Iraq's federal government has agreed to extend a key financial arrangement with the Kurdistan Regional Government (KRG) for another year, aiming to maintain fiscal coordination amid ongoing disputes over oil and revenue sharing.

A source within the Council of Ministers confirmed the cabinet's decision to roll over the existing oil and budget agreement, which is set to expire later this year. Under the extended terms, the KRG will continue to transfer approximately 120 billion Iraqi dinars in non-oil revenues to the federal Ministry of Finance. In return, Baghdad retains responsibility for paying public sector salaries in the Kurdistan Region.

"The contribution amount will not change," the council source stated.

However, the extension comes with immediate uncertainty for Kurdish civil servants. Despite approving the broader deal, the cabinet did not authorize the payment of November and December salaries during its latest session, leaving the status of those two months of wages unresolved.

The decision arrives as Iraq's current three-year federal budget (2023-2025) approaches its conclusion, setting the stage for negotiations on a new long-term framework governing the financial relationship between Erbil and Baghdad.

In a positive development, Prime Minister Mohammed Shia' al-Sudani has directed the Finance Ministry to release October salaries for regional employees. The ministry has confirmed it is prepared to disburse the funds once the necessary budgetary allocations are transferred.

The financial ties between the federal government and the semi-autonomous Kurdistan Region have long been strained, centering on conflicts over independent oil exports, revenue sharing, and budget disbursements. The current model, now extended, requires the KRG to hand over non-oil revenues in exchange for Baghdad covering the region's public sector wage bill.

Earlier this week, Hamdi Sinjari, deputy head of Iraq's State Oil Marketing Organization (SOMO), expressed optimism that renewing the oil agreement would proceed "smoothly and without complications."

This backdrop follows the official resumption of oil exports from the Kurdistan Region on September 27, ending a 30-month stoppage that began in March 2023. The restart was facilitated by a tripartite agreement involving the KRG, the federal government, and international oil companies.