The Federal Supreme Court of Iraq (المحكمة الاتحادية العليا), Iraq's highest judicial authority on constitutional matters, delivered a landmark ruling on the division of petroleum-management powers between the federal government in Baghdad and the Kurdistan Region in Erbil under the 2005 Constitution. The dispute arose from challenges to several provisions of the Federal General Budget Law of the Republic of Iraq for the fiscal years 2023–2025, which conditioned the transfer of the Kurdistan Region's budgetary share on the Region's delivery of its oil and non-oil revenues to the federal treasury, and from parallel complaints by the Kurdistan Regional Government (KRG) contesting amendments that reduced its constitutional share. The Court held that (i) provisions requiring the Region to hand over oil and non-oil revenues as a precondition for receiving its budget allocation are constitutional and consistent with Articles 110 and 112 of the Constitution; (ii) the Region lacks the constitutional authority to unilaterally export crude oil or to amend its share of the federal budget; and (iii) all oil and gas exports must be conducted exclusively through the State Organization for Marketing of Oil (SOMO), with revenues deposited into the federal account at the Central Bank of Iraq. The ruling consolidates a series of prior decisions — most notably the Court's 2022 judgment declaring the KRG's 2007 Oil and Gas Law unconstitutional — and provides the most comprehensive judicial articulation to date of the constitutional framework governing Iraq's hydrocarbon wealth.
Iraq's 2005 Constitution divides competence over petroleum resources between the federal government and the regions and governorates. Article 110 enumerates the exclusive powers of the federal authorities, including the formulation of foreign economic policy and the regulation of natural resources policy; Article 111 declares that oil and gas are the property of all the people of Iraq in all the regions and governorates; and Article 112 provides for joint management of "present fields" between the federal government and the producing regions and governorates, with revenues to be distributed fairly in proportion to population across the country. Since 2014, however, the Kurdistan Region has developed and marketed its own oil through the Kurdistan Regional Government's Ministry of Natural Resources, exporting crude via the Kirkuk–Ceyhan pipeline to the Turkish port of Ceyhan independently of SOMO, while retaining the proceeds locally. This practice became the subject of successive federal budget laws, each of which purported to condition the Region's 12.67% (formerly 17%) budget share on the transfer of specified volumes of oil and the remittance of non-oil revenues (customs, tax and border revenues) to Baghdad. The Federal General Budget Law for 2023–2025, enacted as Law No. 13 of 2023, retained this conditionality and was followed by further amendments adjusting the Region's allocation. In response, the KRG and a group of federal lawmakers filed competing constitutional challenges before the Federal Supreme Court: the KRG argued that the conditionality provisions encroached on the Region's constitutional powers and that the reduction of its share without its consent violated the principle of federal partnership, while the federal complainants argued that the Region's independent oil exports and revenue retention violated Articles 110 and 111 and the principle that the Region's share must be computed only after revenues are centralised. The Court consolidated the petitions and issued its judgment in Case No. 59/Federal/2024.
The Federal Supreme Court identified four principal questions of constitutional law: (1) Whether the federal government possesses exclusive authority over the marketing and export of crude oil and the management of oil revenues, or whether the Kurdistan Region retains a concurrent power under Article 112 to develop and market petroleum from fields within its territory; (2) Whether a federal budget law may lawfully condition the transfer of a region's constitutional share on the prior handover of oil and non-oil revenues to the federal treasury; (3) Whether the reduction of the Kurdistan Region's budget share by amendment without the Region's consent is consistent with the principle of federalism and the constitutional requirement of fair revenue distribution; and (4) Whether the KRG's independent export arrangements and its 2007 Oil and Gas Law are consistent with the 2005 Constitution, or whether they are void for conflicting with the exclusive federal powers enumerated in Article 110 and the property clause of Article 111.
