Iraq’s Prime Minister Haider Al Abadi attempted to patch up relations with Kurdish lawmakers on Thursday after they boycotted parliament’s annual budget session over looming cuts.
Baghdad withheld budget payments to the Kurdish region in 2014, justifying the move on the Erbil's decision to sell crude oil independently of the central government.
But parliament failed on Wednesday to pass its annual budget due to Kurdish, Sunni and some Shiite blocs skipping the session in protest.
The Kurds are protesting over their customary 17 per cent share of national revenue from crude oil sales, which the Iraq cabinet has proposed to slash to 12.6 per cent.
“We want to be fair to all of Iraq" Mr Al Abadi said, adding that assessing a budget allocation for the Kurdish region will be based on population and other factors to ensure fairness.
If approved by parliament, the budget will further damage Baghdad and Erbil's fragile relationship.
During his meeting with the Kurdish lawmakers the premier said that "the proposed cut in Kurdistan's budget is not only aimed at the autonomous region but it also includes all of Iraq's governorates."
Mr Al Abadi confirmed that the salaries of Kurdish fighters, also known as the Peshmerga, will be included in the region's state budget.
On Wednesday, the head of the Patriotic Union of Kurdistan (PUK), Arez Abdullah, vowed that the party will not participate in the parliamentary debate unless "our demands are met".
Sunni lawmakers are demanding an increase in allocations to reconstruct areas destroyed by ISIL so that displaced citizens can return home. Shiite representatives have called for a redistribution of oil revenue which favours those cities that produce it.
During the parliamentary session, Mr Al Abadi urged factions of the country to remain united whilst stressing that “the demands could be dealt with”.
But the premier stressed that cuts had to be made across the country.
"It is not possible to give Iraq's Kurdish region its 17 per cent of our national budget. If the parliament approves this move, it would come at expense of other provinces," Mr Al Abadi said.
Failure to approve the annual budget cripples the government's ability to disburse funds.
The premier sent a draft budget bill to the parliament in October but Kurdish, Sunni and several Shiite blocs were keen to break quorum.
Tensions between Iraq's Kurdish region and the central government in Baghdad escalated when the two sides accused each other of failing to abide by the terms of an oil revenue sharing deal in 2014.