Iraq's self-ruled Kurdish region has halted oil exports over a payment row with the central government in Baghdad, causing further deterioration in relations between the two administrations.
The Kurdistan Regional Government in northern Iraq has unilaterally struck scores of deals with oil companies in recent years, even though Baghdad says it has no right to do so. The two sides struck a tentative deal in 2011 by which the Kurds send the oil to Baghdad, which sells it, and each side then takes 50 percent of the revenues.
In a statement issued late Sunday, the region's Ministry of Natural Resources said Baghdad failed to send any money since May, even though it had been exporting 50,000 barrels per day. They said only two payments of $514 million have been made with the last made in May 2011.
"After consultation with the producing companies, the Ministry has reluctantly decided to halt exports until further notice," the statement said. "There have been no payments for 10 months, nor any indication from federal authorities that payments are forthcoming."
It added that oil exports will be resumed once payment issue is resolved, adding that the production will be diverted to the local market for processing and refining to generate an alternate source of cash flow for the producing companies.
On Monday, Deputy Prime Minister Hussain al-Shahristani said the Kurds' decision to halt oil exports will affect the federal budget for 2012. He also accused Kurdish authorities of smuggling huge amounts of oil to neighbouring countries, mainly Iran, or selling it on the local market.
The Kurds, he charged, were withholding about $5.65 billion in revenues generated from unreported oil sales since 2010.
"Where the money went, I don't know," he said.
Last week, Iraq's Finance Minister Rafia al-Issawi said Baghdad already approved payment of $560 million to oil producers in the Kurdish region but it was awaiting final audits.
The Kurds are at odds with the Baghdad government on a host of issues, ranging from the development of oil resources in the autonomous Kurdish region to the status of disputed areas, including the oil hub of Kirkuk.
Tensions between the two have increased since last November when the Kurds announced that U.S. giant Exxon Mobil signed a deal to explore for oil in the region. Baghdad warned Exxon could risk existing agreements with Baghdad.
Another point of contention is Iraq's fugitive Vice President Tariq al-Hashemi. Al-Hashemi, the highest ranking Sunni Arab official in Iraq, is wanted by the Shiite-led government who claim he ran death squads and fled into exile in the Kurdish region.
Iraq's Interior Ministry last month demanded that Kurdish leaders arrest al-Hashemi before he could flee the country, but the vice president traveled to Qatar Sunday on what he said was an official visit to several countries.
The Kurdish move came as the Iraqi Oil Ministry reported the highest oil exports in March since 1989, thanks to a new offshore export terminal in the Gulf.
Ministry spokesman Assem Jihad said Monday that March oil exports averaged 2.317 million barrels a day that generated $8,475 billion.
February's oil exports averaged 2.0137 million barrels per day, down from an average of 2.107 million barrels per day in January. February's sales grossed $6.595 billion.
Although Iraq sits atop the world's fourth largest proven reserves of conventional crude, about 143.1 billion barrels, decades of sanctions, war, sabotage and neglect have battered the sector.
Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country's energy industry in more than three decades.
Baghdad aims to raise daily output to 12 million barrels by 2017, a level that would put it nearly on par with Saudi Arabia's current production capacity. Many analysts say that target is unrealistic, because of the degraded state of the industry's infrastructure after wars and an international embargo that lasted more than a decade.