by Yerevan Saeed

The Kurdistan Regional Government’s (KRG) recent multibillion-dollar gas agreements with U.S. energy companies represent a significant and multifaceted strategic gambit. However, those deals demand a clear policy response from the U.S. policy-making circle. Washington should support these deals as a part of broader strategy to bolster Iraq’s energy diversification and economic resilience and regional stability. The U.S. should also encourage conflict resolution between Erbil and Baghdad over hydrocarbon issues and institutional reform and transparency in Iraqi Kurdistan.

These deals transcend expansion of the KRG’s hydrocarbons sector, signaling a high-stakes maneuver on three interconnected fronts: Erbil’s persistent quest for economic autonomy from Baghdad, Washington’s recalibrated Middle East policy, and the shifting dynamics of Kurdish internal politics. But the deals also come with tremendous risks. They have already invited the ire of the Iraqi authorities, and worsened Erbil-Baghdad relations. Moreover, the Kurdish political parties have failed to coalesce around the deals to form a new government, and internal social stability is fraying after Baghdad’s punitive financial measures in response to the deals have prevented the KRG from paying civil servants’ salaries since April.

Signed amid a complex regional landscape and enduring disputes with Baghdad, these agreements could usher in a new phase in the political economy of Iraqi Kurdistan, one driven by natural gas and laden with geopolitical implications that extend far beyond the energy sector itself. These include the potential to weaken Iran’s political influence in Iraq, dry up revenue from oil smuggling that benefits pro-Iranian militia groups and, most importantly, weaken Tehran’s influence in its traditional stronghold in the eastern part of the Kurdistan Region.

Strategic Timing and Geopolitical Optics

The $110 billion worth of agreements, finalized during KRG Prime Minister Masrour Barzani’s May 2025 visit to Washington, are strategically timed. Although under the deals had been under negotiation for two years, the announcement of the final agreements with U.S. firms HKN Energy and WesternZagros coincided with a discernible shift in foreign policy under the administration of U.S. President Donald Trump. Washington appears to be increasingly prioritizing the Kurdistan Region over federal Iraq, indicating a growing U.S. interest in strengthening an alternative power center in the Middle East, with Erbil emerging as a key player. This assertive commercial diplomacy, emboldened by Trump’s high-profile Gulf tour and the resulting multibillion dollar agreements, highlights a broader recalibration of U.S. foreign policy in the Middle East. The first agreement, valued at $40 billion, grants HKN Energy and ONEX Group development rights for the Miran Gas Field, estimated to hold 8 trillion standard cubic feet of natural gas. The second, a $70 billion arrangement with WesternZagros, targets the Topkhana-Kurdamir blocks, which are estimated to hold reserves of 5 trillion standard cubic feet of gas and nearly a billion barrels of oil. The gas fields in Sulaymaniyah province historically have fallen within Iran’s political sphere of influence, making the deal particularly noteworthy. These are not simply commercial ventures; their locations, immense scale, and the backing of U.S. firms suggest a calculated American effort to underwrite economic autonomy for Iraqi Kurdistan while directly challenging Iran’s longstanding influence in northeastern Iraq.

This strategic alignment also feeds into Washington’s broader objectives of stabilizing global energy markets and undermining illicit oil flows that have historically bolstered Iran’s regional proxy networks. The Trump administration’s active support for reopening the Iraq-Turkey Pipeline (ITP), which has remained closed since 2023 following a legal dispute between Iraq and Turkey, aims to route Kurdish oil through formal, transparent channels. By doing so, the U.S. seeks to marginalize black-market routes that enrich actors outside the state system, including Iranian-aligned militias that smuggle oil from Kirkuk to Iran via the Mandali border crossing, thereby tightening the economic noose around its regional adversary and disrupting those groups’ financial lifelines.

The Kurds: From Division to Strategic Convergence

These agreements also reflect a fundamental strategic reorientation within the KRG itself. Prime Minister Barzani has consistently sought to position natural gas as a cornerstone of his Cabinet’s legacy, a policy ambition that gained particular urgency during the height of Europe’s energy crisis following Russia’s invasion of Ukraine in 2022 but stalled due to divisions between the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK).

