Kurdistan’s new Washington strategy: what the Continental Strategy deal signals

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Kurdistan is professionalizing its Washington strategy at a moment when its security, energy interests and relationship with Baghdad are increasingly shaped by U.S. policy. By Dr. Pshtiwan Faraj | Kurdish Policy Analysis A revealing development in Kurdistan’s foreign-policy strategy: the KRG has retained Continental Strategy for a $75,000/month U.S. engagement effort. This is more than lobbying. It reflects Kurdistan’s attempt to build stronger political access in Washington as its security, energy and relationship with Baghdad become increasingly intertwined with U.S. policy.  The Kurdistan Regional Government of Iraq has retained Continental Strategy to promote awareness and understanding of its interests among US policymakers, business leaders and key decision-makers. The six-month contract, which went into effect July 1, calls for a $75K monthly retainer. Thereafter, the pact shall continue month-to-month unless either party provides at least thirty days written notice of non...
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What Baghdad’s centralization means for Kurdistan in 2027

By Dr. Pshtiwan Faraj | Kurdish Policy Analysis

Iraq’s post-2005 federal experiment faces sustained pressure from a clear recentralization drive centered in Baghdad. For the Kurdistan Region of Iraq (KRI), this trend—visible in fiscal levers, oil marketing authority, Federal Supreme Court rulings, and institutional friction—will shape the political and economic landscape of 2027 more decisively than any single election cycle or temporary deal. 

As the Kurdistan Regional Government (KRG) prepares its demands for the 2027 federal budget and navigates delayed government formation, Baghdad’s assertion of control risks converting constitutional federalism into administrative subordination.¹This analysis draws on recent developments, constitutional practice, and strategic assessments, including the Kurdistan Strategic Outlook 2027 published on Kurdish Policy Analysis, which projects the cumulative effects of fiscal and resource centralization through the end of the decade. Complementary pieces on this platform have examined the erosion of revenue autonomy and the risks of internal Kurdish fragmentation under federal pressure.

The Architecture of RecentralizationIraq’s 2005 Constitution established a federal, democratic system with explicit recognition of the Kurdistan Region and provisions for resource management, budget shares, and regional authority. In practice, successive Baghdad governments—particularly those dominated by Shia Coordination Framework parties—have prioritized centralized control over oil marketing, customs, salary disbursements, and disputed territories. The Wilson Center’s detailed examination of this shift documents how administrative measures, court decisions, and budget formulas have steadily reclaimed powers that the Constitution assigned or left ambiguous.²Key instruments include the reassertion of the State Oil Marketing Organization (SOMO) as the sole legal exporter of Kurdish crude after the 2023 arbitration ruling and the partial resumption of pipeline flows in 2025 under federal supervision. These arrangements stabilize short-term revenue flows to Erbil but extinguish independent marketing rights that underpinned earlier KRG economic autonomy.³ Analysts at the Gulf International Forum note that the 2025 Baghdad–Erbil oil understanding functions as a political statement of sovereignty as much as a fiscal compromise, reinforcing the view that resource control remains the foundation of central authority in a rentier state.⁴

Budget mechanics amplify the effect. Pre-deductions for “sovereign” expenditures, the use of actual-expenditure formulas, and classification of transfers as loans rather than entitlements have reduced the KRI’s effective share far below the nominal 12.67 percent (and the census-based 14.1 percent now claimed). Between 2019 and 2025, Baghdad withheld tens of trillions of dinars relative to entitlements, often limiting flows to partial salary coverage while withholding operational and investment funds.⁵Immediate Stakes for 2027The 2027 federal budget negotiations crystallize these tensions. The KRG is demanding a full 14.1 percent share—approximately 25 trillion Iraqi dinars—based on the late-2024 national census that places the Region at just over 14 percent of Iraq’s population. This claim covers salaries for roughly 1.2 million public employees, provincial development, infrastructure, petrodollar allocations, and new hiring, explicitly rejecting any limitation to payroll alone.⁶

Iraq faces its own fiscal strain: a projected 200 trillion IQD budget with a near-100 trillion deficit, oil revenues covering only a fraction of operational needs, and lingering disruption from regional instability.⁷ In this environment, Baghdad’s leverage over transfers becomes a tool for extracting further compliance on oil deliveries, customs (including the ASYCUDA system), and disputed territories. Delays or partial payments in 2025 and early 2026 already demonstrated the pattern; without a durable hydrocarbons law and automatic transfer mechanism, 2027 risks repeating the cycle of arrears and political pressure.⁸

