Kurdistan’s Oil Lifeline at Risk as Baghdad Payments Fall Short Again

Jan 20, 2026 | Simon Watkins
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The Kurdistan Region of Iraq (KRI) is once again edging toward a fiscal breaking point. Officials in its Erbil-based semi-autonomous regional government (KRG) say they are receiving only a fraction of the budget transfers they are owed under the current oil-for-budget payments arrangement with the Federal Government of Iraq (FGI) in Baghdad. This revives the same dispute that triggered the collapse of the deal in March 2023 and shut down the crucial Iraq-Turkey Pipeline (ITP) for more than two years. Erbil argues that Baghdad’s shortfalls are not technical delays but a structural breach that threatens its ability to pay public salaries, service debts to international oil companies, and maintain even the basic functions of regional governance. With the ITP still operating far below capacity and trust between the two sides eroded, Kurdistan’s economic stability — and its leverage within the federal system — is once again in question.