Historically, the issue of gas has been a major source of contention and a fault line in intra-Kurdish politics, particularly between the KDP and the PUK. Tensions reached a crescendo when in 2021, the KDP-led government awarded a significant contract to the KAR Group, a politically aligned domestic firm, to expand the gas pipeline network. This expansion was designed to transport gas from producing fields in the PUK area to Erbil and then onward to Dohuk, a city near the Turkish border. The overarching, long-term goal has been to connect this pipeline to Turkey’s existing gas infrastructure, thereby gaining access to European markets. While the vision was undeniably bold, it was also fraught with political complexities and internal challenges as the PUK viewed it as an overreach.

PUK leaders, including Bafel Talabani, vociferously denounced the pipeline deal, criticizing it as opaque and exclusionary. The PUK reportedly obstructed pipeline expansion efforts in areas under its control, effectively halting even the initial phase of the project. Talabani famously warned that gas would not leave Kurdistan in the same manner as oil had, alleging mismanagement and secrecy.

However, current events suggests that gas is transitioning from a symbol of political exclusion into a potential vehicle for cautious realignment. Faced with unprecedented foreign investment and the opportunity to establish Iraqi Kurdistan as a crucial regional energy hub, both the KDP and PUK appear to share powerful incentives for coordination. Quiet signs of cooperation have begun to emerge as evidenced by the gas deals, as both parties recognize that continued fragmentation could imperil critical infrastructure development, erode international investor confidence, and forfeit significant leverage in ongoing negotiations with Baghdad.

This potential for convergence is particularly significant for the PUK as these deals offer a potential pathway to regain some of its lost status and influence vis-à-vis the dominant KDP.

History lends credence to this possibility; the oil-driven strategic agreement of 2007 between the two Kurdish factions ushered in a period of relative political stability and economic prosperity, despite its eventual shortcomings. The KDP, despite its recent electoral successes, appears to finally recognize the PUK’s capacity for disruption, particularly through alliances with certain factions in Baghdad, evidenced by numerous Iraqi Supreme Court rulings against the KRG initiated by PUK-aligned actors. With Kurdish public confidence in the government at an ebb, the prospects for a similar strategic alignment around gas will largely depend on the establishment of transparent and inclusive mechanisms that actively prevent a repetition of the patronage-driven politics that have long undermined effective Kurdish governance.

KRG Gas Plans and Risks

Iraqi Kurdistan’s proven gas reserves of 25 trillion of cubic feet constitute 20 percent of Iraq’s total reserves. The Kurdish resources are primarily non-associated gas, meaning they are not a byproduct of oil extraction. This type of gas is generally easier and less costly to extract with fewer technical challenges compared with associated gas. These types of reserves, which offer higher economic value and greater potential for independent development and export, attract considerable commercial interest.

Currently, the KRI’s gas production fluctuates between 540 million and 680 million standard cubic feet per day (MMSCFD), with over 520 MMSCFD of non-associated gas produced at the Khor Mor Field, operated by the UAE-based Dana Gas. This counts for over 90 percent of the Kurdistan Region’s total production. Additional production includes 140 MMSCFD of associated gas from the Khurmala Dome near Erbil, operated by KAR Group, and between 5 MMSCFD and 14 MMSCFD of associated gas from the Sarqala Field in the Garmiyan area of Sulaymaniyah, operated by WesternZagros and Russia’s Gazprom.

The K250 project currently under development in Khor Mor is expected to increase the field’s total output to nearly 800 MMSCFD. Although Dana Gas announced that the expansion would be completed in the first quarter of 2026, industrial sources indicated that the project has been fast-tracked to be finished by the end of 2025 or earlier. In parallel, Dana Gas has started working on the Chamchamal Gas Field, which is expected to bring an additional 70 MMSCFD online by the end of 2026. If these timelines are met, the Kurdistan region’s gas output will surpass 1 billion MMSCFD, sufficient not only to meet domestic power generation demands but also to provide a surplus enabling Kurdistan to export both inside Iraq and potentially to Turkey, moving beyond mere domestic consumption.