Internal KRI dynamics compound vulnerability. The prolonged failure to form a new regional cabinet after the October 2024 elections has left a caretaker government with diminished legitimacy. Analysts warn that this vacuum allows Baghdad to treat Erbil less as a unified constitutional partner and more as an administrative unit whose internal disputes can be centralized through the Federal Supreme Court or selective engagement with individual parties.⁹ The Kurdistan Strategic Outlook 2027 on Kurdish Policy Analysis highlights precisely this risk: divided Kurdish representation in Baghdad weakens collective bargaining and invites further erosion of regional competencies.Broader Strategic ConsequencesCentralization carries security and geopolitical implications. A weaker KRG fiscal base constrains Peshmerga reform and professionalization, even as external pressures from Turkey, Iran, and residual militia activity persist. Kurdish leaders have publicly warned of a “strong return to centralization” that treats the Region through the legal lens of pre-2003 unitary laws rather than the unimplemented federal Constitution.¹⁰The Washington Institute has described the paradox: geographic recentralization concentrates resources in Baghdad while power within the capital remains fragmented among competing patronage networks.

 For the KRI, the result is neither full integration nor viable autonomy, but a hybrid dependence that limits strategic options.¹¹ Gas development deals signed in 2025 offer potential domestic electricity security and intra-Iraqi trade, yet their value depends on a cooperative rather than coercive federal framework.¹²Regional actors observe these dynamics closely. Turkey’s soft recentralization preferences and Iran’s interest in a constrained KRG both benefit from Erbil’s diminished independent capacity. The United States, whose residual presence is concentrated in the Kurdistan Region, faces a partner whose leverage is being systematically reduced.Pathways ForwardAvoiding further erosion requires simultaneous internal and external action. First, completion of KRG government formation and unified energy and budget positions would restore a coherent interlocutor in Baghdad. Second, negotiation of a hydrocarbons law and constitutionally anchored revenue-sharing mechanism—converting the temporary 2025 oil truce into lasting rules—remains essential. Third, Kurdish parliamentary blocs must maintain disciplined coordination rather than bilateral side deals that invite divide-and-rule tactics.

The Kurdistan Strategic Outlook 2027 argues that the Region’s residual advantages—geography, relative institutional depth, and international relationships—still permit defensive consolidation if used promptly. Complementary analysis on Kurdish Policy Analysis has stressed that fiscal recentralization without corresponding political decentralization elsewhere in Iraq ultimately destabilizes the entire federal bargain. 

Other regional assessments reach similar conclusions: sustained centralization without genuine power-sharing risks renewed friction rather than stable governance.¹³In 2027 the question is no longer whether Baghdad seeks greater control; the evidence is abundant. The decisive variable is whether the Kurdistan Region can convert constitutional claims, census data, and strategic assets into enforceable institutional safeguards before temporary arrangements harden into permanent subordination. The outcome will determine not only the KRI’s fiscal health but the viability of federalism itself in Iraq.

Analysis of Iraq’s Hydrocarbons Law Negotiations

Iraq has operated without a comprehensive federal hydrocarbons (oil and gas) law since the 2005 Constitution took effect. Nearly two decades of intermittent negotiations between Baghdad and the Kurdistan Regional Government (KRG) have produced only temporary arrangements, court interventions, and recurring crises. As of August 2026, talks remain active but show little progress toward a permanent statute. The absence of the law continues to underpin fiscal disputes, export disruptions, and broader recentralization pressures on the Kurdistan Region.¹⁴Constitutional Framework and Early FailuresArticles 111 and 112 of the 2005 Constitution declare oil and gas the property of the Iraqi people and assign management of current fields primarily to the federal government in cooperation with producing regions and governorates, while future fields are to be managed jointly. Revenue distribution and regulation of the sector were left to subsequent legislation.¹⁵The first major draft emerged in 2007 under then-Prime Minister Nouri al-Maliki. It envisioned a Federal Oil and Gas Council with regional representation, clearer revenue-sharing formulas, and mechanisms for contract approval. Cabinet approved versions, and political agreements were reached at times, yet parliament never passed the bill amid polarization over central versus regional authority, production-sharing contracts (PSCs) versus technical service contracts, and control of disputed fields (including Kirkuk). 

