ERBIL, Iraq — Markets are bustling with shoppers seeking new holiday outfits. Airport flight boards feature packed schedules. And political tempers, which were erupting a few months ago, are tamped back within the bounds of diplomatic niceties.
These scenes illustrate a remarkable turnaround in relations between Iraq’s central government in Baghdad and the Kurdish regional government in Erbil since last fall, when Iraqi troops were battling Kurdish fighters after a controversial Kurdish referendum for independence. After the vote, Iraqi forces reasserted federal control over key oil installations and banned international flights to Kurdish airports, depriving the Kurds of two of their most potent symbols of autonomy.
Ahead of the Kurdish new year festival on Wednesday, Iraqi politicians announced an agreement capping months of back-room negotiations aimed at alleviating the political fallout and the Kurds’ economic hardships and ultimately at bringing Iraq’s Kurdish region back into the fold.
Prime Minister Haider al-Abadi approved the transfer of $268 million to the Kurdish regional government to pay the salaries of Kurdish security forces and thousands of civil servants, whose livelihoods have been hostage to the dispute between the two capitals. Those political battles center on the Kurdish goal of independence from Baghdad, and the inconvenient fact for the Kurds that they are dependent on federal money while they pursue that dream.
Baghdad agreed to send half the funds needed to pay government salaries, with the understanding that the Kurdish regional government in Erbil would pay the remainder with its own oil revenues.
In an interview outside his home village on Tuesday, Masoud Barzani, the former president of the Iraqi Kurdish region and still a central political figure, struck his own note of conciliation and hailed this week’s agreement as a “breakthrough.”
“It is important to find a new formula for our mutual benefit, so that we, as two good neighbors in full confidence with each other, can move forward,” he said. “We hope that such a breakthrough can help alleviate some of the economic hardships that our people are suffering right now.”
Mr. Abadi offered his own good-will gestures that he said were aimed at proving to the Kurds that he considered them a vital part of the stronger, united Iraq that he hopes to build after the victory over Islamic State last year.
His government declared a two-day national holiday for the Kurdish new year, a tradition that predates Islam and is not celebrated by Iraq’s Arab majority. On Tuesday, Mr. Abadi delivered a brief holiday greeting in Kurdish, a first for an Iraqi leader despite the fact that Kurdish and Arabic have both been official languages of Iraq for years.
“I want to congratulate our Kurdish citizens in Kurdish,” he said during his weekly news conference in Baghdad. “I don’t speak it, but it is meant to prove that Iraq is one and united. We don’t want a return to division.”
Iraq’s Kurds, who account for the majority of three northern Iraqi provinces, have long dreamed of independence, a goal that they hoped would accelerate after the fall of Saddam Hussein in 2003. The referendum held in September came after years of acrimony with the central government in Baghdad over oil revenues and the control of borders and security in the Kurdish region.
Baghdad opposed the vote, which threatened to sheer off a strategically important northern border region at a time when the government was fighting the Islamic State for a third of the country.
Although relations between Baghdad and Erbil have normalized again, major differences remain. Most Kurdish leaders still espouse independence and the two sides have yet to work out a formula for sharing federal oil revenue.
Iraq’s Kurdish region is mired in an economic crisis driven by many causes, including its reliance on public sector jobs as political patronage, a reputation for corruption and the lack of clarity about the legality of oil deals the Kurdish government signed with international oil companies.
Kurdish leaders have not paid full salaries to government employees in almost two years, since Baghdad cut budget payments in response to the Kurds keeping revenue from local oil deals. The Kurdish security forces, known as the pesh merga, have been paid by the American-led coalition, which depended on them to help defeat the Islamic State.
The Kurdish government has insisted it lacked the money to pay these salaries, although it has never released an audit of its own substantial oil revenues.
Even this week’s salary deal does not seem to have fully resolved the problem.
Civil servants in Erbil reported Monday that they only received half of their monthly salary, leading to questions and recriminations about which set of politicians — Erbil or Baghdad — weren’t holding up their end of the bargain.
A statement from the Kurdish regional government cited by Kurdish media on Monday blamed Baghdad for not sending enough money to cover the wages.
Mr. Abadi said Tuesday that his government paid what it had agreed to.
A Kurdish government spokesman said Wednesday that the government would meet after the holiday to assess its cash flow and decide what to do about its portion of the salary bill.
Despite the uneven rollout of the salary payments, the other part of the deal came off without hitch.
On Monday, the first international flights landed in Erbil since the October crisis, one from Jidda, Saudi Arabia, and the other from Dubai. Other regional carriers said they would resume their flight schedules soon. Baghdad’s demands that Erbil end its longstanding flouting of Iraqi visa rules appear to have been accepted, officials said, but the control of customs in Kurdish area airports still need to be worked out.
Around Erbil, even the partial payment of wages lifted spirits, providing a much-needed cash injection to the local economy and some hope for the end of the political crisis.
Burhan Dabbagh, 56, said he was seeing greater demand at his clothing shop in Erbil’s old city, as more shoppers had disposable income for holiday purchases. He credited Mr. Abadi.
“We rely on Baghdad for our entire well-being,” Mr. Dabbagh said. “It’s the best of solutions that we could have hoped for.”
Other shopkeepers in Erbil’s old city expressed similar pro-Abadi views, citing his management of the political crisis in addition to their disgruntlement with local Kurdish leaders and what many see as their long history of corruption.
Yet some civil servants said they feared that their well-being would continue to be a political Ping-Pong ball, especially with national parliamentary elections coming in May, since the underlying political disputes have not been solved.
Speaking of both governments, in Baghdad and Erbil, Safeen Daher, a 49-year-old driver for the Ministry of Education in Erbil, said: “We are victims between them and their politics.”