The Kurdistan region has ambitious plans to produce up to 1.5 billion cubic feet per day of natural gas by 2027. The new gas contracts with the U.S.-based energy companies and the additional production from current producing fields, if expansions come online, will give Iraqi Kurdistan the potential to become a regional hub for both gas and electricity production.

However, this strategic approach remains under debate inside the Kurdish government. A key point of contention is whether the region should prioritize gas exports or focus on exporting electricity to the rest of Iraq and possibly neighboring countries. Some Kurdish officials argue that focusing on electricity could cause fewer political and legal problems with Baghdad and ease geopolitical tensions, especially with the powerful neighboring countries that fear displacement from Iraq’s lucrative energy market. Others favor direct natural gas exports to end users as the more efficient and profitable strategy. They point to the shifting geopolitical landscape following the fall of the Assad regime and Tehran’s weakening influence in the Middle East, suggesting this moment presents an opportunity for Kurdistan to initiate large-scale gas production and eventual exportation without the same risks of sabotage and retaliation that plagued the sector in recent years.

Yet, recent security developments reaffirm significant risks in Kurdistan despite the relative weakening of Iranian influence and its proxy groups. Since June 16, at least eight attacks by uncrewed aerial vehicles have targeted key urban and strategic areas, including Erbil, Duhok, Sulaymaniyah, and Garmiyan. These incidents underscore the sustained capacity for disruption by the nonstate actors, particularly those aligned with Iranian interests. In one incident, a drone loaded with two missiles ran out of fuel and crashed about 10 kilometers from the Sarqala oil field operated by WesternZagros, signaling the vulnerability of energy sector. This incident could have been a warning to WesternZagros, as the gas fields it was awarded as part of the recent contracts are relatively near Sarqala.

The KRG accused some factions within the Popular Mobilization Forces, an umbrella of Shiite militia groups aligned with Iran, of orchestrating the strikes and working to undermine Kurdistan’s stability. Baghdad, however, rejected those claims and defended the PMF. While Baghdad had opened investigations into earlier attacks in the Kurdistan region, no findings of accountability were published, further eroding trust between the two governments.

This also marks a political inflection point. For the first time, the Iraqi federal government and an affiliated militia group appear to be strategically aligned in opposition to the KRG, not only through inaction but also through coordinated political messaging and military posturing.  this situation is further complicated by the second military maneuver in less than a year during which Iraqi forces reportedly took over the Qanbar gas and oil field close to the recent gas concessions in Garmiyan area. These unliteral -movements have raised concerns over Baghdad’s strategic intentions, prompting the KRG to reinforce Peshmerga forces and place them on high alert.

Collectively, these developments indicate that while the direct threat from Iranian-backed groups may have diminished, underlining volatility and tensions between the Kurdistan region and federal Iraq remain elevated with implications for both stability and foreign investment.

Kurdistan’s Electricity Potential

The Kurdistan region’s electricity sector is loaded with potential.

Iraqi Kurdistan has a generation capacity of 8.2 gigawatts (GW) of electricity with more than 84% powered by natural gas and the remainder consisting of hydropower and diesel generation. However, fuel shortages, drought, and budgetary issues have limited generation to just slightly over half of that capacity.

The region has long possessed the infrastructure necessary to provide continuous 24-hour power flow. But it has consistently struggled to meet that potential due to a combination of limited gas production and refining capacity, diminishing water reserves, increasing demand encouraged by population growth and inexpensive pricing, the KRG’s ongoing financial crisis, and its inability to collect electricity tariffs to pay for fuel.

In response, the KRG has initiated a series of reforms aimed at modernizing and privatizing the electricity sector, including installation of smart meters and the awarding of contracts to companies with affiliation with the dominant political parties. Most recently, the KRG implemented a 300 percent increase in dynamic electricity tariffs in an attempt to curb demand and move closer to round-the-clock electricity supply. However, critics of the policy shift have pointed out its failure to account for the average household income in the region, raising concerns over affordability and social equity.

