The Geopolitics of Oil and Governance: Baghdad–Erbil Pipeline Politics in 2025

After more than two years of silence, the Kurdistan Region’s crude is once again flowing through the Kirkuk–Ceyhan pipeline. The September 2025 Baghdad–Erbil oil deal restored a vital artery, placing Iraq’s state oil marketer SOMO at the center of exports while delivering a fiscal lifeline to Erbil. The restart comes at a sensitive moment, as political blocs move into the intense post-election bargaining that will determine Iraq’s next governing coalition. In a system where energy revenues remain the backbone of political authority, the deal’s stability now depends less on its technical terms and more on the outcome of the government-formation marathon.

Yet the deal is less a resolution than a stopgap measure. By centralizing marketing authority in Baghdad while granting revenue flows to Erbil, it has stabilized a tense relationship but left the fundamental underlying dispute unresolved. As parties negotiate cabinet posts, ministerial quotas, and the distribution of economic portfolios, the agreement functions as a fragile truce. It buys short-term stability but entrenches rival claims to authority, sets the stage for renewed clashes with international oil companies (IOCs) and Turkey. In the post-election landscape, the deal’s survival is tied to coalition dynamics, leaving it vulnerable to shifting alliances and the uncertainty that follows every Iraqi election cycle.

Erbil’s Lifeline Strategy

For the Kurdistan Region of Iraq (KRI), the deal is more than a budgetary fix. While it ensures overdue salaries from the Government of Iraq (GOI), its deeper value lies in what it prevents. Baghdad had used the halt in exports to weaken the KRI’s energy sector—delaying IOCs’ payments, shelving development projects, and allowing infrastructure to decay until it could assert control. By forcing a resumption under shared terms, the agreement protected the KRI’s assets from idleness.

The deal also restored KRI’s strategic visibility. Beyond crude, Erbil has promoted its natural gas reserves as a future export source for Turkey and Europe. Keeping the infrastructure alive was therefore not only about immediate cash but about maintaining momentum toward that future vision. The deal offered dual relief: fiscal breathing room for a government under strain, and renewed credibility for a long-term energy strategy. Another win for Erbil was explicit U.S. support. Washington reportedly pressed Baghdad to resume exports under threat of sanctions, aligning the restart with President Trump’s revived “maximum pressure” campaign on Iran. Kurdish exports thus became part of a wider geopolitical equation, helping offset potential Iranian shortfalls and averting a spike in oil prices.

Still, the lifeline is fragile. Erbil remains subject to political swings in the capital, while revenues flow through an arrangement whose temporary nature exposes the KRI to recurring shocks. While the deal has restored Kurdistan’s energy potential, it has not resolved the region’s longstanding reliance on Baghdad for market access. The KRI has a measure of temporary stability, but its security rests on a compromise that could easily unravel.

Baghdad’s Centralization Drive

For Baghdad, the deal was as much a political statement as a fiscal compromise. By reinstating SOMO as the sole legal marketer of Kurdish crude, the GOI reaffirmed its longstanding insistence that oil and gas remain under Baghdad’s control. The move resonated with Iraq’s post-2003 governance instinct: despite constitutional provisions for nominal federalism, Baghdad’s reflex remains one of strict centralization. This step enabled the GOI to project strength at a moment of fragility and reinforced the view that resource control underpins sovereignty, especially for a quintessential rentier state like Iraq.

Yet Baghdad’s instinct toward centralization is increasingly at odds with Iraq’s reality. Provinces such as Basra, Wasit, Ninewa, Karbala, and Najaf are carving out autonomy in practice through service delivery and informal fiscal management. The KRI’s constitutionally recognized autonomy makes Baghdad’s attempts to reassert control even more contentious, reflecting the  clash between federal statutes and Iraq’s fractured political practice. On paper, Baghdad secured control of oil marketing, but in practice, it has not yet earned the legitimacy needed to govern effectively across a diverse state.

Fragility in an Election Year

The deal’s timing is inseparable from Iraq’s political calendar. While the country’s most recent round of elections took place on November 11 amid volatile regional security, the GOI faced immense pressure to project stability and reassure audiences at home and abroad. Restoring oil flows allowed Baghdad to showcase competence: salaries across the country could be paid, exports resumed, and the oil dispute “managed”—at least for the time being. The end result was a projection of stability and functionality amid widespread doubt about Iraqi state capacity.

But that image of stability is largely cosmetic. The arrangement has not resolved structural disagreements over authority and autonomy; it has merely deferred them, underscoring the fragility of Iraq’s federalism, where legal frameworks promise decentralization but political practice insists on control. Each new election cycle exposes this fundamental contradiction.

For Prime Minister Mohammad Shia Al Sudani, the deal is a chance to claim success and shore up his second-term ambitions. For most Iraqis, however, it does little to address the issues that drive discontent, such as lack of jobs, inadequate delivery of services, and widespread corruption. The oil deal is a symbol of continuity masking deeper fractures.

Turkey and the Unfinished Arbitration

Restarting exports did not resolve Turkey’s disputes with Baghdad and Erbil. At the core is the ICC arbitration that awarded Baghdad more than $1.5 billion in past payments after Turkey allowed independent Kurdish exports between 2014 and 2023. Ankara suspended its flows from the KRI in March 2023 but has yet to pay Baghdad, tying compliance to wider bargains over trade, water, and security.

Turkey’s approach is fundamentally strategic in its outlook. By controlling the northern Iraq pipeline, Ankara positions itself as a gatekeeper for European diversification while leveraging negotiations with Baghdad over security. These overlapping interests ensure arbitration will remain less a legal issue than a diplomatic tool.

IOCs add another layer of geopolitical complexity. Many are owed huge amounts in arrears that formally sit with the KRI—and with Baghdad now controlling export revenues, repayment is effectively hostage to the GOI’s approval. This shift has turned IOCs’ demands for guarantees into a test of Baghdad’s intentions. By withholding binding commitments and leaning instead on ill-defined repayment schemes, Baghdad keeps investors cautious. In so doing, it reinforces its leverage over Erbil. Yet the result is financial uncertainty, a pressure tactic that undercuts the deal’s lifeline to the KRI. The February 2, 2025 budget amendment mandating $16 per barrel to the KRI was welcomed as overdue, but it is more a down payment than a settlement. In the months since, IOCs have continued to demand repayment of arrears and enforceable guarantees. Until those terms are secured, the large debt will cloud investor confidence, leaving the deal fragile and fiscal relief at constant risk of collapse.

In that sense, the September deal is a partial fix: flows have resumed, but geopolitical entanglements remain. Until Turkey’s arbitration is settled and IOC arrears addressed, the basic instability affecting Iraq’s oil industry will remain.

The System Remains Stalled

The deal has reopened the pipeline, but it has not restored trust. More than two decades after 2003, Iraq still wrestles with fractured governance. Divergent Kurdish, Shia, and Sunni strategies—shaped by histories of conflict and exclusion—have hardened into competing visions of legitimacy and sovereignty. These contradictions are embedded in Iraq’s constitution: articles promising decentralization coexist uneasily with laws reasserting central authority. The result is weak performance, unstable policies, and chronic disputes.

At best, the September 2025 oil deal is a temporary reprieve. It underscores how Iraq’s resource politics oscillate between fragile compromise and renewed confrontation. The pipeline may carry crude again, but the deeper channels of trust and governance remain blocked.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.