US ends Peshmerga funding as war with Iran rages—what the cutoff means for Kurdistan's autonomy, security, and ties with Baghdad.

Dr. Pshtiwan Faraj

The Pentagon has told Kurdistan Regional Government leaders it will not renew the agreement that funds the Peshmerga, according to a BBC report that called the force "a key Middle East ally" in the fight against ISIS. The Memorandum of Understanding between the US Department of Defense and the KRG's Ministry of Peshmerga Affairs — first signed in 2016 and renewed in 2022 — is set to expire around September 30, 2026, right alongside a broader US troop withdrawal from Iraq, as detailed in an analysis from the Kurdish Center for Studies.

The Peshmerga, roughly 180,000 strong, received $61 million in fiscal year 2026 for weapons, training, and stipends through the Pentagon's counter-ISIS program. The FY2027 budget proposal cuts that to zero, leaving only about $1 million in medical support, a shift first flagged in reporting from Rudaw back in the spring. The stated Pentagon rationale, per Eurasia's coverage, is straightforward: ISIS has been defeated, so the money should be reallocated elsewhere.

Bad timing, worse optics

This cut is landing in the middle of active bombardment, not a quiet period. Kurdish officials fear it would create a power vacuum and embolden Iran, which has fired hundreds of missiles and drones into Iraqi Kurdistan since the war with Tehran began — and research compiled by the Foundation for Defense of Democracies counted 158 such attacks inside Iraqi Kurdistan by late May alone. As I wrote in Iran's warning to Iraqi Kurdistan is more than a border threat, Tehran has been explicit that it considers northern Iraq part of its security perimeter and will act unilaterally when it believes that perimeter is threatened — a doctrine that gets considerably more room to operate if the Peshmerga's US backing disappears at the same time.

Yerevan Saeed, director of the Global Kurdish Initiative for Peace at American University, put it bluntly to the BBC in reporting picked up by the Jerusalem Post: cutting off the Kurds after everything they've sacrificed would be "a big win for Iran, China, and Russia if the Kurds are left so exposed." That reading fits the broader picture I laid out in Endless War: Trump's Strategy Against Iran — a campaign of repeated, deliberately limited strikes intended to keep grinding down Iranian capability rather than end the conflict outright, which means the pressure on Iraqi Kurdistan's northern border isn't going away soon.

Not just less money — a different channel entirely

The more structurally important change is where the money goes instead. The FY2027 budget centralizes the Counter-ISIS Train and Equip Fund in Baghdad: $118.9 million for federal Iraqi defense and counter-terrorism forces, and zero direct funding for the Kurdistan Region, according to the funding breakdown reported by Long War Journal. That's not simply a smaller check — it's the elimination of a direct Washington-to-Erbil channel in favor of a Washington-to-Baghdad-only one.

One analyst, Mohammed A. Salih of the Foreign Policy Research Institute, told the Kurdish Center for Studies that he doubts the KRG's incomplete Peshmerga reform process factored heavily into the decision — the move looks driven mainly by Washington's broader retrenchment from Iraq and Syria, not frustration with Erbil specifically. That's a meaningful distinction: this isn't punitive, but the effect on Kurdish leverage is identical either way, and it plays directly into the militia dynamics I covered in Iraq's militia test: what the Kittleson conviction means for the future of the Iraqi state — a weaker, less US-backed Peshmerga is a more penetrable one for Iran-aligned armed groups already operating inside Iraq's federal structure.

The fight this is landing on top of

This funding decision doesn't arrive in a vacuum — it lands directly on top of a long-running, separate battle over the KRG's federal budget share, and the pattern is the same in both cases: centralization at Erbil's expense.

Iraq's Federal Supreme Court has already stripped the KRG of its authority to distribute salaries to its own employees and dismantled the parliament's minority quota — part of a series of rulings, documented by the Wilson Center, that have steadily restricted Kurdistan's oil-export revenue, its main independent income source. Baghdad has increasingly treated funds sent to the region as temporary advances rather than guaranteed allocations, and according to figures reported by Middle East Online, the KRG received only about 41 percent of its entitled share under the 2023–2025 federal budget framework. Gulf International Forum's analysis of this dynamic frames it as Baghdad "increasingly testing the operational limits of federalism" — a phrase that could apply just as easily to the Peshmerga funding decision.

