🛢️🤝 IRAQ: THE BAGHDAD–ERBIL UNDERSTANDING AND WHY IT COULD BE KEY TO THE COUNTRY’S ECONOMIC STABILITY 🇮🇶📊
Recent news about “understandings” between Baghdad and Erbil are not isolated events, but part of a long-standing historical conflict that has shaped Iraq’s political and economic landscape for more than two decades.
🧩 📌 A STRUCTURAL CONFLICT YEARS IN THE MAKING
Since 2003, Iraq has operated under a federal system where:
-
🏛️ Baghdad controls the central state and national budget
- 🏔️ Erbil (Kurdistan Region) holds political and economic autonomy
However, three major issues have never been fully resolved:
- 🛢️ oil production and exports
- 💰 national budget distribution and salaries
- ⚖️ disputed territories (Article 140)
🛢️💰 THE CORE ISSUE: OIL AND MONEY
Oil is Iraq’s main source of national income.
The conflict arises because:
- Baghdad wants centralized control over oil resources
- Erbil seeks to manage part of its own production independently
When there is no agreement:
- budget transfers are blocked or delayed
- salary payments are disrupted
- political tensions increase
-
the economy becomes unstable
When an agreement is reached:
- revenue flows become more organized
- salaries are paid more consistently
- internal tensions decrease
- overall national stability improves
The conflict arises because:
⚖️🤝 WHAT CHANGES WITH THE NEW “UNDERSTANDINGS”?
Current reports highlight progress in:
- integrating oil management into a unified legal framework
- defining Kurdistan’s share of the national budget
- coordinating customs and revenue systems
- discussing key laws such as the oil and gas law
- cooperation in infrastructure and public services
👉 In essence: an attempt to move from temporary deals to permanent rules.
🛢️💵 📉 THE IRAQI DINAR AND ITS DIRECT CONNECTION
This is the most important economic link:
The Iraqi dinar (IQD) does not function purely as a free-market currency. Its stability is strongly influenced by the strength of the state financed by oil revenues.
🛢️ How oil impacts the economy:
- 🛢️ oil exports generate US dollars for the state
- 💰 those dollars fund the national budget
- 🏛️ the government pays salaries and imports goods
- 🏦 the Central Bank uses those reserves to stabilize the monetary system
⚖️ When oil is disputed:
- revenue flows become irregular or blocked
- the national budget becomes unpredictable
- confidence in the state weakens
- pressure increases on exchange rate stability
- the Central Bank must intervene more frequently
👉 Result: higher economic and financial uncertainty
🤝 When Baghdad–Erbil agreements are stable:
- oil revenues are more consistent
- the budget becomes more predictable
- salary payments are more reliable
- confidence in the economy improves
👉 Result: stronger financial stability and a more stable dinar environment
📈🏦 WHY THIS MATTERS BEYOND POLITICS
These agreements are not only political, but deeply economic:
- 💰 Iraq’s budget depends heavily on oil revenues
-
🏦 fiscal stability shapes confidence in the currency
- 📊 foreign investment depends on clear and enforceable rules
- ⚡ internal stability enables broader economic reforms
Without coordination:
- uncertainty and policy blockages increase
With coordination:
- space opens for deeper reforms in banking, investment, and economic modernization
🧠📌 IN SUMMARY
The Baghdad–Erbil rapprochement represents more than a political negotiation:
👉 an attempt to stabilize Iraq’s economic core
👉 a key factor in managing oil, budget distribution, and state revenue
👉 a direct influence on Iraqi dinar stability
👉 and a potential foundation for broader economic reform in the country
👉 a key factor in managing oil, budget distribution, and state revenue
👉 a direct influence on Iraqi dinar stability
👉 and a potential foundation for broader economic reform in the country
📌 BLUESKY: https://bsky.app/profile/dinaresgurus.bsky.social
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NEW UNDERSTANDINGS BETWEEN BAGHDAD AND ERBIL… AL-ZAIDI “IMPLEMENTS LONG-AWAITED KURDISH DEMANDS”
Wafa Muhammad Karim, a member of the Kurdistan Democratic Party, said on Monday (May 25, 2026) that the visit of the Prime Minister of the Kurdistan Region, Masrour Barzani, to Baghdad was very important, especially in light of the positive understandings with the government of Prime Minister Ali al-Zubaidi.
Karim told Baghdad Today that “there are many outstanding contentious issues between the governments of Baghdad and Erbil that have persisted for more than a decade and a half, but the current phase has witnessed practical steps to implement a number of demands, especially those related to the oil file and moving towards enacting the oil and gas law.”
He added that “the current moves also include fixing the region’s share of the budget and keeping the issue of salaries away from political wrangling, which the Prime Minister emphasized during his recent statements.”
He explained that there is “full support for the government of Ali al-Zaidi as long as it continues to implement the constitutional demands that he had previously emphasized during his visit to Erbil,” indicating that the agreements related to the oil file, the “Sycoda” customs system, and the state’s revenue shares, in addition to the return of oil companies to work in the Kurdistan Region, all need broad political and parliamentary support.
Karim pointed out that implementing Article 140 and guaranteeing the region’s share of the budget are an essential part of the ongoing understandings between the two sides.
He explained that Masrour Barzani held meetings with a number of political leaders from the Sunni and Shiite components, with the aim of rallying political and parliamentary support for the agreement concluded between the governments of Baghdad and Erbil.
He added that the regional government also submitted a proposal to Baghdad regarding the lighting project and support for electricity in Baghdad and other governorates, in addition to the governorates of the Kurdistan Region, noting that the Minister of Electricity was present during these moves.
He stressed that “the current indicators are very good,” noting that Masrour Barzani expressed his optimism about the new government, and considered that “the positive points in the relationship between Baghdad and Erbil have become more than the points of contention.”
Relations between the federal government in Baghdad and the Kurdistan Region have been marked for years by multiple contentious issues related to oil, gas, the budget, the salaries of the region’s employees, as well as the management of border crossings and the implementation of Article 140 concerning the disputed territories.
During the last phase, political calls intensified for finding lasting understandings between the two sides, given the need to strengthen political and economic stability, especially with the continued financial, energy and services challenges in Iraq.