While the oil sector remains one of the most contentious issues between the Iraqi federal government and the Kurdistan Regional Government (KRG), the dispute over non-oil revenues is equally fraught. Although Baghdad continues to disburse salaries to KRG public employees, largely for political reasons, including U.S. pressure and the Iraqi prime minister’s own electoral calculations as he positions himself for post-election alliances, tensions are mounting. Notably, the Iraqi finance minister has begun to publicly express growing concern over the non-oil revenue question, an issue that is likely to become even more prominent as federal-KRG disputes reignite.

Data from the joint Iraqi-KRG financial audit for the first half of 2024 sheds light on this issue. Under the 2023–2025 Iraqi budget law, the KRG is obligated to transfer 50% of its non-oil revenues to Baghdad, along with 400,000 barrels of oil per day, in exchange for receiving its share of the federal budget. However, the KRG has been transferring only about 50 billion Iraqi dinars per month, despite generating over 400 billion dinars in monthly non-oil revenue.

This discrepancy has become a focal point of disagreement, rooted in differing interpretations of what constitutes “50% of non-oil revenue.” The Iraqi finance ministry argues that the calculation is straightforward: 50% of 400 billion dinars amounts to 200 billion dinars. In contrast, the KRG has adopted a narrower interpretation, asserting that only federally sourced non-oil revenues—such as customs duties—should be subject to the 50% rule, excluding regionally collected taxes and other internally generated revenues.

The KRG further contends that since Baghdad is not transferring its full budget entitlement—only salaries—it is forced to use locally retained revenues to cover operational costs, ministry expenditures, and investments. The federal government, however, rejects this rationale. Officials in Baghdad argue that the KRG is not only underreporting its non-oil transfers but has also failed to deliver the 400,000 barrels of oil per day, as required. Even though oil exports remain suspended, the budget law allows for the crude to be handed over for domestic use, an obligation the KRG has not fulfilled.

In any case, these figures are critical. The non-oil revenue dispute is a recurring flashpoint and will likely resurface in future episodes of federal–regional confrontation.