Analysts covering the salary dispute note that Kurdish leaders have long accused Iran-aligned factions in Baghdad of trying to curb the region's autonomy, while those same factions criticize Erbil's close security ties to Washington — which is exactly the leverage now being withdrawn. This is the fault line I explored at length in Kirkuk: The Strategic Fault Line: federalism, oil, and military control in Iraq are never separable issues, they're the same argument recurring in different arenas, and amwaj.media has asked outright whether the accumulating disputes in Baghdad could eventually mean the end of Kurdish autonomy altogether.

A KRG that isn't unified to respond

This is landing at a moment when Kurdish political unity is already thin. The KDP-PUK power-sharing arrangement is under real strain, with nearly a year of paralysis following the October 2024 elections and no agreement yet on forming a new KRG cabinet, a dynamic Gulf International Forum traces back to the PUK securing the Iraqi presidency through Baghdad alliances without prior Kurdish consensus. A united front toward both Washington and Baghdad is much harder to sustain when the two dominant Kurdish parties can't yet agree on a government between themselves.

This kind of structural vulnerability isn't new to Kurdish politics — it's close to what I described in When war is already everyday life: Kurdish statelessness and the politics of precarious survival: for a people without full sovereignty, external shocks rarely arrive as isolated events. They compound onto existing vulnerabilities that never fully resolved in the first place. And the loss of a US congressional champion doesn't help — as I noted in Lindsey Graham Passing Reshapes Republican Foreign Policy — and Raises Questions for the Kurds, Graham was one of the few remaining consistent Washington advocates for both a hardline Iran policy and Kurdish interests specifically, and his death removes a voice that might otherwise have pushed back on this exact funding decision.

A countervailing signal worth weighing

Not every recent US move points toward disengagement. Washington opened its largest consulate in the world in Erbil in December 2025, at a reported cost of $800 million — a scale of diplomatic investment noted in the Kurdish Center for Studies piece that sits oddly next to a military aid cutoff. It suggests Washington may be drawing a line between military assistance, which is being wound down, and political engagement, which appears to be continuing at real scale — a distinction that fits the wider regional recalibration I mapped out in The Middle East's new order: four forces that could reshape the region by 2030.

Three paths from here

Accelerated centralization. If Peshmerga funding and standing erode while Baghdad-aligned forces receive the reallocated $118.9 million, the KRG's relative security weight against federal Iraqi forces shrinks further — reinforcing exactly the centralizing pressure already visible in the court rulings and salary disputes described above.

Room for Iran-aligned actors to expand. A weaker, less US-backed Peshmerga is a softer target for the kind of militia influence documented in the Kittleson case, and it hands Tehran, as Saeed put it, a straightforward geopolitical win.

Forced Peshmerga unification. It's also possible the cutoff finally pushes the KDP and PUK to merge their separate Unit 70 and Unit 80 forces into a genuinely unified command faster than they otherwise would — since a credible, unified Peshmerga may be the only leverage Erbil retains once US funding disappears. Nothing in current reporting suggests this is underway yet, but it's the one scenario where the shock produces more autonomy rather than less. This kind of regional realignment forcing overdue structural change has precedent — it's the same logic behind the transformation I described in How Turkey's Kurdish peace process is rewriting the regional order, where external pressure accelerated a political shift that had stalled for years.

The honest assessment: this decision doesn't hand Baghdad instant control over Kurdistan. But it removes one of the few external counterweights that has helped Erbil resist creeping centralization, at precisely the moment Baghdad's fiscal pressure and Iran's military pressure are both already rising. Whether it produces a genuine erosion of Kurdish autonomy depends heavily on a variable this funding decision doesn't control at all: whether the KDP and PUK can resolve their own deadlock before the September 30 deadline arrives.

About the Author

Dr. Pshtiwan Faraj is the founder of Kurdish Policy Analysis and a geopolitical analyst specializing in Kurdistan, Iraq, Iran, Turkey, Syria, regional security, energy geopolitics, and the changing strategic order of the Middle East.

#Kurdistan #Peshmerga #Iraq #KRG #Erbil #Baghdad #USForeignPolicy #Iran #MiddleEast #KurdishAutonomy