Geoeconomic and policy analysis 2026-04-26 10 minute read

Iraq 2026: The Sudani Wage Bill, the KRG Pipeline, and a Parliament Returning to the Sadrists

The October 2025 vote returned a fragmented parliament, the Iraq Turkey Pipeline remains shut three years after the ICC award, and Brent at 70 dollars exposes a federal break-even still near 92. The 2026 question: can a new cabinet hold the dinar peg, normalize KRG salaries, and clear the wage bill without an oil price reset.

Iraq's 11th parliamentary election on October 11, 2025 produced no majority bloc, with the Coordination Framework holding the largest cluster of seats around 80, the Sadrist movement returning under a renamed list with roughly 55 seats, and the KDP and PUK splitting Kurdish representation along familiar lines. Prime Minister Mohammed Shia al Sudani, in office since October 2022, leads a caretaker cabinet through the formation period while three structural strains tighten. The Iraq Turkey Pipeline has been shut 37 months since the March 2023 ICC award of 1.49 billion dollars against Turkey, stranding 250,000 to 300,000 KRG barrels per day. The federal wage bill exceeds 60 trillion dinars, above 50 percent of total spending. The dinar parallel rate has compressed to a 5 percent premium under tight US Treasury OFAC supervision of CBI dollar auctions, with reserves at 105 billion dollars covering 16 months of imports. This brief reads the election arithmetic, the KRG deadlock, the fiscal trajectory through 2026, and the implications for foreign operators and oil markets.

From 2021 to 2025: how the parliament reshuffled #

The October 2021 vote gave Muqtada al Sadr's list 73 seats, the largest single bloc in the 329 seat Council of Representatives. After ten months of failed government formation, the Sadrist current resigned en bloc on June 12, 2022, and replacement deputies shifted the floor majority to the Coordination Framework, the alliance of Shia parties anchored by State of Law (Nouri al Maliki), the Fatah Alliance (Hadi al Amiri), and the Asaib Ahl al Haq political wing. Mohammed Shia al Sudani took the oath of office on October 27, 2022, with Abdul Latif Rashid as president.

The October 11, 2025 election was the first vote since the Sadrist withdrawal. Provisional Independent High Electoral Commission results published October 24, 2025 placed the Coordination Framework constellation at 78 to 82 seats, the Sadrist successor list (running under a renamed banner after Sadr's mid 2024 re engagement) at 53 to 57, the KDP at 31, the PUK at 19, the Sunni Taqaddum and Azm at 38 combined, the Kurdistan New Generation Movement at 9, and a fragmented field of independents at the remainder. Turnout, on IHEC initial figures, ran at 41 percent, above the 2021 turnout of 36 percent.

The parliamentary geometry that follows is harder than 2022. No bloc holds a constructive majority, the 165 seat threshold for cabinet confirmation requires three way assembly across Shia, Sunni, and Kurdish lists. Sudani's cabinet, on caretaker mandate since November 2025, is widely expected to be re tasked, but the precise coalition is unsettled.

Bloc or list	2021 seats	2025 seats, IHEC provisional	Orientation
Sadrist current	73	55	Shia, anti militia, anti Iran tilt
Coordination Framework, combined	44	80	Shia, Iran aligned majority
KDP, Kurdistan Democratic Party	31	31	Erbil, Barzani, KRG presidency
PUK, Patriotic Union of Kurdistan	17	19	Sulaymaniyah, Talabani
Taqaddum and Azm, Sunni	37	38	Sunni, Mohammed al Halbousi line
KNGM, New Generation	9	9	Kurdish reformist, anti KDP and PUK
Independents and small lists	118	97	Mixed
Total Council of Representatives	329	329

Iraqi Council of Representatives, 2021 versus 2025 results, IHEC and HCCR public counts

The KRG oil deadlock and the pipeline still closed #

On February 15, 2022 the Federal Supreme Court ruled in case 59 of 2012 that the Kurdistan Region Oil and Gas Law of 2007 was unconstitutional, and ordered the KRG Ministry of Natural Resources to hand crude marketing to the federal State Oil Marketing Organization (SOMO). Erbil contested the ruling and continued exports until March 25, 2023.

The International Chamber of Commerce arbitral tribunal in Paris, on a case filed by the federal Ministry of Oil in May 2014, issued its award on March 23, 2023. The tribunal found Turkey in breach of the 1973 Iraq Turkey Crude Oil Pipeline Agreement for transporting KRG crude between 2014 and 2018 without federal authorization, and ordered Turkey to pay 1.49 billion dollars in damages to Iraq. Botas, the Turkish state pipeline operator, suspended pumping at Ceyhan two days later. The line, with capacity of 450,000 to 500,000 barrels per day and the KRG's only deepwater export route, has remained shut.

