Kurdistan government pushes for fiscal breakthrough as oil firms resume output

International energy companies are gradually resuming production in Iraqi Kurdistan following a spate of disruptive drone attacks, a tentative recovery that coincides with a fresh round of high-stakes negotiations between Erbil and Baghdad.

A high-level Kurdish delegation is seeking to break a long-standing impasse over oil exports and revenue sharing, a dispute that has crippled the regional economy and threatens wider stability.

According to a KRG source cited by Shafaq News, the delegation, which includes Finance Minister Awat Sheikh Janab, aims to finalise the politically sensitive handover of oil exports to Iraq’s State Oil Marketing Organization (SOMO).

In what is being seen as a tangible confidence-building measure, the Kurdistan Regional Government (KRG) has allocated IQD 120bn ($84.24mn) in non-oil revenue to be deposited into the Federal Finance Ministry’s central account. The visit comes as Prime Minister Masrour Barzani met with his negotiating team on Sunday to review progress and underscore the importance of securing the region’s constitutional rights.

However, the deep-seated friction over fiscal transfers remains the primary obstacle. The issue’s political toxicity was laid bare when Shakhawan Abdullah, Deputy Speaker of the Iraqi Parliament, launched a scathing critique of the federal government. He was quoted by Kurdistan24 as accusing Baghdad of “intentionally delaying salary payments to the Kurdistan Region’s public sector employees and taking pleasure in their hardships.” His remarks, which followed the transfer of a delayed salary instalment, highlight how the persistent failure to pay public sector wages is widely viewed in Kurdistan as a tool of political pressure.

These fraught negotiations are playing out against a backdrop of severe economic headwinds. The semi-autonomous region’s finances are heavily dependent on oil revenues, which have been choked off since March 2023.

Exports through the crucial Iraq-Turkey Pipeline were suspended following a ruling by the International Chamber of Commerce (ICC) that effectively halted the KRG’s independent oil sales. The resulting revenue shortfall has led to recurring fiscal crises, leaving hundreds of thousands of public servants without regular pay and deepening mistrust between the two governments.

The imperative to reach a deal has been intensified by recent security threats. Drone attacks in mid-July hit international oil company (IOC) infrastructure, leading to a 140,000-150,000-barrel-per-day drop in Kurdistan’s oil output.

Despite the disruption, operators are returning. US-based Hunt Oil has resumed operations, joining Norwegian operator DNO and London-listed Gulf Keystone Petroleum (GKP), which have restarted facilities at key fields. In Washington, the attacks prompted a sharp response, with US Secretary of State Marco Rubio emphasising the “necessity of holding responsible those involved in the recent attacks.”