he Kurdistan Regional Government (KRG) has faced many political, economic, military, and social challenges since 1992, overcoming some of them and failing to resolve others. In 2025, it faces many internal problems in forming its new government and solving constitutional disputes with the federal government in Baghdad while also managing significant external pressures. 

However, the Kurdistan Region remains a focal point for Kurdish aspirations of self-determination and regional influence. With its autonomy underpinned by Iraq’s federal system, the KRG faces pivotal political, economic, and diplomatic choices that will shape the region’s trajectory and role in an increasingly unstable Middle East.

Political choices: form a new government, deepen federalism, or revisit independence?

Since its establishment in 1992, the KRG has worked to solidify its autonomy within Iraq based on the new Iraqi constitution. The aftermath of the 2017 independence referendum, which saw overwhelming support from Kurdistani voters but fierce opposition from Baghdad and neighboring countries, underscored the limits of pursuing full sovereignty without international backing. In 2025, the KRG must decide whether to:

1. Pursue power sharing: Negotiations are ongoing following the October 2024 parliamentary elections. The Kurdistan Democratic Party (KDP) secured 39 seats, while the Patriotic Union of Kurdistan (PUK) obtained 23 seats. Despite these results, both parties disagree on the positions to be filled in the new government and thus have delayed its formation. The two parties must work harder to achieve an agreement in 2025, as the delay will cause Kurdistan’s people to worry about their choices in the parliamentary elections. Sources indicate that cabinet formation could be postponed until after Iraq’s federal elections in late 2025, reflecting the complex political dynamics in the region. This will be devastating for the Kurdistan Region and the allies.
2. Deepen federalism within Iraq: The KRG could strengthen its position by working within Iraq’s federal framework. This position would involve renegotiating revenue-sharing agreements, securing recognition of disputed territories like Kirkuk by implementing Article 140, and leveraging alliances within Iraq’s parliament. This path promises stability in the long run.
3. Reignite the push for independence: While risky, a renewed push for independence could align with shifting regional dynamics or weakened central authority in Baghdad. This path requires careful preparation, international lobbying, and addressing internal divisions to ensure a united front.

Economic strategies: diversification or continued reliance on oil?

The KRG’s economy has long depended on oil exports, which constitute a significant portion of its revenue. This reliance has made the region vulnerable to price fluctuations and disputes with Baghdad over revenue-sharing agreements. In 2025, the KRG faces the following economic choices:

1. Diversification of the economy: Developing sectors like agriculture, industry, tourism, health, education, and renewable energy could reduce dependency on oil. Initiatives to attract foreign investment and support local entrepreneurship would strengthen the economy and provide job opportunities for the region’s youth.
2. Optimizing oil revenues: The KRG could focus on maximizing its oil sector efficiency through better management and negotiations with Baghdad to secure a more favorable revenue-sharing deal. However, this strategy leaves the economy susceptible to global oil market volatility.
3. Regional trade integration: Establishing stronger economic ties with neighboring countries, particularly Turkey and Iran, could open new markets for KRG goods and services. This approach requires balancing geopolitical considerations and securing trade agreements that do not undermine the KRG’s autonomy.
4. International trade: The KRG must attract international partners to invest in its diverse economy and modernize its industry, agriculture, and tourism sectors. The United States, UK, France, and Germany can play a significant role in rebuilding the region’s infrastructure. The KRG also intends to build a closer partnership with the United States, and has reached out to members of the incoming Trump administration.

Internal challenges

The KRG’s political system has been plagued by division, particularly between the two dominant parties: the KDP and the PUK. This division undermines governance and weakens the region’s ability to present a united front. To strengthen the unity within the new government, it must work to address the following points:

1. Abolish the two regions: The new government must work harder to end the yellow (KDP) and green (PUK) regions so that one strong administration represents the Kurdistani people.
2. Unifying the peshmarga forces: It is a critical challenge for the new government to have one force to protect and defend the achievements of the KRG and the peshmerga’s sacrifices to protect the region. 
3. Annual budget: The KRG must start providing an annual budget to the Kurdistan Parliament to ensure transparency and trust between the people and the government.
4. Employees salaries: The government must solve this issue with the federal government because it affects the performance of employees and the trust between the government and its employees.
5. Fostering internal unity: Strengthening institutions, resolving disputes between the KDP and PUK, and ensuring equitable distribution of power and resources are critical to maintaining stability and public trust.
6. Maintaining status quo: Continuing with the current peshmarga division risks perpetuating inefficiency and eroding public confidence in the KRG’s ability to govern effectively.
7. Public services: The new government must improve and strengthen public services such as electricity, health, education, and higher education, making such services accessible to those with middle and low incomes.

Diplomatic choices: balancing regional and global alliances

The KRG’s geopolitical position is both an asset and a challenge. Surrounded by powerful neighbors with competing interests, the KRG must navigate its relationships carefully along the following lines:

• Strengthening ties with the United States: The United States has been a key ally of the KRG, particularly in the fight against ISIS. Maintaining this alliance is crucial for security assistance and political support. However, reliance on the United States carries risks if U.S. regional interests wane.

• Engaging regional powers: Turkey, a vital trading partner, and Iran, a powerful neighbor, have significant influence over the KRG. Balancing these relationships without compromising federalism remains a delicate task.

• Pursuing multilateral diplomacy: Broadening diplomatic engagement to include European and Gulf countries could provide the KRG with additional leverage and resources. Building partnerships through cultural and economic initiatives may reduce dependency on any single actor.

Social and cultural aspirations 

The region’s identity as a Kurdish stronghold has been central to its appeal and legitimacy. However, addressing social issues such as youth unemployment, gender inequality, and brain drain is crucial to its future. The choices here include:

• Investing in education and innovation: Prioritizing education, technology, and cultural development would empower the next generation and preserve Kurdish identity while enabling the region to adapt to global changes.

• Maintaining traditional structures: Upholding traditional social hierarchies and norms might appeal to conservative factions. However, it risks alienating younger and more progressive segments of society. 

• Investing in the health sector: The government must give the utmost attention to the public health sector to serve the needs of its constituents.

• Prioritizing human rights: It is critical to invest in human rights, especially those of women and the youth, who represent two-thirds of the population, to ensure a brighter future for our nation.

The KRG faces daunting challenges and rebuilding opportunities. Its choices – whether to deepen autonomy or revive independence, diversify its economy or rely on oil, foster unity or maintain factionalism, and balance alliances or expand its diplomatic horizons – will determine the region’s future. Success will depend on visionary leadership, pragmatic decision-making, and the ability to navigate the delicate balance between preserving Kurdistani identity and adapting to a rapidly changing world. Internal unity remains one of the top priorities of KRG, as such moves will help to gain the people’s support and trust. Whatever its path, the KRG will remain a pivotal player in the Middle East’s complex political and economic tapestry.

Saman Shali is a Political and Economic Analyst based in the Kurdistan Region.