KRG public employees have remained unpaid for 73 days following the Iraqi government’s decision to halt budget transfers to the Kurdistan Region, citing the KRG’s non-compliance with budget law and federal court rulings. Over the next 48 hours, a series of critical meetings will determine whether the Iraqi government decides to resume salary payments or whether the two Kurdish ruling parties chart a different course in their future relationship with Baghdad.

Context: Iraq’s State Administration Coalition—which includes all major Shia, Sunni, and Kurdish parties—is scheduled to meet tonight. On Monday, the Federal Supreme Court will consider a lawsuit filed by KRG public sector employees seeking an injunction against the Iraqi Finance Ministry’s decision to suspend salary payments. That same day, KDP leader Masoud Barzani and PUK leader Bafel Talabani are set to meet in a rare joint session. Finally, on Tuesday, the Iraqi Council of Ministers is expected to convene—a session that could formalize any breakthrough on salary payments.

Analysis: U.S. Chargé d’Affaires Steven H. Fagin met with Prime Minister Mohammed Shia al-Sudani today, with the Erbil–Baghdad dispute reportedly high on the agenda. The US has been involved in discussions between Erbil and Baghdad for weeks, aiming to find a settlement that would allow Iraq to resume KRG salary payments. Washington appears to be pressing Baghdad to release KRG salaries as soon as possible, as public anger continues to mount across Kurdistan over two months of unpaid wages, which has also significantly disrupted market activity and overall economic movement in the region.

Yet no agreement has been reached. Baghdad insists the KRG must hand over full control of its oil sector and allocate only 45,000–50,000 barrels per day for local consumption—without demanding the federal government cover production costs. The KRG, however, demands 65,000 barrels for local use and insists that production costs must be covered, especially since oil companies must be involved in any deal. The deadlock on this point remains the key unresolved issue.

Today, the committee formed by Prime Minister Sudani to handle the dispute finalized its report. According to a source cited by Baghdad Al-Youm, tentative agreements have been reached on several fronts: 1. The KRG will hand over 50% of its non-oil revenues to Baghdad; 2. A partial agreement on the salary payment mechanism (domiciliation) has been reached; and 3. A resumption of oil exports has been agreed in principle.

However, the only remaining point of contention is the volume of oil allocated for local consumption. Baghdad insists on 46,000 barrels, while the KRG continues to demand 65,000. There is cautious optimism that a compromise might be reached before Tuesday’s cabinet session, potentially paving the way for a salary payment.

Tonight, a key meeting of the State Administration Coalition—the ruling alliance that includes the main Shia, Sunni, and Kurdish parties—is expected to take place to discuss the KRG salary crisis and the broader Erbil–Baghdad budget dispute. Some reports suggest that Nechirvan Barzani is flying to Baghdad to attend the meeting, having been tasked by the KDP to lead discussions with top Iraqi officials. The outcome of this meeting will likely offer important signals on whether a breakthrough is within reach ahead of Tuesday’s cabinet session.

In parallel, the Federal Court will also review a request from KRG employees for a judicial injunction to reverse the suspension of salaries. However, the Federal Court will likely reject issuing the judicial injunction, facing three scenarios: First, the court may reject the injunction and announce that it has previously issued a decision regarding regional employees’ salaries and does not need a new decision. Second, the decision on the judicial injunction could be postponed for several days until a political settlement is reached. The weakest scenario is that the Federal Court issues the injunction and halts the Finance Minister’s decision to suspend Kurdistan Region employees’ salaries.

Meanwhile, the KDP Politburo met yesterday, with Masoud, Nechirvan, and Masrour Barzani present, but the meeting produced no concrete outcome. A statement following the meeting suggested that several Iraqi leaders have urged the KDP not to rush, promising they will step up to find a solution. AVA TV, a KDP media outlet, reported that Nouri Al-Maliki contacted Masoud Barzani and pledged to work toward sending salary payments.

This outreach reflects the broader electoral competition between Maliki’s Shia factions and PM al-Sudani ahead of November’s Iraqi parliamentary elections. While al-Sudani has taken a hardline stance toward the KDP, Maliki and other Shia factions are adopting a softer approach—partly to appeal to their base, but also because they anticipate needing Kurdish support to form a post-election government against al-Sudani.

Tomorrow’s KDP–PUK meeting, with both Barzani and Talabani present, is particularly significant. The two parties have diverged on how to respond to Baghdad. The KDP has floated the idea of withdrawing from Baghdad institutions, but the PUK has firmly rejected this. The KDP worries that a unilateral withdrawal would be ineffective, especially since the presidency and two of the four Kurdish-held ministries in Baghdad are controlled by the PUK.

Shia political forces appear to be courting the PUK, with some reportedly offering to send salaries directly to Sulaimani if the PUK negotiates independently. This has fueled growing sentiment among public employees in Sulaimani to bypass Erbil entirely. If salaries begin flowing to Sulaimani while Erbil and Duhok remain unpaid, it could trigger a political rupture within the KRG and force the KDP to withdraw from the elections altogether, as the political cost would be too high.

While the KDP claims it is holding off in response to appeals from Iraqi leaders, some sources suggest Baghdad’s real goal is simply to release a single round of salaries, enough to ease public anger, without committing to a durable agreement. This would leave the broader crisis unresolved.

In a recent phone call, Bafel Talabani reportedly told Masrour Barzani that the PUK opposes withdrawing from Baghdad and instead favors more serious negotiations and greater flexibility. Today, the PUK spokesperson said that while they will wait to see what decision will be made between the KDP and PUK tomorrow, they support dialogue and working on a solution with Baghdad. This suggests the PUK might still not support the KDP approach of withdrawing from Baghdad without a clear path forward.

The next 48 hours will be decisive. A formal agreement could lead to immediate salary disbursement and avert further instability. But failure to reach a sustainable deal, or a split between the KDP and PUK, could plunge the Kurdistan Region into deeper political and financial crisis.