A high-level Kurdish delegation arrived in Baghdad this week for final negotiations aimed at resolving a bitter and economically damaging dispute with the federal government over oil revenues and suspended public sector salaries.

The visit by officials from the semi-autonomous Kurdistan Regional Government (KRG) follows what was described as “successful” mediation by Iraqi Parliament Speaker Mahmoud al-Mashhadani. An agreement, which could be announced as early as July 8, is expected to release salary payments for hundreds of thousands of Kurdish employees, which have been withheld by Baghdad for more than two months.

Informed sources confirmed to local media that the KRG delegation had received a “positive response” ahead of the talks. The initiative is understood to have the backing of Iraqi Prime Minister Mohammed Shia al-Sudani, who sees a resolution as critical to advancing a stalled national oil and gas law and addressing other intractable constitutional issues.

There is optimism that the talks will produce a “roadmap” to ensure financial stability between the central government and the region. Following meetings with senior Kurdish leaders, al-Mashhadani stressed the need to separate humanitarian issues from political friction, asserting that “the Kurdish citizen is an integral part of the Iraqi people.”

However, the negotiations take place against a backdrop of deep mistrust. Last month, Iraq’s Ministry of Oil criticised the KRG for its persistent failure to hand over crude oil revenues, a standoff Baghdad claims is inflicting “substantial financial losses” on the state.

In a strongly-worded statement shared with the official Iraqi News Agency (INA), the ministry accused the KRG of flouting its legal duties. “The Ministry of Oil emphasises the necessity for the Kurdistan Regional Government to comply with the Constitution, the rulings of the Federal Supreme Court, and the applicable laws,” it said, adding that numerous “formal communications and delegations to the Regional Government … [had been] to no avail.”

The impasse has had significant consequences for global energy markets. Hundreds of thousands of barrels of oil per day remain shut-in following the closure of the Iraq-Turkey pipeline in March 2023. The conduit, which once handled approximately 0.5% of global oil supply, was halted after the International Chamber of Commerce ruled that Turkey had violated a treaty by allowing the KRG to export oil independently of Baghdad. Negotiations to resume flows have since stalled over the complex commercial terms between Baghdad, the KRG, and the international oil companies operating in Kurdistan.