In May, Secretary of State Marco Rubio declared that a strong Kurdistan Region within a federal Iraq is a "fundamental and strategic component" of U.S. policy. Two months later, that policy was set on fire.
A relentless campaign of drone attacks targeting Iraqi Kurdistan’s military, civilian, and energy infrastructure escalated dramatically in July, as a swarm of Iranian-made drones struck oil fields operated by American and Norwegian companies. Previous strikes had focused on targets like Erbil International Airport and the headquarters of the Peshmerga’s 70th Force in Sulaymaniyah.
The attacks slashed regional oil production from a pre-attack level of nearly 280,000 barrels per day to a mere 80,000.
The arrival of Iraqi National Security Advisor Qasim al-Araji in Erbil personified the central paradox of the crisis. His mission was to lead an investigation into an attack that Kurdistan Regional Government (KRG) officials had already publicly blamed on armed groups embedded within the Popular Mobilization Forces (PMF)—components of his own government.
Weeks earlier, the KRG Prime Minister’s Chief of Staff, Aziz Ahmad, had bypassed diplomatic channels to accuse "criminal militias on the Iraqi government payroll" of conducting the devastating drone attacks.
This system of state-sponsored destabilization did not emerge overnight. Its roots stretch deep into the fissures opened by the 2003 U.S. invasion, which shattered Iraq’s Ba’athist state and created a power vacuum that Iran, sharing a 1,400-kilometer border, swiftly moved to fill. Tehran nurtured proxy militias, now embedded within Iraq's political structures including the Popular Mobilization Forces (PMFs).
Key among them are hard-line factions like the Badr Organization – forged in exile within Iran during Saddam Hussein's rule and battle-hardened, having fought alongside Iranian troops in the Iran-Iraq War – and Asaib Ahl al-Haq (AAH), a U.S.-designated terrorist organization responsible for thousands of attacks on American forces.
These groups are now integral components of the ruling Coordination Framework that backs Prime Minister Mohammed Shia al-Sudani. Yet, they are simultaneously implicated by Kurdish officials, and some American law-makers, in the latest attacks on the U.S.-allied KRG.
The July 2025 drone strikes come just after an eleventh hour agreement between Erbil and Baghdad. The deal’s terms force the KRG to hand over its entire daily oil production to Baghdad's State Oil Marketing Organization (SOMO). In return, the Iraqi federal government made good on a promise to disburse long-overdue salaries for May, a desperate lifeline for 1.2 million Kurdish public sector workers who hadn't been paid in months.
This desperate bargain was the direct result of the March 2023 shutdown of Kurdistan’s sole export route —the Iraq-Turkey Pipeline. That shutdown was triggered by an international arbitration ruling, which fined Turkey $1.5 billion for facilitating the KRG oil sales (without Iraqi government consent) since 2014.
The pipeline closure instantly severed the KRG’s independent revenue stream, and forcing it into total dependence on federal funds from Baghdad.
While Iran-aligned PMF factions publicly denied involvement in the July drone attacks, veteran Kurdish statesman Hoshyar Zebari levelled accusations against “the loyalist factions” (al-Fasa’ill al-Wilaiyah), a term specifically used to imply that these group’s ultimate loyalty is to the Supreme Leader of Iran, not the Iraqi state.
This conclusion is reinforced by the rhetoric of some PMF factions, which have consistently framed Kurdish autonomy as a foreign-backed conspiracy. As drone payloads struck Kurdish oil fields, Abu Ali al-Askari of Kata’ib Hezbollah, a powerful PMF faction, writing in a Telegram post, accused the KRG’s Peshmerga of maintaining ties with the “Zionist entity.” This open animosity fuels speculation that PMF factions were the perpetrators, leading analysts to view their subsequent public denials as strategic maneuvers to avoid direct U.S. retribution.
For the PMF, a perpetually weak Kurdistan is a strategic imperative, because in their worldview, Kurdish autonomy is synonymous with a hostile American military and commercial presence — a perception that is openly declared. Jafar al-Husseini, spokesman for the powerful Kata’ib Hezbollah faction, made this explicit during the 2017 independence referendum, declaring: “Officials in Kurdistan are American tools… Americans and the Zionist enemy are behind the separatism scenario.”
This long-standing conviction was only solidified in the months leading up to the attacks, when KRG Prime Minister Barzani signed new multi-billion dollar energy deals with U.S. firms, effectively confirming the PMF’s narrative and anchoring the region's economy to the West.
Moreover, beyond the immediate crisis within Iraq, Washington's own policy towards Iraqi Kurdistan is caught in a strategic trap, defined by three interlocking dilemmas.
The first is the autonomy trap, which stems from Washington’s critical need for a stable, pro-Western Kurdistan not only as an intelligence platform but as the primary vehicle for achieving a key U.S. strategic goal: countering Iranian influence. This was a central topic in the February phone call between Secretary of State Marco Rubio and Prime Minister al-Sudani, where making Iraq "energy independent — a project reliant on the KRG’s gas reserves — was explicitly linked to the goal of "reducing Iran's malign influence."
However, successfully empowering the KRG to fulfill this role as an economic counterweight immediately triggers the fear that a sovereign, militarily self-sufficient Kurdistan might reignite its independence bid, potentially shattering Iraq and destabilizing neighboring Syria, where the U.S. is simultaneously working to integrate Kurdish Syrian Defense Forces (SDF) into the Syrian Army.
An empowered and independence-seeking KRG would also provoke a severe reaction from NATO ally Turkey, where the Kurdistan Workers’ Party (PKK) is in the process of disarming following decades of armed confrontation against successive Turkish governments for an Independent Kurdish state.
This autonomy trap leads directly to the defense paradox. The fear of emboldening independence drives Washington's hesitation to provide advanced air defense systems, despite direct and public appeals. In a February 2024 interview, following Iranian missile strikes on Erbil, KRG Prime Minister Masrour Barzani made the case plainly: “We don’t have the capabilities of defending ourselves... We are not necessarily talking about more U.S. troops. We want more military capabilities.”
Yet, for Washington, providing such capabilities would be interpreted by Baghdad as arming a sub-state actor against the central government. Consequently, U.S. military aid is limited by design.
Finally, beneath the immediate crisis lies a longer-term energy struggle. The Kurdistan Region possesses significant untapped natural gas reserves, coveted by U.S. firms operating under KRG contracts, but every barrel of oil produced without central oversight in Kurdistan is seen by Baghdad as a threat to its authority. Notably, the Oil Ministry in Baghdad swiftly characterized a string of oil and gas deals concluded independently between KRG and U.S. firms as "flagrant” breaches of Iraqi law.
This fundamental conflict places Prime Minister Mohammed Shia al-Sudani at the epicenter of the storm. His political survival is mortgaged to the ruling Shiite coalition containing some of the very armed groups believed to have orchestrated the attacks.
Yet, his government’s ability to function is entirely dependent on the U.S., as Iraq’s oil revenues still flow into an account at the Federal Reserve Bank of New York. Secretary Rubio’s demands — to hold attackers accountable, ensure consistent payment of KRG salaries, resume oil exports through Turkey, and, crucially, block the pending legislation that would formally institutionalize the PMF and entrench "Iranian influence" — were therefore not just reminders of this dependency, but a set of conditions that are politically impossible for al-Sudani to fulfill.
This paralysis is a mirror reflecting the deep and irreconcilable contradictions of two-decades of American policy in Iraq, which have engineered a system of perpetual gridlock in which no single actor — neither Baghdad, Erbil, Iran-aligned actors, nor the United States — can achieve a decisive victory.
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