By Alex Lawler and Peg Mackey
LONDON (Reuters) - Iraq's Kurdistan region said its planned resumption of oil exports may last only to August 31 if the central government does not pay arrears to foreign companies, meaning the rise in Iraq's overall shipments to world markets could be brief.
The semi-autonomous region said on Wednesday it would restart exports this week in a bid to end the payments dispute with Baghdad. The Kurdistan Regional Government (KRG) says the central government has withheld payment of $1.5 billion.
Natural Resources Minister Ashti Hawrami gave the end-August deadline in a letter posted on the KRG's website and addressed to oil companies DNO, Genel Energy and Kar Group.
"What I have in mind is to restart the oil export for only one month, i.e. for all of the August period," Hawrami wrote in the letter, dated July 28.
"If the payments are not released by the end of this period, then we agree to halt all the export at the midnight of 31st August."
The KRG and Baghdad are locked in a long-running feud over oil and land rights that has shut in exports for the past four months from the oilfields being tapped by foreign oil companies in the northern region.
Letters released on the KRG website show the companies were initially reluctant to go along with the export restart.
Genel Chief Executive Tony Hayward said in a letter to Hawrami the company had not been paid for the majority of oil exported in 2009 and 2011. "This has had a very significant impact on our operations," the letter said.
The KRG on Wednesday said exports would remain at 100,000 barrels per day (bpd) for a month and if payments were made, could move swiftly to 200,000 bpd. Hawrami said the plan may not succeed and reaction from industry executives was cautious.
"We hope Baghdad sees the resumption of exports as a conciliatory gesture and they can make some headway with settling their differences," said an oil industry source.
"It makes sense why they are doing this, although it is hard to believe this will get progress in the next 30 days," said another source, both of whom declined to be identified.
Under Iraq's budget, the KRG is to supply 175,000 bpd of crude for export, but the KRG halted the trade in early April, saying Baghdad owed it a backlog of payments.
The central government is required to route 50 percent of the KRG's export earnings to Kurdistan to cover producing companies' previous costs. Baghdad issued two payments in 2011, totaling $514 million; the KRG said it is owed $1.5 billion.
Crude produced in Kurdistan is fed into Iraq's Kirkuk export stream and sold onto world markets via the Turkish Mediterranean port of Ceyhan. The KRG export halt had cut Kirkuk shipments by a quarter to below 300,000 bpd.
Iraq is boosting oil sales from its southern ports following an increase in export capacity earlier this year. Adding another 100,000 bpd to northern exports would bring Iraq's overall shipments to around 2.6 million bpd, a postwar record.
Iraq's oil dispute with Kurdistan has escalated after Baghdad threatened to cancel a contract with France's Total for signing Kurdish deals and a unit of Russia's Gazprom also entered the autonomous area.
Total and Gazprom followed U.S. majors Exxon and Chevron in signing oil accords with Kurdistan.
(Editing by Anthony Barker)