Fresh negotiations over the past days between Iraq's federal government in Baghdad and the Kurdistan Regional Government (KRG) have ended without a final agreement, as both sides struggle to resolve two longstanding issues: the resumption of oil exports via Turkey's Ceyhan port and the payment of KRG public sector salaries.
The talks are the latest effort to break a protracted impasse over oil revenue sharing and fiscal obligations. Baghdad continues to insist that the KRG must hand over all oil revenues—in addition to customs, taxes, and other non-oil income—as a condition for receiving its share of the federal budget. These are regarded by the federal government as sovereign revenues that must be transferred to the Ministry of Finance.
Under Iraq's 2023–2025 federal budget law, the KRG is entitled to 12.67 percent of total public spending in return for delivering 400,000 barrels of oil per day to the State Oil Marketing Organisation (SOMO) and transferring all non-oil revenues.
While a preliminary understanding was reached on 29 June to resume oil exports—seen as a prerequisite for resuming salary payments—key points of contention remain unresolved.
Information obtained by The New Arab apparently shows that Prime Minister Mohammed Shia al-Sudani, who is expected to head a separate electoral list in the November 11 parliamentary elections, told the Kurdish delegation that he lacks the authority to release salaries unilaterally. The matter, he reportedly said, must instead be discussed at the upcoming meeting of the ruling State Administration Coalition, expected later this week.
One of the primary sticking points is how the 400,000 barrels per day are to be used. Baghdad insists that the full amount be pumped into the export pipeline, ending the KRG's practice of diverting 120,000 barrels daily for local use. Federal officials say they will supply the Iraqi Kurdistan Region's domestic fuel needs directly—a promise Kurdish officials are reluctant to accept, citing a lack of trust in Baghdad's delivery capabilities.
At present, the 120,000 barrels allocated for local consumption are refined by private plants linked to the ruling Kurdistan Democratic Party (KDP) and Patriotic Union of Kurdistan (PUK). These refineries purchase oil at symbolic rates but sell petrol at commercial prices. While a litre of car fuel in Baghdad costs around 450 Iraqi dinars, it costs nearly 1,000 dinars in the Kurdistan Region, even with a lower quality. Several Kurdish MPs have urged Baghdad to distribute subsidised fuel directly to the region's population.
An earlier compromise proposed that 280,000 barrels be allocated for export, with the remaining 120,000 retained for domestic use. However, no formal agreement has been reached.
Oil exports through the Kirkuk-Ceyhan pipeline have been suspended since 25 March 2023 following an international arbitration ruling and unresolved technical challenges. In February, Iraq amended the budget law to allocate $16 per produced barrel to international oil companies (IOCs) operating in the region in an effort to overcome the impasse. However, the pipeline remains shut, and IOCs have rejected the financial terms as unviable.
Salaries and oil flows
The federal government has tied the release of KRG salary payments to the resumption of oil exports, despite a binding ruling by Iraq's Supreme Federal Court that KRG salaries should be disconnected from political disagreements. Although the KRG requested the disbursement of at least one month's salaries during ongoing negotiations, Baghdad declined.
On 28 May, Iraqi Finance Minister Taif Sami sent a letter to the KRG stating that Baghdad could not continue transferring funds to the region due to its failure to comply with budgetary commitments. She has asked Iraq's top court to settle the issue, but the court has yet to make a decision.
As of early July, the KRG employees had still not received May salaries, while the federal government had already begun distributing June wages in areas under its control. The KRG Council of Ministers convened on Wednesday to discuss the matter but deferred a decision, pending Prime Minister Sudani's response.
Ali Hama Saleh, an opposition MP in the Kurdistan Parliament from the National Stance Movement, told TNA that no deal has been reached on the oil issue. "Unless a deal is reached on oil handover to Baghdad, the issue of salaries will remain unresolved," he warned.
Meanwhile, economic conditions in the Iraqi Kurdistan Region continue to deteriorate. Public servants face soaring inflation, wage delays, and recession. Many have begun boycotting work in protest, and local authorities have reportedly taken disciplinary measures against non-compliant employees.
In Sulaymaniyah, recent protests by teachers over unpaid salaries were dispersed by security forces. Dozens of demonstrators, including an MP and several activists, were arrested, drawing sharp criticism from civil society groups and opposition leaders.
US urges swift resolution
The United States has also expressed concern over the ongoing stalemate. On Tuesday, 1 July, a spokesperson for the US State Department told Rudaw that Washington has urged all parties in Iraq and the Kurdistan Region to resolve the pipeline dispute.
"It is important to resume operations on the Iraq-Turkey oil pipeline," the spokesperson said, adding that "the Iraqi government, the Kurdistan Regional Government, and other concerned parties must immediately restart pipeline operations."
The spokesperson noted that "three US companies have been directly impacted by the closure" and emphasised that Washington "will not accept an indefinite delay."
"The closure of the pipeline has choked Iraq's economic progress, weakened American businesses, and contributed to strengthening Iranian influence," the official added.
TNA contacted the spokesperson for Iraq's federal government, the deputy oil minister, the KRG's Ministry of Finance and Economy, and several Kurdish MPs in the Iraqi parliament. None were available for comment at the time of publication.