, deputies, or secretary—steps required to form a new KRG cabinet following last October's election.

The KDP warned on Thursday that it would adopt a "serious stance" if May salaries are not paid by 6 June, a date that coincides with the Eid al-Adha holiday.

The stand-off marks the latest chapter in a prolonged dispute over oil sales, budget entitlements, and federal oversight. Baghdad has long accused the KRG of bypassing federal authorities by signing international energy deals independently—including two new contracts with American firms finalised in May. Iraq's Oil Ministry has since launched legal proceedings against the agreements.

The crisis unfolds at a critical juncture as Iraq heads towards national elections amid public frustration over services, corruption, and economic hardship. A deterioration in Baghdad–Erbil relations could pose significant risks to Iraq's stability and the integrity of its federal system.