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Senior officials from the Iraqi federal government and the Kurdistan Regional Government (KRG) ended two days of high-level talks in Erbil on Monday without reaching any firm agreements on long-standing disputes over oil revenues, financial allocations, and border control.

The discussions, seen as crucial for Iraq's economy amid falling oil prices and liquidity challenges, could have broader implications for global oil markets. However, the lack of a breakthrough leaves key issues unresolved, and both governments are facing increasing pressure.

The meetings aimed to tackle some of Iraq's most critical challenges, particularly the long-standing financial disputes between Baghdad and Erbil. Led by Iraq's Foreign Minister Fuad Hussein, the federal government's delegation included Finance Minister Taif Sami, Planning Minister Mohammed Ali Tamim, Trade Minister Atheer Dawood Salman, and Ali Mohsen Al-Alaq, Governor of Iraq's Central Bank (CBI). The KRG delegation was led by Prime Minister Masrour Barzani.

While both sides acknowledged progress in a joint statement released after the meetings, no concrete agreements were reached on the more contentious issues. Temporary decisions were made on some matters, but many key topics were referred to the Iraqi Council of Ministers for further discussion.

Civil servants in limbo

A central point of contention was the delayed payment of civil servants in the Iraqi Kurdistan Region (KRG), which has been a growing source of frustration. Iraq's ministerial council for the economy has instructed the Ministry of Finance to resolve the issue of unpaid salaries, which have been delayed due to complications with the biometric payroll system. This system, designed to improve payroll transparency and reduce fraud, has faced significant delays in its rollout.

The KRG requires around 940 billion Iraqi dinars (£600 million) each month to pay its 1.2 million civil servants. However, financial shortfalls and the slow implementation of the biometric system have led to recurring delays in salary payments. Thousands of public sector employees are still waiting for their August wages, with no clear resolution emerging from the talks.

Despite the KRG Ministry of Finance’s initial optimism that the meetings would help stabilise the financial situation, civil servants remain in limbo. Hunar Jamal, spokesperson for the KRG Ministry of Finance and Economy, declined to comment on the outcome of the talks when approached by °®Âþµº.

Oil smuggling and compliance with OPEC

Another pressing issue discussed during the meetings was oil smuggling from the Kurdistan Region, which has further complicated Iraq's ability to adhere to OPEC production limits. According to a July report from , around 200,000 barrels of oil per day are smuggled from the region to Iran and Turkey, generating an estimated £160 million per month in unofficial revenue.

Despite the lack of a clear outcome from the talks, both sides have agreed to continue their discussions. A high-level meeting between Baghdad and Erbil to address oil, energy, and border crossings has been proposed, with the KRG's economic council invited to Baghdad for further talks. Both governments also committed to forming joint committees to address mutual issues and work towards greater cooperation.

This illicit trade has surged since the closure of the pipeline connecting the Kurdistan Region to Turkey in 2023, following a ruling by a Paris-based international court. The court found that Turkey had violated a 1973 agreement by allowing the KRG to independently export oil since 2014. The halt in exports has cost Iraq an estimated $19 billion in lost revenue, according to the Kurdistan Oil Industry Group (ABIKOR).

The statement also noted that both sides discussed other issues, including agriculture, export and import licences, factory licensing, contractor classification, border crossings, customs, oil, energy, and the banking sector.

Another key recommendation was the continuation of joint committee meetings between ministries from both governments to reach mutual understanding in the best interest of all Iraqi citizens.

Baghdad has been pushing for greater transparency in oil revenue management, including a centralised system where all public sector salaries are paid through national banks such as Rafidain, Rasheed, and the Trade Bank of Iraq.

However, the KRG has resisted fully embracing this system, instead promoting its own 'My Account' initiative, which encourages public sector employees to open accounts with private banks. Critics argue this approach allows the KRG to maintain greater control over salary disbursements.

Banking and economic initiatives

During the meetings, PM Barzani and CBI Governor Al-Alaq also reviewed the banking sector in the Kurdistan region. Barzani praised the success of the 'My Account' project, which has so far registered over 500,000 public sector employees for salary payments via private banks. The KRG expects an additional 200,000 civil servants to join the system next month.

"Both sides agreed on the importance of continuing the 'My Account' project, with ongoing support and monitoring from the Central Bank,"Ìý reported, indicating that Barzani expressed his gratitude to Al-Alaq for "his exceptional support of the project and the banking reforms in the KRG."Ìý The meeting also discussed accelerating financial inclusion in the Kurdistan region as part of CBI’s strategic goals and its steps toward digitising the banking sector.

While officials met inside, farmers from various parts of the Kurdistan region staged protests outside the venue, calling for the government to limit foreign agricultural imports. They argue that cheap imports have hurt local farmers and worsened the region’s economic difficulties.

These protests highlight the broader economic challenges facing the region. In addition to unresolved oil and salary disputes, the Kurdistan region is grappling with inflation, cuts in public services, and rising discontent among its citizens.

Future discussions are crucial, but it remains to be seen whether a lasting resolution can be reached.