Kurdistan region of Iraq faces economic collapse amidst financial struggles
The Kurdistan region of Iraq is teetering on the brink of economic collapse as a result of a deteriorating financial situation exacerbated by the government’s prolonged failure to remunerate civil servants. A cascade of business closures has swept through Erbil, painting a grim economic picture.
The crisis deepened with the suspension of oil exports to international markets following Iraq’s victory in an arbitration case against Turkey. The federal government in Baghdad is grappling with the Kurdistan Regional Government (KRG) over salary payments for KRG employees, sparking concerns of potential protests and security unrest.
Tensions escalated further after the Federal Supreme Court intervened, blocking the transfer of salaries to Iraqi Kurdistan employees based on a lawsuit from a Basra MP. This development highlights an enduring crisis between the federal government and the KRG, stemming from an unresolved agreement regarding the transfer of the region’s revenues to Baghdad in exchange for the salaries of KRG employees.
Despite the approval of Iraq’s general budget law in 2023, the implementation of the agreement has faltered. The law mandates the Kurdistan region to relinquish its revenues to the state, with the federal Ministry of Finance committed to monthly payments for Iraqi Kurdistan’s dues.
A critical point of contention is the discrepancy in the cost of oil production between companies in Iraqi Kurdistan and those in the rest of the Iraqi governorates. The federal general budget law 2023-2025 sets the cost of producing and transporting each barrel of oil at $6.9. However, data from the KRG’s Ministry of Natural Resources reveals a significantly higher production cost in Iraqi Kurdistan, standing at $32.91 per barrel.”