Subsequent drafts in later parliamentary terms met the same fate.¹⁶In the interim, the KRG enacted its own Oil and Gas Law (No. 22 of 2007) and signed dozens of PSCs with international oil companies (IOCs). Baghdad consistently rejected these as unconstitutional. The Federal Supreme Court formalized that position in February 2022, ruling the KRG law and related contracts invalid. The 2023 Paris International Chamber of Commerce arbitration against Turkey further halted independent Kurdish exports via the Iraq-Turkey Pipeline (ITP), costing billions and intensifying dependence on federal budget transfers.¹⁷Core Sticking PointsNegotiations repeatedly founder on several interlocking issues:
  • Authority and contracts: Baghdad insists on exclusive federal control of marketing (via SOMO), contract approval, and revenue collection. Erbil seeks recognition of regional management rights for fields within the Kurdistan Region, retention of existing PSCs (or their conversion), and a meaningful voice in joint decision-making bodies.
  • Revenue sharing and cost recovery: Disputes cover how to calculate the KRG’s budget share, deductions for “sovereign” expenditures, treatment of non-oil revenues and customs, and reimbursement of IOC production and transport costs.
  • Joint and disputed fields: Management of fields straddling or near the Green Line remains unresolved.
  • Gas sector: Recent KRG gas development agreements (including large 2025 deals with U.S. firms for Miran and related blocks) have been denounced by Baghdad as illegal under the 2022 court ruling.¹⁸
These differences reflect deeper constitutional and political divergences: Baghdad’s preference for centralization versus Erbil’s defense of federalism as practiced after 2005.Temporary Arrangements, 2025–2026Practical pressures produced interim workarounds rather than legislation. In September 2025 a trilateral understanding (federal government, KRG, and IOCs) restarted limited exports through the ITP under SOMO marketing. The KRG committed to delivering a minimum of roughly 230,000 barrels per day (bpd) for federal export while retaining about 50,000 bpd for domestic use. Cost recovery was set provisionally at $16 per barrel (in-kind), pending a Wood Mackenzie audit of actual costs. The deal was short-term and renewable, tied to budget transfers for salaries.¹⁹Extensions carried the arrangement into 2026. Parallel security coordination improved protection of infrastructure. On the export corridor itself, the long-standing Iraq-Turkey pipeline framework expired in July 2026. Baghdad and Ankara signed a one-year interim agreement in early August 2026 allowing up to 750,000 bpd, with a joint Baghdad-Erbil team formed to negotiate a longer-term successor.²⁰These steps restored some revenue flows and operational continuity but explicitly left constitutional and legal questions open. Fuel shortages inside the Kurdistan Region in mid-2026 illustrated the continuing linkage: Baghdad conditioned product supplies on oil handovers, while the KRG sought higher domestic allocations.²¹Current Dynamics (Mid-2026)U.S. special envoy Tom Barrack’s June 2026 visit to Erbil injected momentum. Contacts between federal and regional officials intensified around export resumption, financial settlements, and “preparing the ground” for a hydrocarbons law. Former parliamentarians described a shift from stagnation to serious negotiation.²²Prime Minister Ali Faleh al-Zaidi’s government has publicly prioritized the issue, and Kurdish leaders, including KRG Prime Minister Masrour Barzani, have reiterated the need for a modern federal law to replace outdated 1975-era centralist legislation. 

Yet skepticism remains high among Kurdish political figures, who cite Baghdad’s centralizing instincts and the difficulty of securing parliamentary consensus across blocs and oil-producing provinces. An earlier parliamentary assessment already judged passage unlikely in the prior term; the current legislature faces the same political arithmetic.²³Joint technical and security committees continue to function on pipeline and infrastructure matters, but they do not substitute for legislation that would lock in rights, revenue formulas, and contract validity.Prospects and ImplicationsPassage of a durable hydrocarbons law in the near term appears improbable without a broader political settlement that balances federal oversight with credible regional autonomy. Temporary export and budget arrangements can be extended, but they remain vulnerable to political turnover, arbitration outcomes, Turkish demands, and fiscal stress in Baghdad. IOC confidence, investment in gas, and long-term production growth all suffer from the legal vacuum.

