Economic Insights on the Budget Law’s Impact on the Kurdistan Region
Former Deputy Minister of Finance Fazel Nabi has raised concerns regarding the current budget law, stating, "The budget law primarily benefits Baghdad, and Article 13 could pose significant challenges for the Kurdistan Region."
Nabi elaborated that increased oil deliveries from the Kurdistan Region would lead to more than $16 spent on oil companies in return. He estimates that Baghdad stands to gain $1 billion from oil exports originating from the Kurdistan Region, with $200 to $300 million allocated for oil companies, leaving approximately $700 million to be remitted to the Kurdistan Region on a monthly basis.
"The Kurdistan Region has an opportunity to negotiate its budget, contingent upon its oil delivery," Nabi explained. He pointed out that "each law introduces its own challenges. In Iraq, both the budget and financial administration laws have inflicted substantial harm on the Kurdistan Region."
Nabi noted that from the perspective of the Financial Administration Law, the Kurdistan Region is treated as a province. He described the budget as a comprehensive package, indicating that clause (ِ) in Article 13 serves as a potential hindrance for the Kurdistan Region, demanding the submission of oil and its derivatives, as well as the domestically consumed oil within the Kurdistan Region.
Specifically, Article 13 stipulates that the proceeds from oil sold in local refineries—including gasoline, diesel, and kerosene—must be accounted for. Nabi warned, "There is a potential for Iraq to insist that the Kurdistan Region comply with Article 13 by requiring all revenues, asserting that budget allocations will follow full legal compliance."
Further complicating the situation, Nabi highlighted Article 11, paragraph (2), which addresses practical expenditure. He cautioned that any discrepancy regarding the Kurdistan Region could lead to adverse repercussions.
"If Article 13 does not emerge as a point of contention, the Kurdistan Region may capitalize on the petrodollar budget, which could foster employment, investment, and broader provincial development," he added.
Nabi emphasized the necessity for the Kurdistan Region to begin preparations for the 2026 budget, which is slated to commence following June. He noted that both domestic and foreign political pressures are mounting on Iraq to issue the first month’s salary, expressing hope for disbursement by January. "As long as the budget law remains in place and the prevailing sentiments in Baghdad continue, the Kurdistan Region will continue to face challenges," Nabi remarked.
In context to oil exports, the law mandates a resumption of exports from the Kurdistan Region via SOMO, with fixed extraction and transportation costs pegged at $16 per barrel for a period of 60 days. "The pricing discrepancy between the Kurdistan Region and Baghdad must be resolved," Nabi insisted, "to ensure that the consultancy firm can set a definitive price."
On February 2, 2025, the Iraqi parliament passed an amendment to the budget law that facilitates the resumption of oil exports from the Kurdistan Region. According to this amendment, the Kurdistan Region is required to deliver 400,000 barrels of oil daily to SOMO, in exchange for a loan from the Iraqi government.
This situation underscores ongoing negotiation dynamics and fiscal challenges as the Kurdistan Region navigates its economic landscape under the current laws and policies.