Iraq and the KRG: Conflict, elections, and scenarios

Why the PMUs will take a harder position on government formation, and the impact on unrest, conflict, and non-payment risks.

Commercial Summary: This piece addresses election scenarios, the Turkish-Iraqi conflict, escalation in the KRG, non-payment risks (including for KRG oil companies and the healthcare sector), and the possibility of Shi’a-Shi’a conflict. To see the commercial implications, become a paid subscriber.

As Iraq prepares for elections in November 2025, we wanted to update our clients on the various risks the country faces.

Elections

As usual, the Iraqi electoral scene is chaotic. In the Kurdistan Regional Government' (KRG) area, the two main parties, the Kurdish Democratic Party and the Patriotic Union of Kurdistan will likely do well. In the Sunni areas, the same combination of tribes and local potentates (Khanjar, Halbousi, etc…) are likely to do well. The chaos is in the Shi’a areas.

First, Muqtada al-Sadr, whose lists won the 2021 elections (albeit with around 10% of the total vote), has decided to boycott the elections. This alone undermines the legitimacy of elections in the Shi’a areas, and puts Sadr’s rivals in a difficult position, while giving him far more room to manoeuvre in the event of any crisis. Second, confidence in the elections has collapsed - there are calls for boycotts, and widespread indifference, independently of Sadr. This is exacerbated by the fact that the number of candidates banned by the electoral commission is the highest since the 2003 American occupation. Third, the ability of the Iranians to impose order on their Shi’a clients has most likely declined, given their perceived weakness following Israeli and American strikes, and the defeat of Hezbollah in Lebanon.

All these factors suggest that the credibility of Shi’a political parties, and their ability to form a cabinet quickly, will be lower in 2025 than in 2021 or previous years.

The Lebanon example

In Lebanon, the Shi’a parties aligned with Iran, AMAL and especially Hezbollah, believed that they had a deal with the USA to elect a president backed by the Americans (General Joseph Aoun) in exchange for appointing a prime minister who they can work with (Najib Miqati). A different prime minister was appointed instead (Nawwaf Salam), who has since taken an extremely hard line committing himself to disarming Hezbollah in line with American and Israeli wishes.

This will inform the Iraqi militias’ decision making after the next election, especially since they already believe that Iraqi PM Mohammad Shia’ al-Sudani is working with the Americans to disarm them. As a result, they will insist on a loyalist, but, given Iraq’s electoral system, they will never have enough MPs to impose one. Furthermore, with a large boycott likely, and Sadr himself boycotting, the legitimacy of Shi’a parties will be highly questionable.

Turkey and water issues

Due to payment disputes, Turkey suspended providing Iraq with 600MW of power. Instead, Iraq has now privately contracted two Turkish private power provision ships, with a capacity of 590MW. This suggests that the payment delay was not related to economic questions, but likely tied to Turkey’s own refusal to repay Iraq the USD1.5 billion arbitration award as decreed in 2023, due to Turkey’s violation of an oil import agreement with Iraq - the Turks had been acquiring oil directly from the KRG from 2014-2018, rather than through Iraqi federal authorities. Critically, rather than settle the dispute over oil payments, Turkey decided in July 2025 to give notice of its withdrawal from the 1973 Turkey-Iraq Crude Oil Pipeline Agreement, which regulated the import of Iraqi oil into Turkey (and which Turkey had been found in violation of, triggering the arbitration award). The withdrawal comes into full effect in July 2026, at which point Turkey will be free to pursue other options.

Furthermore, to tighten the screws on Iraq, Turkey has been releasing just 30% of the river waters that Iraq is owed. Iraqi water reserves are at 8% of their capacity. They are at the lowest level they have been at since the 1930s, when Iraq had 3 million people, rather than today’s 47 million people.

KRG Internal Conflict

The leader of the Patriotic Union of Kurdistan, Bafel Talabani, and his brother , Deputy Prime Minister of the Kurdistan Region, Qubad, accused their paternal cousins, Lahur and Bolad, of attempting to assassinate them using drones provided by Ukraine and sniper rifles.

An image from the assault on Lahur’s headquarters at the Lalezar Hotel.

Lahur and Bolad, along with around 50 of their associates, including Rebwar Hamid, were arrested after a battle that involved tanks and UAVs at the Lalezar Hotel in Sulaymaniah on 22 August. Reports claim that two drones were indeed used against the residence of Bafel, but failed to kill anyone.

This follows the 12 August arrest of Shaswar Abdulwahid, founder of New Generation Party, a Kurdish opposition party. 135bn Iraqi dinars of his assets were expropriated by the courts, on allegations that his companies had failed to repay their debts.

Crucially, while Bafel and Qubad appear to have consolidated their position, the impact of this escalation against opposition is that there is now an alternative leadership with little left to lose. On the other side, Bafel and Qubad are clearly very willing to use violence against their rivals, even peaceful ones like Abdulwahid.

Financial shortages

Adding to the above complications, the government of KRG only paid its June salaries in September, after an 80 day delay. The Baghdad government had delayed transferring the funds until then. Rather than just being the result of political shenanigans and arguments over the allocation of oil revenues, this was at least partly due to the Iraqi government facing its own funding shortages. The Iraqi government has been delaying payments of retirees pensions precisely because it is short on cash. One Iraqi economic expert believes that this is set to expand significantly, with all kinds of wages being delayed. It is worth noting that Iraq’s break even oil price is USD92, while current prices hover in the USD60-70 range.

Commercial Impact:

This section covers non-payment risks, energy infrastructure security, payments to oil companies in the KRG, political stability