In the high-stakes world of Middle Eastern oil politics, the relationship between Iraq’s central government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG) in Erbil has rarely been simple. Recently, however, the already fraught negotiations between the two sides have taken on a new layer of complexity—one that reaches beyond oil and into the heart of Iraq’s turbulent history.
According to Shafaq News, Baghdad is now introducing fresh conditions in its ongoing talks with the KRG. Chief among these is a demand for the extradition of wanted individuals currently residing in Erbil. The list reportedly includes former leaders of the now-dissolved Baath Party, figures accused of crimes under Saddam Hussein’s regime or for their roles in the post-2003 insurgency. For years, Baghdad has sought their return, arguing that these individuals face outstanding judicial warrants and symbolize Iraq’s incomplete journey through transitional justice.
This extradition demand, while politically charged, is only the latest addition to a roster of disputes that have long dogged Baghdad–Erbil relations. At the center of their recurring clashes is oil—the lifeblood of Iraq’s economy and a perennial source of tension between the federal government and the Kurdish region. The federal authorities, as Shafaq News reports, insist that the KRG deliver agreed volumes of crude oil to the State Oil Marketing Organization (SOMO) as part of Iraq’s national export system. But Kurdish officials push back, pointing out that the suspension of exports through Turkey’s Ceyhan port since March 2023 has decimated regional revenues and left the KRG unable to meet its obligations.
“Federal committees sent to Erbil have yet to reach terms acceptable to Baghdad, which is now considering linking budget transfers directly to verified oil shipments,” a political source told Shafaq News. The implication is clear: unless the KRG can prove it is delivering the promised oil, Baghdad may withhold crucial budget payments—threatening public sector salaries and regional stability.
For a brief moment in early 2025, there was a glimmer of hope. An “oil-for-salaries” arrangement was hammered out, with the KRG pledging to supply all its crude—except for 50,000 barrels per day reserved for local use—to SOMO in exchange for guaranteed wage payments from Baghdad. But that deal proved fragile. In mid-2025, drone strikes on oil facilities in the Kurdistan region slashed production by about 70%, quickly leading to renewed payment delays and a collapse of the agreement.
Efforts to restart Ceyhan exports under federal control—at a target of around 80,000 barrels per day—have also stalled. As of August 10, 2025, industry officials cited by Shafaq News and IraqiNews.com warn that no breakthrough appears imminent. The situation could soon get even bleaker: Turkey has formally notified Iraq that it intends to terminate the 1973 pipeline agreement by July 2026, a move that could further constrict export routes and deepen the crisis.
Meanwhile, the broader context of Iraq’s oil sector is shifting. According to a Reuters survey reported by IraqiNews.com, Iraq scaled back its crude production in July 2025, even as overall output from OPEC members climbed. OPEC’s production hit roughly 27.38 million barrels per day in July—an increase of about 270,000 barrels per day compared to June. The largest boosts came from Saudi Arabia and the United Arab Emirates, but Iraq’s cuts limited the overall gain.
What’s behind Iraq’s decision to trim output at a time when much of OPEC is ramping up? The answer, as IraqiNews.com explains, lies in Baghdad’s commitment to offset earlier overproduction and the ongoing disruptions caused by those same drone strikes that battered oil facilities in the Kurdistan region. Although OPEC+ had agreed to increase supply for July, additional reductions by Iraq, Kuwait, and the UAE meant the actual rise was smaller than planned.
There’s also some uncertainty about the true scale of Iraq’s oil production. “Independent analysts have offered varying estimates of Iraq’s true output, with some suggesting it exceeded the official figures,” Reuters noted. This ambiguity only complicates negotiations with the KRG, as both sides try to navigate a landscape where numbers are disputed and trust is in short supply.
For the people of the Kurdistan region, the stakes are high. The suspension of Ceyhan exports since March 2023 has slashed government revenues, making it nearly impossible for the KRG to fulfill its budgetary commitments. The collapse of the “oil-for-salaries” deal in the wake of the mid-2025 drone attacks only added to the hardship, leading to payment delays for thousands of public employees.
On the federal side, the extradition demand is seen as a litmus test for the KRG’s willingness to cooperate on national priorities. By pressing for the return of wanted Baathist figures, Baghdad hopes to demonstrate its commitment to justice and to resolve unfinished business from Iraq’s tumultuous past. Yet for Kurdish leaders, such demands are fraught with political risk, threatening to inflame tensions within the region and with the central government.
Industry officials and political analysts alike warn that the impasse is unlikely to be broken soon. The looming deadline of July 2026, when Turkey plans to end the 1973 pipeline agreement, adds urgency to the search for solutions. If no alternative export routes are secured, both Baghdad and Erbil could find themselves facing even greater financial and political turmoil.
In the meantime, the federal government’s talk of tying budget transfers directly to verified oil shipments is raising eyebrows—and anxiety—in Erbil. Such a move would give Baghdad unprecedented leverage over the KRG’s finances, but it also risks deepening mistrust and pushing both sides further apart.
As the summer of 2025 draws to a close, Iraq’s oil politics remain as tangled as ever. The latest round of Baghdad–Erbil talks, now shadowed by extradition demands and the threat of pipeline closures, underscores just how high the stakes have become. For ordinary Iraqis—whether in Baghdad, Erbil, or beyond—the hope is that cooler heads will prevail and a path toward compromise can be found before the next crisis erupts.
The story of Iraq’s oil, its politics, and its unfinished reckonings continues to unfold—one negotiation, one dispute, and one uneasy truce at a time.
