While the rift has been public, the issue of the Kirkuk oil field project is starting to surface in conflicting accounts.
The ministry said Tuesday that Peshmerga, the Kurdistan Regional Government's armed forces, wouldn't allow the central government to move forward on upgrading the Khurmala Dome, part of the Kirkuk field, according to news reports. The official in charge of the project told United Press International Wednesday he was prevented within the last three months from working on it but denies the Peshmerga was involved.
"We have an engineering procurement contract. When equipment arrived, we started working ourselves," Falah al-Khawaja, director general of the State Company for Oil Projects, an arm of the ministry, said on the sidelines of an oil conference in London. "They prevented us from continuing our work, which is actually against the law."
Khawaja wouldn't elaborate on who "they" actually are, adding: "I've been there. I know what's going on in Khurmala. The equipment started to arrive only seven months ago."
He said the KRG, which has semiautonomous rule over a three-province region in the north, was "officially" notified of the incident and played down the severity of the work stoppage.
"We think some arrangement will be reached," he said.
An official with the company contracted to supply the project said it's been turned over to the KRG.
"My understanding is that the north has the right to go ahead and develop that field," the official said on condition of anonymity. The official said the equipment supply contract is nearly 100 percent complete.
Earlier this month KRG Natural Resources Minister Ashti Hawrami announced a service contract to develop the Khurmala Dome, as well as an associated oil refinery, to the newly established and region-owned Kurdistan National Oil Co.
"We have shortage of fuel products. Every winter we are suffering. All we are doing is solving that problem by utilizing the crude oil, that's all," he told United Press International last week at the start of his U.S. visit. He has begun meeting political and business officials from Washington to Texas.
"We are not stealing the oil, it's our oil, it's Iraqi oil, we're entitled to it," he said. "If Baghdad can do better, be my guest. Come sit down with us on these two projects. Come work with us. No problem at all. But they cannot be coming there to stop us from doing it. That is not the spirit of the constitution or cooperation."
KRG has irked Baghdad by approving its own regional oil law and signing some 20 contracts with international oil companies to explore its unknown but likely oil-rich territories for oil. Iraqi Oil Minister Hussain al-Shahristani has called the KRG deals "illegal" and "null and void," though no action has been taken.
Each side also blames the other for stalling a draft national oil law that would decide the rights of the federal and local governments in the oil sector, as well as set the terms for international investment in what has been a nationalized oil sector for more than three decades.
Shahristani, frustrated without an oil law, said he's in talks to sign service contracts with international oil companies. With Washington's reluctant blessing, he is using the powers Saddam Hussein granted to the Oil Ministry as legal justification to sign deals.
Hawrami said that violates the constitution.
Kirkuk, which started pumping oil in the 1930s, is estimated to have more than 15 billion of Iraq's 115 billion barrels of proven oil reserves. It produces between a quarter million and half million barrels per day, and the Khurmala project is intended to add another 100,000 bpd. It's officially outside the KRG territory but is claimed as historically Kurdish, and a controversial referendum is supposed to take place to allow voters to decide whether to join the KRG.
The KRG is accused of signing other deals outside its "official" territory, including a production-sharing contract with Dallas-based Hunt Oil.
Sixty Iraqi oil professionals who have at times criticized the KRG and Baghdad for its dealings with the oil law this week sent a letter condemning the KRG deals to Shahristani and the Iraqi Parliament.
"There is no hard line drawn somewhere that says this is KRG controlled territory and these are disputed territories, it is all gray areas," Hawrami said, defending his deals. "We provide the security; administratively we run the towns and villages in that area. It is and has always been under control of KRG, under our security."
"Assuming we go a step further and say it is not, say it transpires later on we were wrong for some reason," he added. "Well the contract is an Iraqi contract anyways and whoever controls that region can administer the contract. It is no problem."