Iraq's Kurdistan region hit hard by US-Iran war

Erbil, Iraq – Over the past five months, Iraq's Kurdistan region has borne the brunt of the ongoing war between the US-Israel and Iran.

Despite the regional government's efforts to remain neutral, not taking sides or allowing its territory to be used to attack Iran, the semi-autonomous region and Iraq as a whole have suffered severe consequences.

Since the war erupted in February, hundreds of missiles and drones have targeted Kurdistan.

Masrour Barzani, Prime Minister of the Kurdistan Regional Government (KRG), said the region has “paid a heavy price” in the war.

“We have been targeted more than 1,000 times with missiles and drones, directly from Iran or from inside Iraq by militia forces. We consider these irrational attacks on Kurdistan. Unfortunately, we have had casualties and lost people. Many infrastructure facilities have been severely hit,” Barzani told Al Jazeera.

“The regional conflict and security repercussions have reduced commercial activity across Kurdistan by 70%,” he added.

According to KRG data, attacks have targeted military and security sites, energy facilities, bases and headquarters of Iranian Kurdish opposition parties, as well as civilian areas.

The direct impact has been on the economy: the oil and gas sector and the movement of companies and investors. This comes as Kurdistan faces a prolonged financial crisis amid disputes with the federal government in Baghdad over salary payments for state employees, oil revenues, and other income sources.

“The damage Kurdistan has suffered due to the war up to April is estimated at 1.5 trillion Iraqi dinars ($1.14 billion), and these figures have been handed to the Iraqi government,” said Peshawa Hawramani, a KRG spokesman.

“There is no convincing reason to attack Kurdistan. We are not part of this war, nor will we be, and we are not using Kurdistan's territory as a launchpad to attack Iran,” Hawramani said, calling the attacks “a violation of the inviolability of Iraq's territory and sovereignty.”

Iran-backed armed groups

The Kurdish regional government says it has identified the perpetrators behind the attacks and provided the names to the central government in Baghdad.

“We have provided the names of these factions to both the previous and current Iraqi governments. These are armed groups operating outside state institutions illegally, but so far the Iraqi government has not taken action against them,” the spokesman said, adding that attacks occurred even before the Iran war began.

Within hours of the US-Israel attack on Iran, US targets in Iraq's semi-autonomous Kurdistan region came under retaliatory strikes from Tehran-backed groups, pulling Iraq into a conflict that has since spread across the Middle East and beyond.

Since then, US facilities in Iraq have been repeatedly attacked by Iran-backed groups and Iran's Islamic Revolutionary Guard Corps (IRGC). In response, the US has also struck these groups inside Iraq.

The IRGC has also targeted Iranian Kurdish groups based in Iraq's Kurdistan region, following reports that Washington planned to arm these groups against Tehran.

During the war, Iraq has also been attacked. Drone and rocket strikes have targeted Baghdad International Airport, which hosts a US military base and diplomatic facility, as well as oil fields and other installations.

For many in Kurdistan, Iran-backed armed groups are a source of instability and concern.

Jabbar Yawar, a security expert and former secretary-general of the KRG's Peshmerga Ministry, said these groups do not follow the Iraqi government's orders.

“Armed groups operating outside the law continuously shelling, groups that are known to everyone and do not abide by the decisions of the commander-in-chief of Iraq's armed forces, create security problems for Kurdistan,” Yawar said.

“There are five or six armed groups shelling Kurdistan, and everyone knows who they are; among them are Hezbollah Iraq, the Sayyid al-Shuhada Brigades, the Imam Ali Brigades, and the al-Nujaba Movement,” Yawar explained.

“Most of the shelling ... comes from the Nineveh plains and areas near Kirkuk and Salah al-Din,” he said, noting that the KRG and Iraqi government lack a comprehensive air defense system.

The Hormuz shock

But economic worries also weigh heavily, not just on Kurdistan but on all of Iraq. The Oil Ministry has declared force majeure on all oil fields developed by foreign companies, citing disruptions in shipping through the Strait of Hormuz that have halted most of the country's crude exports.

Force majeure is an unforeseeable event that makes a contract impossible to perform. In this case, the Iraqi government has ordered a suspension of oil production and is not required to compensate foreign companies under their contracts.

The crisis comes as Prime Minister Ali al-Zaidi's government is proposing an economic program based on implementing the “Development Road” project and expanding partnerships with the private sector and international companies, aiming to restructure the economy and reduce reliance on oil.

However, the closure of the Strait of Hormuz has exposed Iraq's limited crisis-response capabilities. The halt in oil exports has led to a sharp drop in revenues, compounded by stalled diversification projects for export routes through Turkey, Syria, Jordan, and Saudi Arabia due to long-standing political disagreements, leaving the government facing unprecedented financial pressure.

For Erbil, the continuation or expansion of the war could turn security concerns into a deeper economic crisis, especially if the suspension of oil and gas production persists or attacks on energy facilities continue.

Aland Kareem Salih, an economic researcher and vice president of the Vision Foundation for Strategic Studies, warned that a complete halt to oil exports could be disastrous for Kurdistan.

“If the war continues and expands, it will cause enormous damage to the energy sector such as oil and gas, and the damage could then reach 100%,” Salih warned, noting that Iranian shelling has forced the Khor Mor gas field to shut down, affecting Kurdistan's electricity supply.

“There is an agreement with the central government to export 200,000 barrels per day. Now production is only 30,000 barrels. The figures are changing based on security developments,” he said.

“The KRG has been through a financial crisis for years, and with this war, the region's non-oil revenues have dropped by about 70%, unable to meet the basic needs of government agencies. Even the real estate market has seen values decline by 15% to 20% due to the war's impact,” he said.

Anxiety in the region's main cities – Erbil, Sulaymaniya, and Duhok – is growing, not just over the attacks but also over the possibility of the region becoming a permanent arena for score-settling between Iran and its proxies on one side and the US and its allies on the other.