BAGHDAD--The Iraqi government agreed Tuesday to an oil export deal with the northern region of Kurdistan, signaling an end to a yearslong political impasse that has nearly bankrupted both governments and hobbled efforts to fight the Islamic State insurgency.

The broad deal would allow Baghdad and Erbil, the capital of the Kurdish Regional Government or KRG, to mend broken relations that have put the defense of the country against Islamic State on shaky ground. The accord is also likely to further muffle voices in Iraqi Kurdistan that only six months ago had called for a referendum on the region's independence from Baghdad.

"This agreement represents a victory for all Iraqis," said Masoud Haidar, a Kurdish member of the parliament in Baghdad. "There are no losers in this agreement. All are winners."

Obama administration officials hailed the oil agreement Tuesday as a crucial advance in Baghdad's efforts to improve relations with Iraq's Kurdish minority.

U.S. officials have pressed Iraqi Prime Minister Haider al-Abadi, a Shiite politician who took office in September, to build bridges to his country's Kurdish and Sunni population and buttress the war against Islamic State militants. The Kurdish security forces, the Peshmerga, are close ally of the Pentagon in the fight against Islamic State, which is also known as ISIS or ISIL.

U.S. officials have also been working to ensure the KRG doesn't move forward with its threats to hold a referendum on independence.

"This resolution, in line with its constitution, allows all Iraqis to benefit equitably from Iraq's hydrocarbon sector," said Marie Harf, a State Department spokeswoman. "This agreement will further strengthen both Iraq's federal government and the Kurdistan Regional Government as they work together to defeat ISIL."

Under the new agreement, which comes into effect on Jan. 1, Kurdistan will export 250,000 barrels of oil a day and the disputed province of Kirkuk--now under Kurdish control--will export 300,000 barrels a day, said Abdel Qadr Mohammed, a Kurdish member of the Iraqi parliament's finance committee, who participated in the negotiations.

Those exports will flow through Iraq's national oil company, the State Organization for Marketing of Oil, or SOMO, marking a win for Iraq's central government, which has long sought to exercise more control over Kurdish oil exports and revenue.

In return, Tuesday's compromise would see the KRG keep 17% of Iraq's budget expenditure, nearly a year after Baghdad halted payments to the region in retaliation for its moves to sell Kurdish oil on the global market independently of Baghdad.

That percentage, based on estimates of Kurds" share of Iraq's total population, reflects the fiscal arrangement laid out in the 2005 constitution. By hewing closely to those parameters, established under U.S. occupation, the agreement showed that Iraq's worst security crisis in recent memory has helped shift the country toward a renewed unity.

"With the threat of ISIS bearing down on all of us, it was necessary for both sides to come to an agreement in any way," said Razaq al Haidari, a Shiite politician from the ruling State of Law bloc.

Though the deal is largely about oil, observers agreed that concern over the insurgency made it possible.

"This is an oil deal that is motivated by security conditions and the need for some sort of political unity against ISIS," said Ahmed Ali, a researcher for the Washington-based Institute for the Study of War. "At the end of the day, the realization on both side is that the ISIS threat is so great that a unified front is the major recipe to defeating it."

The deal satisfies many of the Kurds" outstanding demands, giving them profits from what they consider their own oil, a greater say in how Iraq's oil industry is administered, and additional funding and recognition for their semiautonomous defense forces.

The settlement also marks Baghdad's most formal step toward recognizing the disputed province of Kirkuk as a formal part of Kurdistan since Kurdish forces effectively seized the area during Islamic State's initial blitz in June. By positioning Kirkuk's oil as a part of Tuesday's agreement, Baghdad tacitly forfeited its control over Kirkuk's oil to Erbil.

In addition to Baghdad according a portion of Iraq's budget to Kurdistan, the deal calls for the Iraqi defense ministry to give a direct monthly payment to Kurdish fighters, known as the Peshmerga, to train and arm them in their fight against Islamic State, said Kawa Mahmoud Mawloud, a Kurdish member of the oil and gas committee in parliament.

Before Tuesday's deal, the Kurdish fighters had been financed and were mostly managed independently of Baghdad.

The deal isn't a wholesale solution to Iraq's fractured national polity. Governance in Baghdad has long been paralyzed by divisions among Sunni Arabs, Shiite Arabs, Kurds and a many smaller religious and ethnic groups. But the agreement demonstrates the unifying potential of Mr. Abadi. With support from Washington, he assumed the premiership in September followed the eight-year rule of Nouri al-Maliki, whose leadership was marked by sectarian and ethnic discord, corruption and worsening security.

Tuesday's deal had seemed almost impossible until last month.

The long-simmering dispute came to a head early this year after Baghdad cut off budget payments to the KRG, which began exporting large volumes of oil for the first time via a pipeline to Turkey.

Efforts by U.S. diplomats to broker a compromise fell apart amid mutual distrust, with both sides unable to agree on who should control the oil's marketing and revenue.

Kurdistan-focused oil stocks have languished this year as the political tensions with Baghdad left the KRG struggling to meet its payment obligations and the Islamic insurgency buffeting the country threatened operational security.

Oil markets saw the first glimmer of a deal three weeks ago, when Mr. Abadi and Kurdish delegates--supported by American and regional diplomats--agreed to an interim deal that saw Baghdad pay $500 million to the Kurds in exchange for 150,000 barrels a day of oil.

The good-faith payments opened a floodgate of concessions, said Mr. Haidari, the Shiite lawmaker. Kurds dropped their demands for huge payments from Baghdad, while Baghdad stopped its requests to micromanage Kurdish contracts with foreign oil firms, he said.

Shares in Kurdish-focused exploration and production companies such as Genel Energy PLC and Gulf Keystone Petroleum Ltd. surged Tuesday on news of the deal and after the KRG made initial payments to some companies for oil exports.

Though good news for Iraqi unity, the deal is likely to add to the downward tailspin in the oil market, with the additional barrels from Kirkuk set to augment the already ample supply on the market.

Oil prices have tanked since June amid sluggish demand growth and a boom in oil production in North America, but major oil producers in the Organization of the Petroleum Exporting Countries have shown little sign that they intend to pull back their own output to support prices.

When OPEC met in Vienna last week the group decided to keep its oil production unchanged, sparking a rout in the oil market. Iraq, the group's second-largest producer after Saudi Arabia, imade it clear it wouldn't consider reducing its oil output, which remains below levels reached in the 1970s before Saddam Hussein came to power.

Iraq's oil minister Adel Abdul-Mehdi told reporters in Vienna last week that Iraq is targeting production of around 3.8 million barrels a day next year, an increase of around 500,000 barrels a day compared with its production in October, according to the International Energy Agency. Oil exports from the Turkish port of Ceyhan via Iraqi Kurdistan have already reached over 350,000 barrels a day, according to Genel Energy, but the deal with Baghdad should boost that figure by 200,000 barrels a day come January.

Jay Solomon contributed to this article.

Write to Matt Bradley at matt.bradley@wsj.com

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