The Federal Supreme Court issued the following holdings:
(1) The marketing and export of crude oil, and the management of the resulting revenues, are exclusive powers of the federal government. The Court reaffirmed its 2022 precedent and held that Article 112's reference to "joint" management of present fields concerns the formulation of strategic policies and the extraction and development of fields, and does not confer on any region or governorate the authority to market, export, or receive oil revenues independently. The KRG's Oil and Gas Law No. 22 of 2007, to the extent it purports to authorise the Region to enter into production-sharing contracts and export oil without federal participation, is unconstitutional and void.
(2) Budget conditionality is constitutional. The Court held that a provision conditioning the disbursement of the Region's share on the delivery of oil and non-oil revenues to the federal treasury is a permissible legislative mechanism to give effect to Articles 110 and 111, because it ensures that the Region's allocation is computed on the basis of centralised national revenues — as the Constitution requires — rather than penalising the Region or withholding a vested right. The Court distinguished between a lawful condition precedent to the computation and disbursement of the share, and an unconstitutional deprivation of the share itself; the former is valid, the latter is not.
(3) The unilateral reduction of the Region's share is unconstitutional. The Court held that the Kurdistan Region's share of the federal budget is not a discretionary grant that the federal legislature may reduce by ordinary amendment without a constitutional basis, and that the principle of federal partnership requires the share to be computed according to the transparent, population-based methodology prescribed by the Constitution and the budget law's own revenue-distribution provisions. To the extent subsequent amendments reduced the share without recalibrating the underlying methodology, those amendments were struck down as inconsistent with Article 112's requirement of fair and equitable distribution.
(4) All exports must proceed through SOMO. The Court held that crude oil produced anywhere in Iraq — including the Kurdistan Region — may be exported only through the State Organization for Marketing of Oil, with all proceeds deposited into the federal account maintained at the Central Bank of Iraq, and that any contracts or arrangements concluded outside this framework are without constitutional or legal effect. The Court directed the federal Ministry of Oil, in coordination with the KRG's Ministry of Natural Resources, to implement the handover of export operations within a defined transitional period.
This judgment is the most consequential ruling on Iraq's petroleum federalism since the Court's 2022 decision invalidating the KRG Oil and Gas Law, and it settles — for now — several points that had been litigated and negotiated for nearly two decades. Its immediate practical effect was to underpin the resumption of Kurdish crude exports through SOMO and the Kirkuk–Ceyhan pipeline after a prolonged suspension, and to provide the constitutional basis for the implementation of the 2023–2025 budget's revenue-handover mechanism, including the payment of salaries to public-sector employees in the Kurdistan Region. The ruling also carries major implications for foreign investors in Iraq's energy sector: production-sharing and offtake agreements concluded directly with the KRG are now unequivocally outside the constitutional framework, and counterparties to such arrangements face enforcement and title risk absent federal recognition. More broadly, the decision reinforces the Federal Supreme Court's role as the ultimate arbiter of Iraq's federal compact, and it will inform the long-debated Federal Oil and Gas Law, which has remained pending before the Council of Representatives since 2007. Constitutional lawyers note that the Court carefully avoided extinguishing the Region's Article 112 participation rights, instead channelling them into the joint-management framework — a signal that the Court seeks to preserve, rather than dismantle, the federal structure while insisting that the centralisation of revenues is a non-negotiable constitutional command.
"Oil and gas are the property of all the people of Iraq in all the regions and governorates. The Constitution has entrusted the federal authority with the exclusive power to market and export the nation's hydrocarbon wealth and to manage its revenues, and no region or governorate may appropriate that wealth, export it, or receive its proceeds outside the federal framework. The constitutional share of a region is a right founded on the Constitution itself, and it may not be reduced or withheld except through the transparent and equitable methodology that the Constitution prescribes. Federalism in Iraq is a partnership between the federal authority and the regions, but it is a partnership under the Constitution — and the Constitution does not permit the nation's common wealth to be divided, marketed, or retained outside the federal account." — Chief Justice of the Federal Supreme Court