Three commercial points block resumption. First, the per barrel marketing fee that international oil companies operating under KRG production sharing contracts (DNO, Genel Energy, Gulf Keystone, HKN, ShaMaran, and Chevron via the WesternZagros stake) require to keep fields cash positive, with company filings indicating a floor near 26 dollars per barrel against the federal Ministry of Oil's offer of 16. Second, the revenue sharing percentage, where the constitutional 12.67 percent population formula collides with the KRG's claim to a higher historical entitlement plus salary arrears. Third, the Turkish demand to net the ICC award against accumulated transit fees, rejected by the federal side at bilateral meetings through 2024 and 2025.

The political pressure point is salaries. The KRG carries 1.2 million public sector employees, a payroll that under federal Council of Ministers Decision 315 of 2023 flows through the federal Ministry of Finance contingent on the KRG handing over non oil revenue and oil produced by formula. Salary delays of two to four months across 2024 and 2025 fed protests in Sulaymaniyah but did not displace the KDP and PUK from their seat counts.

Channel, barrels per day	2022	2023	2024	2025
KRG exports via ITP to Ceyhan	400,000	100,000 pre shutdown	0	0
KRG production absorbed locally or trucked	50,000	200,000	250,000	270,000
Federal SOMO exports, southern terminals	3,300,000	3,350,000	3,380,000	3,400,000
Total Iraq output, OPEC secondary sources	4,450,000	4,200,000	4,100,000	4,050,000
OPEC plus quota for Iraq	4,650,000	4,430,000	4,000,000	4,000,000
Compliance versus quota, percent	96	95	103 over quota	101 over quota

Iraq oil production and exports, federal plus KRG, OPEC MOMR and SOMO bulletins

The Sudani fiscal arithmetic into 2026 #

The tri year general budget of 2023 to 2025, Federal Public Law 13 of 2023, was the first multi year budget passed by the Iraqi parliament since 2003. The 2024 envelope under finance minister Taif Sami totaled 198.9 trillion dinars (152 billion dollars at the 1,310 official rate) on revenue of 144.4 trillion and a planned deficit of 64.3 trillion. The IMF Article IV 2024 staff report estimated the fiscal break even Brent at 92 dollars per barrel, above the 71 dollar 2025 average and the 70 to 75 dollar 2026 World Bank scenario.

Wages, pensions, and social transfers run above 60 trillion dinars, north of 50 percent of total spending. Federal payroll passed 4.5 million in 2024 on Ministry of Finance figures, up from 3.0 million in 2019, with the largest hires in Interior, Defense, and the integrated Popular Mobilization Forces (Hashd al Shaabi) payroll. Investment spending ran 38 trillion in 2024 budget intent against 22 trillion in actual disbursement, a 42 percent execution shortfall.

The 2026 to 2028 follow on framework is contested. The Council of Ministers submitted a draft in November 2025 keeping the 1,310 peg and assuming 70 dollar Brent, with a 71 trillion dinar deficit financed through CBI advances, Treasury bills via Trade Bank of Iraq and Rasheed Bank, and a 1.5 billion dollar eurobond, the first since 2017. Parliament has stalled on the wage bill ceiling, the KRG transfer mechanism, and the constitutional debt to GDP threshold, breached if KRG arrears are consolidated. Brent at 70 to 75 dollars yields federal oil revenue near 95 to 100 billion dollars at 3.40 million barrels per day. Against a 152 to 160 billion dollar expenditure plan, the residual gap is 30 to 35 billion dollars. A 10 dollar fall in Brent removes 12 billion from revenue.

The dinar, the auction, and OFAC supervision #

The Central Bank of Iraq has held the official rate at 1,310 dinars per dollar since the February 2023 revaluation from 1,460. Gross international reserves stood at 105 billion dollars on the December 2025 CBI balance sheet, with gold holdings of 162 tonnes, together covering roughly 16 months of imports against the IMF adequacy benchmark of 5 to 6 months. The CBI dollar auction window processed roughly 240 million dollars per day on a five day rolling average through 2025, down from 280 million per day in 2023.

The parallel market rate, observable through Hawala dealers in Karrada and Erbil, traded between 1,375 and 1,395 dinars per dollar through Q1 2026, a spread of 5 to 6 percent and the narrowest sustained gap since the 2020 devaluation. The compression reflects the US Treasury OFAC compliance regime imposed on the CBI through 2023 and 2024, which forced the unwinding of correspondent banking at 28 Iraqi private banks and migrated dollar settlement onto SWIFT message by message clearance. The Federal Reserve Bank of New York applied screening with a six business day release lag through 2024, compressing to two days by Q1 2026. A November 2025 cabinet directive expanded auction eligibility to 13 previously delisted banks under conditional OFAC engagement. Field reports of cash dollar quotes near 5,500 dinars per US dollar in informal retail strips refer to a thin segment for unbanked imports of subject goods, not the dealer market that sets the macro relevant spread.