According to officials at the KRG Ministry of Electricity, the region requires an average of 5.2 GW to meet peak demand in winter and summer. With an existing generation capacity exceeding this demand, the region holds a promising potential to transition from a net consumer to a net exporter of energy, particularly if planned gas expansions projects come online as expected. Yet realizing this potential will depend on not only optimizing its infrastructure but also addressing political stability, fuel supply, grid stability and national grid integration issues.

Despite these challenges, the KRG has already commercialized electricity through exportation of 1.6 GW to federal Iraq. This could serve as a proven, operational model that can be scaled to meet broader national demand should Iraqi federal authorities have the political will to implement it. The KRG power supply to Kirkuk, Ninewa, and Diyala provinces is based on annual power purchase agreements with Kar Group, Qaiwan Group, and Mass Holding Limited, generating nearly $10 billion in revenues for the Kurdistan region. Importantly, the KRG electricity exports helps relieve significant social and political pressure on the federal government, which continues to suffer from chronic power shortage across much of Iraq. By helping the federal government to address the national challenges at least partially, Baghdad seems to have more to win from a Kurdish region that can supply national power grids than to resist deals than could subvert electricity generation in the future.

This electricity partnership could become a constructive framework through which Erbil and Baghdad might think creatively to address broader unresolved issues, including oil and gas, budget transfers, and revenue sharing mechanisms.

However, even if the model proves to be an economic and technical success, concerns pertaining to issues of transparency and accountability persist. It remains unclear how the KRG’s treasury has benefited from the energy sales revenue. . The KRG Ministry of Electricity, for example, does not provide comprehensive or consistent financial disclosure in its official reports. Primarily, nearly 400 megawatts of transmitted electricity are omitted or missing from daily reporting, according to sources at the electricity agency. This raises legitimate questions about the accuracy of operational data and governance of public resources. Without effective overnight and improved institutional transparency, public trust and long term policy support might be undermined and investors will have second thoughts regarding financing future power projects.

 Legal Deadlock Meets Strategic Drift

The protracted conflict between Erbil and Baghdad is the ultimate manifestation of the unresolved question of contested sovereignty over natural resources. In the absence of a comprehensive national hydrocarbon law, in which the powers of the federal government and the regional government are clearly defined, Iraq continues to operate in a legal gray zone. Consequently, the foundation of the agreement between the KRG and the federal government over energy and the budget is vulnerable to reversal as the national balance of power and geopolitical power shift on a broader level. Both governments are subject to these shifts which force them to walk away from deals they previously supported, fueling a cycle of mistrust and breakdowns.

The federal government in Baghdad has, predictably, rejected the KRG’s latest natural gas initiatives. Citing the 2022 Supreme Court ruling that declared the KRG’s independent oil and gas law unconstitutional, the Iraqi Ministry of Oil has denounced the deals with HKN Energy and WesternZagros as clear violations of federal authority.

Baghdad took concrete steps to both relay its displeasure to the KRG and the international oil companies (IOCs) operating in the Kurdistan region. The Oil Ministry’s condemnation of the recent KRG actions was quickly followed by fiscal retaliation, including delays in budget transfers to Erbil.  In a letter dated May 29, the Iraqi Finance Minister Taif Sami Mohammed informed the KRG that no further disbursements could be made, saying the region had already exceeded its allocation under the 2025 federal budget. This measure has plunged the KRG into a deep financial crisis, with civil servant’s salaries unpaid since April 2025, leading to growing frustrations toward Kurdish leadership.

In the outstanding oil and gas dispute between Erbil and Baghdad, the federal government has increasingly relied on financial levers to exert pressure on the KRG. This approach mirrors the logic underpinning the international sanctions, where economic constraints are designed to compel political concessions or policy choice changes. However, as with sanctions regimes globally, the burden has disproportionally fallen on the civilian population rather than the political leadership. In the Kurdistan region, rather than inducing policy shifts by the ruling elite, Baghdad’s fiscal pressure has exacerbated economic hardship for ordinary Kurds.

