The Kurdistan Region is facing a deep and prolonged oil payments crisis. This crisis is not only financial. It reflects a wider federal power imbalance in Iraq. Baghdad uses revenue control to strengthen central authority over a resource-rich autonomous region.
Across many federal systems, oil revenue sharing often creates tension. When constitutions leave room for interpretation, central governments gain leverage. In Iraq, this ambiguity allows Baghdad to delay or restrict payments to Kurdistan while still demanding full compliance with oil delivery rules.
Between 2023 and 2025, Kurdistan’s constitutional share of the federal budget reached about 58.3 trillion IQD, or $44.4 billion. However, actual transfers amounted to only 24.3 trillion IQD, or roughly $18.1 billion. This means Baghdad paid only 41 percent of Kurdistan’s entitlement. The remaining 59 percent became a structural deficit.
The situation is worse for investment funding. While federal infrastructure spending nationwide exceeded 165 trillion IQD, Kurdistan received no federal capital investment at all. As a result, the region relies almost entirely on oil revenue to fund development. At the same time, operational payments from Baghdad remain delayed or incomplete.
Despite these shortfalls, Kurdistan continued to meet its obligations. In 2025, the region transferred about $700 million in non-oil revenues to Baghdad. It also delivered around 19.5 million barrels of crude through the State Oil Marketing Organization (SOMO). This one-sided arrangement highlights how Baghdad enforces compliance without guaranteeing payments.
Baghdad’s strategy relies on discretionary control. Federal authorities decide when and how much to pay. There are no automatic payment triggers. All Kurdish oil must be marketed through SOMO. Investment funding remains blocked. Non-oil revenues must still be handed over, regardless of delays.
An escrow mechanism was introduced to ease pressure from international oil companies. Under the current deal, $16 per barrel goes into an escrow account for operators. The rest flows to SOMO. Although this is an improvement over the earlier $7.90 offer, it still depends on federal approval and cooperation.
International oil companies are paying a heavy price. Outstanding receivables now exceed $1 billion. Major operators like DNO and Genel Energy hold nearly $300 million combined. Many companies have frozen expansion plans. Some are considering exit options unless payments resume.
Pipeline constraints add another layer of pressure. The Iraq-Turkey Pipeline currently operates at about 200,000 to 250,000 barrels per day. This is less than half of pre-2023 levels. Kurdistan has no alternative export route. Turkey remains the only viable outlet, increasing Kurdistan’s vulnerability.
Political changes in Baghdad after the 2025 elections may open short negotiation windows. However, long-term trends favor stronger federal control, supported by regional allies such as Iran, China, and Russia.
Kurdistan’s oil payments crisis is no longer temporary. It has become a structural tool of centralization, reshaping Iraq’s federal balance through fiscal pressure rather than constitutional clarity.
