BAGHDAD Iraq's autonomous Kurdistan region halted its oil exports on Sunday, accusing the central government in Baghdad of failing to make payments to companies working there in the latest clash in their long-running dispute over oil rights.
The disagreement heightens tensions in a broader dispute between Iraqi Arabs and ethnic Kurds over contested land, political autonomy and oil that has become a potential flashpoint for Iraq since the last U.S. troops left in December.
Baghdad says only the central government has the right to export oil, but the Kurdistan Regional Government says that it can control petroleum in its region, a disagreement that is disrupting payments to companies like Norway's DNO.
"After consultation with the producing companies, the ministry has reluctantly decided to halt exports until further notice," Kurdistan's Ministry of Natural Resources said in a statement.
"There have been no payments for 10 months nor any indication from the federal authorities that payments are forthcoming," it said.
Iraq's central government says exploration deals signed with Kurdistan are illegal.
Kurdistan says only two payments total ling $514 million have been received, with the last payment made in May 2011.
Baghdad has made payments to companies in Kurdistan in the past for exploration and extraction costs based on an interim agreement.
Officials from Iraq's oil ministry could not immediately be reached for comment. But Baghdad says it has already approved payment of $560 million to oil producers in the Kurdish region and is awaiting final audits.
The KRG said last week it had reduced oil exports to 50,000 barrels per day over the payment dispute. Iraq's government says it receives on average 70,000 to 75,000 bpd from Kurdistan, but says it only received 65,000 bpd since the start of the year.
Tensions between Baghdad and the Kurdish region have risen since October when Exxon Mobil announced a deal to explore for oil in Kurdistan. Baghdad warned the U.S. oil giant could risk its agreements with the central government.
OIL LAW DISPUTE
Iraqi lawmakers are still haggling over a national oil law that is meant to define who controls oilfields and revenues, creating a more solid legal framework for companies working in the OPEC nation.
But highlighting tensions over future investments, Iraq's central government has banned companies working in Kurdistan from participating in its 4th oil bidding round planned for this year for 12 new exploration blocks.
The dispute over payments also comes as Iraq's power-sharing government among Shi'ite, Sunni and Kurdish political blocs tries to end its worst political crisis since the government was formed just over a year ago.
Shi'ite Prime Minister Nuri al-Maliki in December sought the arrest of one of his Sunni vice presidents and asked lawmakers to sideline another of his Sunni deputies, in measures many Iraqi Sunnis believed aimed to shore up his power at their expense.
The Sunni vice president, Tareq al-Hashemi, fled to Kurdistan where officials are refusing Baghdad's request to hand him over to face terrorism charges, further fueling tensions between the two governments.
As much as a third of the oil extracted in northern Iraq is refined locally for domestic use, partly due to late payments from Baghdad for crude pumped into the major pipeline to Turkey and partly because it reduces the costs of producers.
Iraq has some of the world's largest oil reserves and Baghdad has signed multibillion-dollar contracts with global oil majors. But after Exxon agreed to its deals with Kurdistan, other oil majors, including France's Total, are considering deals with the northern region.
(Reporting by Patrick Markey; Editing by Greg Mahlich and Diane Craft)