The renewed financial dispute between the Kurdistan Regional Government (KRG) and the federal government in Baghdad, centered on oil exports, energy contracts, and the KRG’s share of the national budget, has escalated into a full halt in salary payments to the KRG for the remainder of 2025. In its official statement justifying the suspension, the Iraqi finance ministry cited figures from the joint KRG–Iraqi audit, meaning the data is recognized by both sides. Yet remarkably, Baghdad and Erbil have interpreted the same numbers in entirely opposing ways. Three major points illustrate this divergence:

1. Partial Accounting of the KRG’s Budget Share:

In its statement, the Iraqi finance ministry calculated the KRG’s “share” for 2023, 2024, and the first four months of 2025 by focusing exclusively on the current expenditure slice—i.e., the monthly salary and operational transfers covered under Article 11 of the budget law. This calculation excludes the Region’s full federal budget entitlement, which also includes an investment budget and federally managed allocations.

For 2023, the Iraqi finance ministry cited the KRG’s share as 10.56 trillion IQD, reflecting only the current expenditure (mainly salaries) that Baghdad had transferred. However, it omitted any mention of the KRG’s full allocation under the federal budget law, which was 16.5 trillion IQD when including the investment budget. An additional 1.3 trillion IQD was also disbursed directly by Baghdad for federally managed spending in the Region, outside the KRG’s control.

Likewise, for 2024, the ministry calculated the KRG’s share as 12.16 trillion IQD, again without referencing that the Region’s full allocation under the law which is about 21 trillion IQD, not including the 1.3 trillion IQD disbursed directly by Baghdad.

While Baghdad doesn’t transfer the investment portion, it argues that the KRG has violated budget law that binds the KRG to hand over its oil and non-oil revenues to the federal government.

2. Oil Revenue Disputes and Unresolved Export Mechanism

On oil revenues, despite the Iraqi government increasing the officially recognized production cost from $6 to $16 per barrel, KRG oil exports have not resumed due to a set of unresolved disputes, including over how to compensate the international oil companies operating in the Region.

The budget law stipulates that even without export resumption, the KRG must transfer its oil to Iraq’s oil ministry for potential local sales. Iraqi officials accuse the KRG of oil smuggling—an illegal practice since KRG exports were officially halted in March 2023 following an international court ruling.

The KRG counters that it has delivered 11 million barrels to the Iraqi government without receiving coverage for production costs or other expenses. The region also alleges that other Iraqi oil is being smuggled and sold by pro-Iran groups without revenues returning to the national treasury.

Furthermore, the KRG argues that Iraqi calculations fail to account for production costs and profit-sharing arrangements with international companies, where 40% of revenue goes to the firms. Additionally, 65,000 barrels per day fuel power generation plants, and 115,000 barrels daily supply refineries.

3. Non-Oil Revenues: Federal vs. Local Interpretation

The dispute extends to non-oil revenues and how much should be transferred to Baghdad. The KRG maintains that existing law requires regions and governorates to transfer only federal non-oil revenues, while local service-generated income should remain regional. However, Iraq’s budget law and the Federal Court ruling demand all non-oil revenue be deposited in federally-controlled accounts, without clearly distinguishing between federal and local revenues.

Both sides agree on the figures: KRG non-oil revenue totaled 4.65 trillion dinars in 2023 and 4.7 trillion dinars in 2024, with 200 billion dinars sent to Baghdad. The KRG’s position is that it transfers 50% of federal revenues while retaining local taxes and fees within the region.

The KRG explains declining monthly transfers by pointing to reduced federal revenues, particularly customs income that has dropped by 100 billion dinars due to Iraqi government transit checkpoints diverting goods to Baghdad-controlled crossings. Additionally, the KRG uses non-oil revenue for operational ministry costs since Baghdad only covers salaries, and even then, not all salary obligations, leaving the region to fund contract workers from its own resources.

These competing interpretations of identical financial data represent just the surface layer of a more complex political struggle over power and resource control between the federal government and the Kurdistan Region. While both sides present their arguments through technical financial calculations, the underlying dispute reflects fundamental questions about federalism, autonomy, and revenue-sharing in post-2003 Iraq.