From Transit to Treaty: Securing the Federal Hydrocarbons Law Amidst Regional Conflict

Imad Farhadi

Written by Imad Farhadi, Senior professional in diplomacy, research, and strategic relations and founder of iNNOV8 Research Centre.

The current regional instability, magnified by the blockade of the Strait of Hormuz, has affected the flow of oil to the global market. The necessity of selling Iraq’s oil through the Ceyhan pipeline presents a new power dynamic between Erbil and Baghdad. While the sudden interest of the federal government in the resumption of oil exports through the Ceyhan pipeline is framed as vital for the sustenance of Iraq’s economy, this opportunity represents a rare moment for the Kurdistan Region of Iraq (KRI) to effect some legal and structural changes. 

For the Kurdistan Regional Government (KRG), the primary challenge now is to resist the temptation of short-term financial relief and instead insist on a comprehensive legislative settlement that has been stalled for nearly two decades. 

For years, the bilateral relationship has been defined by a cycle of crisis and concession. Baghdad typically offers temporary liquidity—specifically the disbursement of a few months of public sector salaries—in exchange for immediate operational cooperation from KRG. These are not considered victories; they are merely ephemeral administrative fixes, oftentimes leaving the KRI’s underlying economic rights vulnerable to the next political shift or change of mood in the capital. To break this cycle, the KRG must link the resumption of oil flow through its territory and oil infrastructure directly to the formal ratification of the Federal Hydrocarbons Law at the Iraqi Parliament. Only through a permanent legal framework can the Region transition from a state of fiscal uncertainty to a state of long-term, institutionalised economic autonomy.

Success in these negotiations, reported to take place today, 17 March, will also require a disciplined shift in diplomatic rhetoric. While there is a vast and valid list of grievances regarding Baghdad’s past mismanagement of the oil portfolio and its budget disbursement, harping on these issues now serves little strategic purpose. Pragmatism dictates that the KRG look forward. By focusing on the immediate requirements of a functional federalism—rather than a retrospective accounting of past failures—Erbil can occupy the moral and political high ground as the partner seeking stability and law-based governance.

This stability, however, cannot exist in a vacuum. It is impossible to discuss a seamless energy partnership while groups functioning outside of the law continue to target KRI energy infrastructure, in addition to other establishments, with impunity. A credible agreement must include concrete security guarantees; Baghdad cannot expect the KRI to function as a national economic lifeline while failing to reign in the actors threatening its safety and security. 

Alongside these security guarantees, the KRG should also secure a comprehensive, even if temporary, exemption from federal taxes and tariffs on imported goods. Such a measure would provide the private sector in the Region with the necessary breathing room to recover from the compounding pressures of conflict and fiscal isolation.

Ultimately, the closure of the south’s maritime routes has turned the KRI’s northern infrastructure into Iraq’s most vital strategic asset. If the KRG settles for the mere fulfillment of payroll, it will have squandered a generational opportunity. The goal must be a seat within the federal decision-making architecture that is defined by law and protected from the whims of executive decree and mood changes in the capital. This is the moment to trade temporary oil flows for permanent constitutional guarantees.