Iraqi Prime Minister Nuri al-Maliki threatened to cut Kurdistan's share of the federal budget if the autonomous region exports oil to Turkey via a new pipeline without central government consent.
The Kurdistan Regional Government said last week that crude had begun to flow to Turkey and exports were expected to start at the end of this month and then rise in February and March.
"This is a constitutional violation which we will never allow, not for the (Kurdistan) region nor for the Turkish government," Maliki told Reuters in an interview.
He reiterated Baghdad's insistence that only the central government has the authority to manage Iraq's energy resources.
"Turkey must not interfere in an issue that harms Iraqi sovereignty," Maliki said.
The central government and the Kurds differ over how to interpret the constitution and share revenue from the world's fourth-largest oil reserves. The Kurds are in theory entitled to 17 percent although they frequently complain they get less than that.
Maliki said the Kurds had not met their budgeted commitment to export 250,000 barrels per day of oil in 2013, with the revenue going to the national treasury, but that so far the government had not retaliated by reducing their share of the budget.
"We did not do that as we did not want to affect the Kurdish people and we were looking to find acceptable solutions...that would preserve national unity and the national wealth, but this year the situation looks difficult," Maliki declared.
Referring to a dispute over the costs of oil companies operating in Iraqi Kurdistan, he said: "We have been telling these companies...give us the oil and we will pay your costs, but they did not deliver, so there will be no payments."
Maliki said it was unfair to expect Baghdad to pay the oil firms' costs plus the Kurds' 17 percent budget share, when they had failed to meet their export target and oil revenue was not being channeled through the government.
Crude from Kurdistan used to be shipped to Turkey through a Baghdad-controlled pipeline, but exports via that channel dried up a year ago from a peak of around 200,000 bpd due to a row over payments for oil companies operating in the region.
Since then, the Kurds have been exporting smaller quantities of crude to Turkey by truck whilst laying their own independent pipeline, which was completed late last year.
Maliki met with Kurdish members of the Iraqi parliament later on Sunday and said he wanted to resolve the dispute through negotiation. A delegation from Kurdistan is due in Baghdad later this week to study the issue.
TURKISH ENVOY MEETING
Iraq's Deputy Prime Minister for Energy Hussain al-Shahristani summoned Turkey's consul in Baghdad on Sunday and reiterated his objection to Ankara's role in exports from Kurdistan.
Shahristani also said that Ankara had prevented representatives of the Iraqi oil ministry from supervising exports from Turkey's Mediterranean port of Ceyhan, as previously agreed.
"The government of Iraq holds the Turkish side legally responsibility for this act and reserves the right to demand compensated all damages resulted," Shahristani said in a statement.
Iraqi Kurdistan has prospered over the past decade, largely escaping the violence that has afflicted the rest of the country following the U.S. invasion that toppled Saddam Hussein.
Officials in Baghdad say the pipeline sets a dangerous precedent for other Iraqi provinces to pursue their own independent oil policies, potentially leading to the break-up of Iraq. U.S. officials have echoed that view.
Kurdish leaders publicly say they are committed to remaining part of a federal Iraq, rather than seeking secession, but oil is a highly sensitive issue in volatile relations with Baghdad.
Companies that have risked exploring for oil in Iraqi Kurdistan had welcomed its plans to pipe oil to Turkey as a signal they might begin to generate export income from their investments, despite Baghdad's objections.
Those companies include Gulf Keystone, Genel Energy, Norway's DNO, Hungary's MOL and Britain's Petroceltic and Afren.
For more information about related Opportunities and Key Players visit Iraq Oil and Gas Projects