The Kurdistan Region's State-Building is Paying Off

Armin Seif, Europe-Middle East Council on Global Affairs; Oxford University

As much of Iraq continues to grapple with chronic power outages and an unreliable electricity grid, over four million residents in the Kurdistan Region of Iraq experience something markedly different: uninterrupted, state-provided electricity available around the clock. The contrast captures the enduring divide between the two Iraqs — one mired in systemic dysfunction, the other cautiously advancing a path of state-building through institutional reform.

While this divide is not new, it has become structurally more visible over the past few years. Iraq’s government remains locked in institutional gridlock, as basic services like electricity remain unreliable, fuelling public anger and protests. Decentralisation, enshrined in the 2005 constitution, has largely failed, as laws intended to empower provinces are poorly implemented and federal ministries resist ceding authority. The result is persistent governance paralysis across much of Iraq.

In contrast, the Kurdistan Region has pursued a technocratic governance model marked by a focus on service delivery, administrative modernisation, digital reform, and courting investment. What is emerging is a quiet but tangible institutional divergence—one that is gradually redrawing the political geography of the Iraqi state, while empoering cross-sections of society.

At the heart of this transformation is the ambitious Runaki Project, launched in late 2024, which aims to overhaul the power grid by reducing reliance on diesel generators and expanding access to stable, low-emission electricity. Early outcomes were noteworthy. By mid-2025, official figures from the Ministry of Electricity indicated that around two million residents—approximately 30% of the population—benefitted from uninterrupted power, particularly in major urban areas such as Erbil, Sulaymaniah, and Duhok, a number that has almost doubled since –– with more than four million citizens enjoying uninterrupted access to electricity.

The government anticipates full electrification by the end of 2026. Beyond reliability, the initiative has begun to show measurable environmental and public health benefits. More than 2,000 diesel generators have already been retired, with a target to phase out an additional 7,000 within the next 18 months. Government estimates suggest this reduction is on par with removing over 360,000 vehicles from the road in terms of carbon output. Moreover, the introduction of a progressive electricity tariff has made power more affordable and equitable, replacing the previous reliance on costly private suppliers.

The project’s significance runs deeper than infrastructure. Reliable electricity is one of the most visible indicators of a functioning state. The shift from fragmented, informal provision to a centralised, public grid reflects more than technical success—it builds political legitimacy. Functioning infrastructure lies at the heart of any successful economy and signals effective governance, while reinforcing the trust between citizens and the state.

This transformation is mirrored in another meaningful development: the rollout of the MyAccount digital payroll initiative. For the first time, large numbers of public sector employees are being paid directly into bank accounts—a major shift in Kurdistan’s financial infrastructure. According to government data, more than 750,000 individuals on the KRG payroll have enrolled in the programme. In June 2025 alone, over 365,000 received their salaries digitally, eliminating the inefficiencies of cash distribution. Nearly 400 ATMs have been installed, including in rural areas, improving access and underscoring the broader push toward financial inclusion.

The impact is significant. Digital salary payments improve transparency, reduce delays, and lower the risks of corruption and inefficiency. For individual employees, they offer greater financial security, access to digital services, and more predictable income flows—critical gains in a country long shaped by conflict and volatility. Like stable electricity, reliable pay is not just about convenience; it fosters confidence in the state's capacity to govern.

These quiet but consequential reforms stand in marked contrast to conditions elsewhere in Iraq. The federal government’s digitisation initiative, Tawteen, has progressed unevenly and continues to face implementation challenges—coinciding with severe delays in public sector salary payments. Meanwhile, as civil servants across the country grapple with persistent pay lags, militias such as the Popular Mobilization Forces (PMF) have seen their budget rise to an estimated $3.5 billion in 2024—with limited transparency or oversight. Regionally, Iraq finds itself at a crossroads and could struggle to avoid a regional conflict on its territory, as a result of having tied its fate to that of the Islamic Republic’s. Despite record oil-revenues and federal promises, cities across central and southern Iraq remain plagued by daily blackouts. Federal ministries lack the coordination to deliver consistent services, and constitutional provisions for fiscal and administrative autonomy are routinely sidelined. In many ways, Iraq’s broader state crisis mirrors that of its key ally, the Islamic Republic—another oil-rich nation that struggles to reliably power its own cities and appears to be grappling with deepening structural issues that could push it closer to a threshold of state fragility.

Yet, amid this national paralysis, the Kurdistan Region is demonstrating what incremental but deliberate governance reform can achieve. Despite withheld oil revenues, budget delays, and export blockades from Baghdad, the Kurdistan Region—under the leadership of Prime Minister Masrour Barzani—has continued to build functional sovereignty. The Kurdistan Region’s orientation toward Gulf-style development—prioritising infrastructure, digital governance, and investor confidence—could see its benefits compound through gas development agreements with U.S. energy firms, provided Washington puts its political backing behind these agreements and plays a proactive role in managing the dispute between Erbil and Baghdad over oil disputes.

Kurdistan has so far successfully managed a careful diplomatic balance—maintaining relations with both the United States and Iran, even as it hosts a major American military presence on its territory. But this equilibrium is under growing strain following U.S. military strikes on Iran's nuclear sites. In recent weeks, Iran-backed militias have launched a spate of drone attacks on Kurdistan’s oil sector, threatening not only the region’s economy but also its political stability. These provocations underscore a deeper reality: the Kurdistan Region may not be immune to regional conflagrations, and its continued progress will depend on strong and consistent U.S. support to protect it against militia groups tied to Iran.

Kurdistan still depends on Baghdad for budget transfers, faces unresolved domestic political challenges, and lacks the full rights of a sovereign state. Washington’s move to mobilise investors from the United States and elsewhere will further empower Kurdistan's journey toward self-sufficiency, while protecting its ally from Iran’s attempts to reassert its presence and influence in Iraq, particularly in the aftermath of the forthcoming elections, would represent an investment not only in stability but in a last remaining U.S.-aligned bastion in Iraq, and one of the few in the region at large.

Armin Seif is the Director of the Europe-Middle East Council on Global Affairs and a Senior Specialist at the German Red Cross. He specialises in governance and the rule of law in fragile states. He is currently researching the implications of artifical intelligence in fragile states at Oxford University and has conducted research at the London School of Economics and Political Science, the University of Cambridge, Oxford University’s Saïd Business School and the British Institute of International and Comparative Law. Armin was a member of several research teams on legal reform in the Islamic world with a particular focus on post-conflict Iraq and Afghanistan.