Furthermore, despite substantial progress in the trilateral negotiations between the federal government, the KRG and international oil companies to resume oil exports via the critical Iraq-Turkey Pipeline (ITP), Baghdad suspended talks, effectively neutralizing any progress made in previous negotiations. The ITP has remained offline since March 2023 following a ruling by the Paris-based International Chamber of Commerce in a long-running arbitration case. The body determined that Turkey had breached a 1973 treaty governing the ITP by enabling the KRG to use it for oil exports without the approval of Baghdad. The closure has denied all parties, including the KRG, Baghdad, and foreign investors, access to a vital export corridor, leading to $25 billion losses in revenues.

The Oil Ministry’s swift and forceful rejection of the deals suggests a hardening of Baghdad’s stance, viewing the KRG gas deals as a direct affront to national sovereignty. Although Baghdad is likely to be frustrated with the continued pipeline closure — and as long as the ITP is technically operational, it must make a monthly payment of $25 million to Türkiye, it appears to be willing to absorb these financial losses. The federal government’s posture indicates that sovereignty over the energy sector takes precedence over short-term economic costs.

Following Baghdad’s threats in May, the Association of the Petroleum Industry of Kurdistan, which represents key U.S.-backed firms, called for immediate trilateral talks involving the KRG, Baghdad, and international companies. The group warned that over $1 billion in debt remains unpaid to its members and that prolonged uncertainty could lead to an exodus of investors from Iraq.

The steady pressure from U.S. Embassy in Baghdad and officials in Washington eventually encouraged Baghdad to return to the table last June. While negotiations have been serious, they have not yielded breakthroughs. The Iraqi government appears to have maximized its demands. The federal government demands that the KRG transfer its current and future oil production to the State Organization for Marketing of Oil. The KRG currently produces 282,000 barrels per day, including 236,000 for export and 46,000 for domestic use. The KRG has countered with a proposal of 280,000 bpd, insisting that it requires 120,000 barrels daily for local refineries and use. Moreover, the federal delegation has told the KRG delegations that they could not sign any written agreement. Instead, there would only be verbal agreement. This was under the pretext of avoiding such written agreement to be weaponized during the upcoming Iraqi Parliamentary elections slated for November 2025 against Prime Minister Mohammed Shia al-Sudani who is expected to have his own election list. However, the Iraqi Shiite political elite is likely to intensify budgetary, financial, and political pressure on Erbil as electioneering tools to motivate their base for voter turnout, which makes agreements hard to reach and even if done, hard to keep.

Compounding this is the increasing demand of oil companies on Baghdad, according to Iraqi sources, which has complicated any deal. The companies now are dissatisfied with the $16 per barrel price mandated in the 2025 budget law to cover production and transportation cost, and they also want a clear limit placed on Wood Mackenize, the consultancy tasked with assessing the Kurdistan region’s oil fields over concern that the firm’s authority could potentially interfere with their existing contracts with the KRG.

Washington’s patience pertaining to the Iraq-Turkey Pipeline appears to be growing thin, given the pipeline shutdown’s economic and policy implications for the U.S. interests in the region, preventing at least 300,000 bpd of oil from reaching the market.

Regional Realignment Through Energy

For Washington, these deals represent far more than simply energy diversification. They give credence to Trump’s commercial diplomacy and foreign policy and embody a broader strategy of containment and influence realignment in the Middle East. By supporting large-scale U.S. investments in Kurdistan, particularly in historically Iranian-aligned zones like Sulaymaniyah, the Trump administration signals its clear intent to cultivate a viable alternative to both Baghdad’s centralizing tendencies and Tehran’s shadow economy.

This strategic shift is underscored by tangible actions, including the anticipated relocation of the U.S. military footprint within the country with a concentration in the Kurdistan region while drawing down in federal Iraq. This strategic realignment, coupled with the ongoing planned inauguration of what will be among the largest U.S. consulates in the world, located in Erbil, underscores a deepening of ties between Washington and the KRG. While the U.S. has sought to streamline diplomatic missions elsewhere, this significant expansion in Erbil sends a powerful signal that the Trump administration’s engagement with the KRG is intended to be long-term and strategic and will no longer be solely dependent on the federal government in Baghdad.

