Turkey is discussing the terms of an energy partnership with Iraqi Kurds, the country's prime minister said Friday in the first public confirmation of a project that could aggravate tensions in the powder keg region.
Analysts have said the move -- aimed at securing affordable oil and gas supplies to fuel Turkey's rapid economic growth -- also risks damaging ties with the United States, its major ally.
"We are in the process of striking a trade agreement with them (Iraqi Kurds)," Prime Minister Recep Tayyip Erdogan said in an interview with the CNN-Turk television.
Referring to a Baghdad-controlled oil pipeline to Turkey that operates well below its capacity to transport 70.9 million tonnes a year, he said the aim was to "make the existing pipeline more active."
He suggested that it might be extended with multiple oil and gas pipelines.
The partnership threatens to worsen a long-running dispute between Baghdad and the autonomous Kurdistan region in northern Iraq over how to exploit the country's energy wealth.
It is also raising eyebrows in Washington, where there are concerns that it could tip the volatile country towards disintegration and push an increasingly isolated Baghdad into Iran's embrace.
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Erdogan dismissed the concerns and said the Kurdish regional government had a right under the Iraqi constitution to use part of its energy resources with whichever country it chooses.
"Why did northern Iraq feel the need to make such an agreement with us? ... Because they cannot agree with (Iraqi Prime Minister) Maliki," he said.
"There is no article in the (Iraqi) constitution that can prevent (the Kurdish regional government) from making this trade contract with us."
Erdogan hailed Turkey's energy cooperation with Iraqi Kurds as "win-win" for both sides.
Ankara has been at loggerheads with the Iraqi government over a number of issues, including Turkey's refusal to extradite fugitive Vice President Tareq al-Hashemi and the burgeoning energy ties with Iraqi Kurdistan.
The central Iraqi government has so far blocked Turkish efforts to step up their presence in northern Iraq.
In November, Baghdad blocked Turkish national energy firm TPAO from bidding for an oil exploration contract, a decision which Erdogan had said was not "smart business".
And in December, Baghdad barred a plane carrying Turkish Energy Minister Taner Yildiz from landing in Arbil as he was reportedly on his way to seal the much-speculated energy deal.