Iraq's Kurdish region halted oil exports on Sunday after Baghdad's top energy official warned it to reconsider before following through on the threat over the government's non-payment of funds.
The move by Kurdistan is the latest in a long-running row between Baghdad and Kurdish authorities in Arbil, who have squabbled over payments, revenue-sharing and the central government's refusal to recognise deals Kurdish officials have signed with foreign energy firms.
Kurdistan said a week ago that it had reduced exports to 50,000 barrels of oil per day, and threatened to stop exports entirely if Iraq did not hand over $1.5 billion Arbil said was owed to foreign oil companies working in the region.
On Sunday, Kurdistan followed through.
"After consultation with the producing companies, the ministry (of natural resources) has reluctantly decided to halt exports until further notice," the Kurdistan regional government said in a statement on its website.
"There have been no payments for 10 months, nor any indication from federal authorities that payments are forthcoming."
The statement said exports would be diverted to the local market for processing and refining.
National oil ministry spokesman Assem Jihad declined to comment on the decision.
Before the Kurdish statement was released, the national government's deputy prime minister for energy affairs warned Arbil to consider its threats and get "their act together."
"I would advise them, before they make any threat, to consider how much oil (revenue) they are getting from other parts of the country, which is much more than the oil that is being produced there," Hussein al-Shahristani said in an interview with AFP in his office in Baghdad's heavily fortified Green Zone.
Shahristani, a former oil minister, noted that Kurdistan was allocated 17 percent of Iraq's federal budget, but said it provided a smaller proportion of Iraqi oil exports.
Signup to our newsletter and follow us on Facebook and Twitter!
He said the region was also not living up to its promises on crude output.
"This is in breach of their commitment in the 2012 budget: the Kurdish region is required to hand over 175,000 barrels per day (bpd). Otherwise... they will bear the consequences if that level is not met, and there should be a financial compensation to the ministry of finance," he said.
"They need to put their act together and hand all the oil that's being produced in the region to the ministry of oil immediately if they would like to see the budget allocation in the 2012 budget... implemented."
National Finance Minister Rafa al-Essawi told AFP on Tuesday that the central government was "not afraid of exports from the Kurdistan region being stopped."
He added that Iraq was readying to pay 650 billion Iraqi dinars ($546 million) to foreign companies operating in the northern three-province region once it received the appropriate paperwork from official auditors.
Kurdistan has signed around 40 contracts with international companies on a production-sharing basis without seeking the express approval of the central government's oil ministry, which regards Kurdistan's deals as illegal.
The federal oil ministry, meanwhile, has awarded energy contracts to foreign firms on the basis of a per-barrel service fee. It has also refused to sign deals with any firm that has agreed to a contract with Kurdistan.
Shahristani also warned French energy giant Total, which has said it is in talks over deals with the Kurdish government, that any such agreements would be illegal.
"If they sign a contract to develop a field in Iraq, in any part of the country, without the approval of the Iraqi government, they will be considered in breach of the Iraqi laws, and they will be treated accordingly," he said.
Total is part of a consortium along with China's CNPC and Malaysia's Petronas to ramp up output at the Halfaya field in southern Maysan province, having been awarded the contract in December 2009.
The deputy premier insisted that only the central government could award oil contracts, pointing specifically to a field in the disputed northern province of Kirkuk where British energy giant BP has agreed an initial deal with the state-owned North Oil Company (NOC) to increase production.
"Any deal that they (NOC) sign with any company will of course be enforced, and nobody has a right to object," Shahristani said.