For the Kurdistan Region, the ongoing absence of the law reinforces dependence on federal transfers and limits independent leverage—precisely the dynamic that feeds recentralization. A statute that recognizes existing contracts, establishes transparent automatic revenue mechanisms, and creates balanced federal-regional institutions would stabilize the energy sector and reduce cyclical crises. Without it, negotiations will continue to cycle between tactical deals and renewed friction, with the constitutional intent of federalism remaining only partially realized.²⁴
Notes 
  1. Analysis informed by recent reporting and strategic assessments, including Kurdistan Strategic Outlook 2027, Kurdish Policy Analysis.
  2. Mohammed A. Salih, “Baghdad’s Push for (Re)Centralization: Understanding the Impact of Declining Federalism in Iraq,” Wilson Center Middle East Program Policy Brief, March 2025, https://www.wilsoncenter.org/publication/baghdads-push-recentralization-understanding-impact-declining-federalism-iraq.
  3. “The Geopolitics of Oil and Governance: Baghdad–Erbil Pipeline Politics in 2025,” Gulf International Forum, November 2025, https://gulfif.org/the-geopolitics-of-oil-and-governance-baghdad-erbil-pipeline-politics-in-2025/.
  4. Ibid.
  5. Reporting from KRG Ministry of Finance statements and Channel8 analyses of budget shares, 2019–2025 period (see also Rudaw and Shafaq News coverage of withheld entitlements).
  6. “KRG Seeks Full 14.1% Share of Iraq’s 2027 Budget Beyond Salary Funding,” Channel8, 6 July 2026, https://channel8.com/english/news/60945.
  7. “Deficit consumes nearly half of Iraq’s projected 200 trillion IQD 2027 budget,” Channel8, 5 August 2026, https://channel8.com/english/news/63036.
  8. “KRG Approves Emergency Fuel Strategy, Reaffirms Budget Rights in 2027 Federal Spending Plan,” Kurdistan24, 30 July 2026, https://www.kurdistan24.net/en/story/929111.
  9. Analysis of KRG government formation delays and federal leverage, drawing on Shafaq News and Center for Future Studies reporting, 2026.
  10. “Kurdish Leaders Warn Against Centralism in Baghdad,” Kurdistan Chronicle, May 2026, https://kurdistanchronicle.com/babat/4643.
  11. “The Paradox of Centralization and State Fracture in Iraq,” The Washington Institute for Near East Policy, April 2026, https://www.washingtoninstitute.org/policy-analysis/paradox-centralization-and-state-fracture-iraq.
  12. “Gas, Power, and Pressure: The Geopolitics of Kurdistan’s Emerging Surplus,” Kurdistan Chronicle, May 2026; and American University Global Kurdish Initiative reporting on 2025 gas deals.
  13. Kurdistan Strategic Outlook 2027, Kurdish Policy Analysis; complementary regional assessments including Arab Center Washington DC analysis of post-Iran war dynamics, 2026.
  14. Overview synthesized from multiple 2025–2026 sources on the absence of a federal hydrocarbons law.
  15. Iraqi Constitution of 2005, Articles 111 and 112.
  16. “Iraq’s Oil and Gas Law: 19 Years of Disputes Between Erbil and Baghdad,” Channel8, 20 May 2026, https://channel8.com/english/news/58365; historical context from earlier parliamentary and cabinet records.
  17. Federal Supreme Court ruling of February 2022; Paris ICC arbitration developments of 2023 and subsequent export halt, as reported in Shafaq News and Atlantic Council analyses.
  18. “The Kurdish Gas Gambit,” American University – Global Kurdish Initiative for Peace, July 2025, https://www.american.edu/sis/research/initiatives/global-kurdish/the-kurdish-gas-gambit.cfm.
  19. “Is the Baghdad-Erbil oil deal a blueprint for settlement—or a stopgap?” Atlantic Council, 30 September 2025, https://www.atlanticcouncil.org/blogs/menasource/is-the-baghdad-erbil-oil-deal-a-blueprint-for-settlement-or-a-stopgap/.
  20. “Erbil and Baghdad Form Joint Team for Turkey Oil Talks,” BasNews, June/August 2026, https://www.basnews.com/en/babat/914997; reporting on the August 2026 one-year interim Iraq-Turkey pipeline agreement.
  21. Shafaq News coverage of fuel distribution linkages and domestic allocation disputes, August 2026.
  22. Reporting on U.S. envoy Tom Barrack’s June 2026 Erbil visit and subsequent negotiation momentum, Asharq Al-Awsat and Independent Turkish coverage, June 2026.
  23. KRG Prime Minister Masrour Barzani remarks (Al Jazeera / Kurdistan24, August 2026); parliamentary assessments and Kurdish official skepticism reported in Channel8 and Asharq Al-Awsat, 2025–2026.
  24. Synthesis of prospects drawn from Atlantic Council, American University Global Kurdish Initiative, and ongoing Baghdad-Erbil technical committee developments as of August 2026.
#Kurdistan #Iraq #Baghdad #Erbil #Federalism #OilAndGas #KRG #HydrocarbonsLaw #IraqPolitics #Kurdistan2027

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