Despite the ambitious vision, this entire strategic architecture remains precarious. Baghdad’s legal and political retaliation, if sustained, could effectively freeze export pathways persistently, deter further investment, and worsen Erbil’s fiscal condition. Internally, the fragile détente between the KDP and PUK remains untested; they have failed to form a new government seven months after the election, and without institutionalized cooperation, mutual suspicion could once again unravel any progress. For the U.S. as well, overinvestment in a single, factionalized region within an inherently divided Iraq carries significant risks of regional backlash and diminished leverage in Baghdad.

Moreover, the upcoming Iraqi elections could significantly alter the political picture. A new federal government, facing domestic pressures, might choose to reassert more aggressive control over energy policy, complicating Washington’s and Erbil’s strategic maneuvering. The potential for escalating tensions with Baghdad, particularly in the volatile context of Iraqi elections, could undermine internal stability and further complicate the already intricate web of Middle Eastern politics especially in the light of the failure of Tehran and Washington to reach a broader grand bargain.

The KRG’s gas deals are likely to mark a turning point, not only in its energy strategy but also in its political positioning, both domestically and internationally. Yet success will depend on unwavering support from Washington and the KRG’s ability to weather Baghdad’s relentless political and economic pressure. What was once a profound source of internal Kurdish discord now has the potential to serve as a basis for pragmatic convergence. For Washington, these deals could offer a tangible mechanism to rebalance power in the Middle East without direct military intervention. However, the ultimate success of this audacious energy play hinges on resolving long-standing governance issues, establishing legal clarity regarding hydrocarbon resource management, and deftly navigating the volatile and problematic relationships among Erbil, Baghdad, and other regional stakeholders.

As the dust settles on these announcements, the international community will be watching to see whether this Kurdish gambit yields the intended strategic gains or inadvertently weakens the Kurdistan region economically and politically, triggering a new wave of instability in an already turbulent region. Whether it leads to genuine economic empowerment and enhanced regional stability or collapses under the weight of protracted legal battles and persistent political fragmentation, the strategy will decisively determine the future trajectory of Iraq’s most dynamic, inherently fragile region.

Policy Recommendations 

1. Support a federal hydrocarbons law 

The United States should prioritize brokering a comprehensive agreement between Erbil and Baghdad to pass the long-awaited federal hydrocarbons law. This legislation must clearly delineate the rights and responsibilities of both levels of government regarding energy exploration, production, and revenue-sharing. Such a legal framework represents the most sustainable mechanism for resolving the outstanding dispute over natural resources. 

2. Enable the KRG’s emergence as a reginal energy hub 

Washington should assist the KRG in realizing its potential as a regional energy hub. This would not only diversify and stabilize Iraq’s overall energy portfolio but also reduce its dependence on regional exports to fulfill gas and electricity demand. Through support for infrastructure agreements through public- private partnerships, the U.S. can help unlock Erbil’s gas and electricity production for both domestic and regional markets. 

3. Deter sabotage and reinforce security of the energy sector 

The U.S. must send an unambiguous message to those who seek to sabotage the KRG’s energy infrastructure. Protecting the Kurdish energy sector from threats, whether from state or nonstate actors, should be part of Washington’s broader strategic objective to support Iraq’s path to energy self sufficiency. Ensuring the undisrupted development of Kurdish gas aligns with U.S. interests in promoting energy security, regional stability, and economic resilience for Kurdistan and Iraq. 

4. Promote transparency and good governance in the natural gas sector 

Unlike the oil sector, which has long suffered from opacity and entrenched corruption, the emerging Kurdish gas sector presents an opportunity to set a new governance standard. The U.S. should condition its support to Erbil on its adoption of international best practices in transparency including contract disclosure, independent audits, and alignment with the global standards like the Extractive Industries Global Initiative. Enhancing transparency will not only attract investors but also help the KRG, which currently struggles with low levels of public trust, to rebuild confidence among its citizens. A natural gas sector governed by openness and accountability can shift public perceptions of natural resources from tools for elite enrichment to assets that serve the broader public good. This shift is a prerogative for long-term political stability and fair economic development in the region.