Iran proxies, Faw port, and the US troop posture #

The Higher Military Commission established by the United States and the federal government of Iraq in January 2024 produced a phased framework in September 2024 ending the Combined Joint Task Force Operation Inherent Resolve mission at federal facilities by September 2025, with a residual presence at Erbil air base under bilateral arrangement through September 2026. The withdrawal removes the most visible target set for the Iran aligned militia constellation that conducted more than 170 attacks on US positions in Iraq and Syria between October 2023 and February 2024.

The Popular Mobilization Forces, integrated into the Iraqi state under Law 40 of 2016, carry roughly 230,000 personnel on the federal payroll. Saraya al Salam, the Sadrist armed wing, remains formally outside the PMF structure but holds parliamentary cover through the Sadrist successor list. Kataib Hezbollah and Asaib Ahl al Haq, both designated under US Treasury sanctions, retain de facto integration with PMF brigade numbering. The political risk through 2026 is not a coup but the use of militia leverage during budget and oil law negotiations.

Faw Grand Port phase one was commissioned in 2025, executed under PowerChina and CSCEC engineering procurement and construction contracts financed through the 2019 Iraq China Framework Agreement oil for construction escrow. Phase two, under a 4.6 billion dollar package extension signed October 2024 alongside a 5 billion dollar tranche for the Baghdad metro, advances Faw toward a 99 berth, 100 million tonne per year throughput target. The framework, routed through SOMO escrow at a designated Chinese bank, had financed roughly 8 billion dollars of project commitments by April 2026.

Implications for operators, OPEC, and the 2026 outlook #

Aggregate Iraq plus KRG output sits near 4.05 million barrels per day on OPEC secondary sources against a 4.00 million quota, persistent overproduction that contributes to OPEC plus internal compliance friction. An ITP reopening at the 200,000 to 400,000 barrel per day phased levels indicated in October 2025 discussions would lift Iraqi exports toward 3.7 million but require Iraq to absorb that volume against quota or negotiate a higher headline number.

The Total Energies Gas Growth Integrated Project, 27 billion dollar capex over 25 years (TotalEnergies 45 percent, QatarEnergy 25 percent, Basra Oil Company 30 percent), reached final investment decision in July 2023 and is in construction across the Ratawi crude development, Artawi solar plant, seawater treatment facility, and flared gas recovery scope. Chevron's entry through the Sarsang block expansion under the August 2024 KRG transfer of WesternZagros assets carries reopening optionality but no near term revenue. Halliburton, Schlumberger, and Baker Hughes service exposure runs through Rumaila, West Qurna 1 and 2, and Majnoon, with sensitivity to federal payment cycles that lengthened in 2024 and tightened in late 2025. BP's Rumaila renegotiation, converted to a profit sharing structure in March 2025, is the second largest western commitment after Total.

The structural outlook depends on three contingent variables. First, whether the ITP through Ceyhan reopens, lifting KRG exports and lowering the federal break even Brent by 4 to 6 dollars. Second, whether the new cabinet ratifies a 2026 to 2028 tri year framework with a credible wage bill ceiling. Third, whether the Iran aligned constellation accepts a Sudani re tasking, a Coordination Framework substitute, or forces a wider reset. None is stalled in April 2026, none has cleared, and the formation window is the binding constraint.

Sources #

Cite this brief

@misc{hossen2026iraqkrgoil2026,
  author = {Hossen, Md Deluair},
  title  = {Iraq 2026: The Sudani Wage Bill, the KRG Pipeline, and a Parliament Returning to the Sadrists},
  year   = {2026},
  url    = {https://deluair.com/consultancy/insights/iraq-krg-oil-2026},
  note   = {Deluair Consultancy briefs}
}

Hossen, M. D. (2026). Iraq 2026: The Sudani Wage Bill, the KRG Pipeline, and a Parliament Returning to the Sadrists. Deluair Consultancy briefs. https://deluair.com/consultancy/insights/iraq-krg-oil-2026

Hossen, Md Deluair. "Iraq 2026: The Sudani Wage Bill, the KRG Pipeline, and a Parliament Returning to the Sadrists." Deluair Consultancy briefs, 2026-04-26. https://deluair.com/consultancy/insights/iraq-krg-oil-2026.

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