The Kurdistan Regional Government says insufficient crude oil allocations from Baghdad are driving a worsening petrol shortage, forcing price controls, long queues at fuel stations, and growing concerns over the Region's economic resilience amid heightened regional instability.

By Dr. Pshtiwan Faraj | Kurdish Policy Analysis

The KRG says Baghdad's crude oil allocation is insufficient to meet fuel demand, worsening petrol shortages and triggering price controls across the Kurdistan Region.

A Fuel Crisis Exposes Deeper Political Fault Lines

The Kurdistan Region's latest petrol shortage is more than a temporary supply disruption. It has become another manifestation of the long-running political and economic tensions between Erbil and Baghdad over energy resources, federal obligations, and constitutional authority.

As queues grow outside petrol stations and fuel prices remain under pressure, officials in the Kurdistan Regional Government (KRG) argue that the crisis originates not in market failure but in insufficient crude oil allocations from Iraq's federal government.

According to the KRG Ministry of Natural Resources, the Region is receiving only 50,000 barrels of crude oil per day from Baghdad for domestic consumption—far below what is needed to satisfy daily demand.

The result has been fuel shortages, government-imposed price caps, and increasing frustration among motorists across the Region.

The Numbers Behind the Crisis

Speaking to Rudaw, Rebin Zangana, Chief of Staff at the KRG Ministry of Natural Resources, said the Region currently requires approximately six million litres of petrol each day, while existing supplies leave a deficit of roughly 4.5 million litres.

According to Zangana, Erbil has formally requested Baghdad to increase the Region's crude oil allocation, arguing that current volumes are incapable of supporting domestic consumption.

The shortage has become particularly visible since early July, when petrol prices rose sharply across the Kurdistan Region.

Rather than allowing prices to continue climbing, the KRG intervened by introducing mandatory maximum prices for regular, midgrade, and premium fuel.

Price Controls Produce Unintended Consequences

While intended to protect consumers, the newly imposed price ceilings have produced mixed results.

Fuel stations unable to purchase petrol below the government-mandated retail price have chosen to suspend operations rather than sell at a loss.

Consequently, many stations throughout Erbil and Duhok have temporarily closed, leaving only a limited number of outlets open.

Long queues have rapidly become a familiar sight as motorists compete for increasingly scarce supplies.

Meanwhile, the KRG insists that enforcement will continue, warning that stations violating the new regulations will face penalties.

Government inspection committees have also been deployed to monitor compliance across the Region.

A Divided Fuel Market

An unusual feature of the current crisis is its uneven geographical impact.

While Erbil and Duhok have experienced significant shortages and disruptions, Sulaymaniyah and Halabja have continued operating under previous market prices with comparatively stable supplies.

This disparity highlights differences in fuel distribution networks and regional market dynamics within the Kurdistan Region itself.

KRG officials maintain that the government decision applies equally to all provinces and autonomous administrations, including Soran, Raparin, Garmiyan, and Zakho, with enforcement expected to become uniform in the coming days.

The Baghdad-Erbil Energy Dispute Returns

The fuel shortage cannot be separated from the broader dispute over oil management between Baghdad and Erbil.

Under the 2025 oil agreement, the Kurdistan Region retains 50,000 barrels per day for domestic use while transferring the remainder of its agreed production to Iraq's federal marketing authority for export.

The arrangement was designed to stabilise relations following years of legal disputes and interruptions to Kurdish oil exports.

However, the current shortage suggests that implementation remains politically and economically fragile.

For Kurdish officials, the crisis demonstrates that domestic fuel requirements were underestimated.

For Baghdad, any increase in allocations may raise broader questions regarding revenue-sharing, production commitments, and federal oversight.

Economic Pressures Beyond Fuel

The petrol shortage arrives at an especially difficult moment for the Kurdistan Region.

The Region is already grappling with:

• Continued delays in federal budget transfers.
• Uncertainty surrounding oil exports.
• Reduced investor confidence following regional security tensions.
• Repeated drone attacks targeting energy infrastructure.
• Ongoing negotiations over the formation of the next KRG cabinet.

Taken together, these challenges place additional pressure on an economy still heavily dependent upon the energy sector.

Fuel shortages therefore carry consequences extending well beyond transport.

They affect businesses, logistics, agriculture, electricity generation, and household living costs.

Government Versus the Free Market

Officials insist the petrol market remains fundamentally free while arguing that extraordinary circumstances require temporary intervention.

According to Zangana, some fuel stations allegedly purchased petrol below the government ceiling but later sold it at prices exceeding 1,500 Iraqi dinars per litre, prompting accusations of profiteering.

The government therefore frames its price controls as consumer protection rather than market interference.

Whether these measures restore stability or create further distortions will depend largely upon improvements in overall supply.

Without additional crude oil entering the domestic market, enforcement alone is unlikely to eliminate shortages.

The Political Dimension

The current dispute also carries political implications.

By publicly attributing the shortage to Baghdad's limited crude oil allocations, the KRG reinforces its longstanding argument that many of the Region's economic challenges stem from unresolved federal-regional disputes rather than administrative shortcomings alone.

Baghdad, meanwhile, may argue that fuel distribution and pricing remain primarily regional responsibilities.

As in previous energy disagreements, competing political narratives are likely to accompany technical negotiations over supply volumes.

Looking Ahead

Several outcomes remain possible.

Baghdad could agree to increase crude oil allocations, easing immediate shortages and reducing pressure on petrol stations.

Alternatively, if supplies remain constrained, prolonged shortages may encourage informal fuel markets, continued station closures, and growing public dissatisfaction.

The effectiveness of the KRG's enforcement measures will also be tested in the coming weeks as authorities attempt to balance consumer protection with commercial realities.

Ultimately, sustainable stability will require not only price regulation but also sufficient fuel supply.

Conclusion

The Kurdistan Region's petrol crisis illustrates how energy policy, federal politics, and market dynamics have become increasingly intertwined.

While officials in Erbil blame inadequate crude oil allocations from Baghdad, the shortages also expose structural vulnerabilities within a regional economy that remains deeply dependent on uninterrupted energy flows.

As negotiations between Erbil and Baghdad continue, resolving the immediate shortage will be essential.

Yet the broader lesson is clear: until Iraq and the Kurdistan Region establish a more durable framework for energy cooperation, similar crises are likely to re-emerge whenever political disagreements disrupt the delicate balance between supply, pricing, and governance.

Sources

• Rudaw, "KRG official blames Baghdad for petrol crisis" (25 July 2026).
• Statements by Rebin Zangana, Chief of Staff, KRG Ministry of Natural Resources.