Iraq has agreed to resume monthly payments from its federal budget to the Kurdistan Regional Government in Erbil.
The deal represents a positive step towards restoring relations between the central government and the autonomous Kurdish region, which held a vote for independence in 2018 that the central government swiftly crushed.
The core of their outstanding issues has been Baghdad halting payment of Erbil's share of the national budget.
“I am pleased to announce that Baghdad has agreed to pay 320 billion Iraqi dinars (Dh985.2m/$268.2m) monthly as a partial restoration of our share of the federal budget,” the Kurdish Prime Minister, Masrour Barzani, tweeted late on Sunday.
"We are in agreement on both parties’ constitutional rights and duties, and dialogue will continue."
Baghdad’s halting of payments to the KRG increased pressure on the cash-strapped provincial government, which is struggling with low oil prices and the outbreak of the coronavirus pandemic.
The spread of the virus has pushed Iraq's economy to the brink of collapse, especially with renewed public anger and social unrest.
More than 90 per cent of the country's budget depends on oil export, with the price at $56 a barrel.
But oil revenues dropped dramatically because of the start of coronavirus, and economies around the world, including Iraq, were hit badly.
Iraq's economy had already been affected by mass anti-government protests that began in October against poor services and corruption.
Since then the government has struggled to pay salaries and was forced to delay projects. It is working to introduce unpopular financial reforms.
Under the constitution, the Kurdish region is entitled to a share of the national budget. But that arrangement collapsed in 2014, when Iraq’s army fled the north after an advance by ISIS.
The Kurds seized control of Iraq’s main northern oilfields at Kirkuk from ISIS and began selling the oil independently.
Earlier that year, the KRG said it started to export its first shipment of crude oil via a new export route to the Turkish port of Ceyhan.
It was designed to bypass Baghdad’s federal pipeline system that created a bitter dispute over oil sale rights between the central government and Erbil.
In response, Baghdad stopped sending money to the KRG.
Iraq’s Prime Minister, Mustafa Al Kadhimi, and Mr Barzani agreed to resolve any outstanding issues between the two sides under the constitution, KRG spokesman Jotiar Adil said.
Previously, Baghdad has said the Kurdish region conducts independent oil sales, although it has far less oil to sell without control of Kirkuk.