Shafaq News

The relationship between Baghdad and Erbil enters 2026 locked in a familiar rhythm: disputes flare, delegations meet, reassuring statements follow, yet the core issues remain firmly in place.

More than two decades after 2003, the Federal Government and the Kurdistan Regional Government (KRG) continue to circle the same unresolved files, despite constant appeals for dialogue as the only workable route.

Yet, beneath the surface lies a dense mix of financial, legal, and political complications that build on top of one another each year, reinforcing a cycle that grows heavier and more intricate over time.

The Oil Faultline

Oil remains the fault line between Baghdad and Erbil. The dispute boils down to a simple question: who controls the oil? Baghdad insists all exports go through the State Oil Marketing Organization (SOMO), ensuring revenues reach the federal treasury. Erbil argues its political and administrative autonomy gives it the right to manage part of its resources, as outlined in the constitution.

Tensions escalated sharply on March 25, 2023, when Turkiye, following an international arbitration ruling, stopped allowing Kurdish crude shipments without Baghdad’s approval. The result: roughly 450,000 barrels per day—400,000 from the Kurdistan Region and 50,000 from Kirkuk—went offline, costing an estimated $22–25 billion, according to the Iraqi Foreign Ministry.

In September 2025, caretaker Prime Minister Mohammed Shia al-Sudani unveiled what was hailed as a “historic” oil agreement with the KRG. Under the deal, the North Oil Company (NOC) will handle the technical side of exports, while SOMO manages commercial sales and revenue collection. Officials hope the framework will bring transparency, increase federal revenues, and finally resolve the long-running feud over independent Kurdish oil sales.

But oil is just the tip of the iceberg. The suspension of exports between 2023 and 2025 created a severe financial gap in the KRG, hitting salaries and public services hard. This reopened debates over the KRG’s share of the federal budget, how it is calculated, and how the Region’s financial obligations should be handled.

Read more: Erbil-Baghdad disputes: A cycle of missed opportunities and deep-seated divides

Back in the government of former Prime Minister Adel Abdul Mahdi (2018–2020), Baghdad and Erbil reached an agreement: the federal government would pay all salaries in the Kurdistan Region for the first time since 2014, while Erbil would deliver revenue from 250,000 barrels out of the roughly 500,000 barrels it exported independently. Baghdad says Erbil mostly failed to comply, while the Kurdish side insists it met its commitments.

The tension peaked again in May 2020 when then-PM Mustafa Al-Kadhimi halted the payment of nearly $500 million a month in salaries, citing the nation’s financial crisis. In response, KRG leaders—including President Nechirvan Barzani, PM Masrour Barzani, and his Deputy Qubad Talabani—made repeated trips to Baghdad, searching for solutions.

Speaking to Shafaq News, Fadel Nabi, former undersecretary of Iraq’s federal Finance Ministry, painted a grim picture of financial negotiations with the KRG. Most agreements, he said, exist only on paper—verbal, vague, and without legal mechanisms or clear timelines. Delegations may return reporting “positive atmospheres,” but little of substance ever follows.

The dispute centers on the KRG’s share of Iraq’s federal budget. Constitutionally, the Region is guaranteed 17%, but recent talks have floated a reduction to 14%. The 2024 census adds a new twist: the Kurdistan Region now accounts for 14.03% of Iraq’s population—higher than the 12.63% figure used in the current budget—making proposed cuts all the more contentious.

On a federal budget of 150 trillion Iraqi dinars (roughly $102B), a 17% share would provide 25.5 trillion dinars ($17.3B) to the KRG, while 14% would deliver 21 trillion dinars ($14.2B)—a 4.5 trillion dinar ($3.1B) annual gap, enough to cover several months of public salaries.

Emphasizing that the KRG’s share is set at 17% based on the census, Nabi urged Kurdish MPs in Baghdad to turn to the Federal Court if they cannot secure the Region’s rightful share through a legal battle, to ensure the Kurdistan Region’s rights are protected.

Bunch of Status Quos

Disputed territories remain one of the thorniest issues between Baghdad and Erbil, a problem that has lingered for more than a decade. Stretching from Kirkuk east toward Diyala, through Saladin, and southwest of Nineveh, these areas were under Kurdish control after the Iraqi army’s collapse in 2014 during the ISIS onslaught. But in October 2017, Baghdad’s forces retook control of Kirkuk and much of the disputed territory.

Since then, security has been a patchwork. The federal army, counter-terrorism forces, and Popular Mobilization Forces (PMF) share the ground with the Peshmerga – the Kurdish army. A joint agreement had envisioned four security centers in Kirkuk, Diyala, Makhmur, and Mosul to fill gaps and prevent ISIS from exploiting weak points. Today, that plan is suspended, and both sides point fingers at each other for failing to act.

The dispute goes beyond security. Areas like Kirkuk, Sinjar, Khanaqin, and Makhmur remain caught in a legal limbo. Article 140 of the constitution laid out a roadmap for normalization, census, and referendums—but more than a decade later, it has yet to be implemented.

Overlapping administrations and a lack of coordination between federal forces and the Peshmerga create gaps that ISIS continues to exploit. The political disagreement has turned into a real security problem on the ground.

Other issues pile up. The integration of the Peshmerga into Iraq’s national defense is still unresolved, with funding, command chains, and organizational structure all contested. Border crossings, customs procedures, and auditing KRG debts also remain unresolved. Even the national census, meant to be a technical exercise, has become politically charged, as its results will shape resource distribution and the future of disputed areas.

These issues collectively create a legal and administrative tangle that makes any partial agreement prone to failure.

Read more: Pipe dream or partnership? Iraq’s oil restart tests a fragile federal compact

The 2026 Reset

Despite years of tension, dialogue between Baghdad and Erbil continues, though cautiously. Kurdish President Nechirvan Barzani has attended several high-level meetings in Baghdad in recent years, aiming to build ongoing communication channels rather than reactive, crisis-driven encounters.

He recently warned that delaying solutions to long-standing disputes will “cause headaches for all of Iraq,” stressing that both regional and international powers back a strong and stable Kurdistan Region within Iraq and that genuine progress depends only on lasting settlements between the two governments.

“Geographically, we live within a country called Iraq, so our political engagement must be in Baghdad,” he said. “Baghdad is Kurdistan’s strategic depth, and all outstanding problems with the federal government need practical, realistic solutions.”

Balancing this perspective, caretaker PM Mohammed Shia al-Sudani has emphasized that disputes with the Kurdistan Region are “technical and legal issues, not political,” while reaffirming Baghdad’s commitment to paying salaries for employees in the Region through 2025, a step that was interrupted many times through the year.

He further described the Baghdad-Erbil relationship as a “framework of dialogue and constructive engagement,” calling on all political actors to cooperate for national stability.

So why do these disputes persist on the eve of 2026? The answer lies beyond day-to-day politics. The Baghdad-Erbil relationship is shaped by economic interdependence, a constitutional system never fully implemented since 2005, and a lack of enforcement mechanisms to turn verbal agreements into measurable results. Short-term fixes have dominated, leaving unresolved crises to accumulate.

Still, there is cautious political will. Baghdad speaks of “open dialogue,” Erbil emphasizes “constitutional partnership,” and both recognize that continued disputes are no longer politically affordable given the high economic and security costs.

The year 2026 could offer an opportunity to reset relations. With clearly written agreements, enforceable implementation mechanisms, and transparency, disputes over oil, the federal budget, and disputed territories could finally stop dominating an annual political cycle that has long seemed endless.

Read more: Deficit soars, projects freeze: Iraq headsinto 2026 with NO BUDGET

Written and edited by Shafaq News staff.