At the same time, Baghdad has threatened to cut the Kurdistan Regional Government's budget if the Kurds go ahead with a plan to independently export crude oil to Turkey.
These developments appeared to move potentially explosive disputes over energy and land closer to a showdown that could threaten Iraq's unity.
Oil Minister Abdul Kareem Luaibi said Prime Minister Nouri al Malaki's government was negotiating with BP to operate the Kirkuk oil fields in northern Iraq that are in decline, largely because of years of neglect.
"Seventy percent provisions of the contract with BP to develop Kirkuk are ready," he said.
BP said no deal, for "short-term technical assistance," has been signed.
Baghdad wants to boost Kirkuk's production from the current 260,000 barrels per day to 600,000 bpd, part of its ambitious drive to hike national production from 2.6 million bpd to 8 million bpd in the next few years.
A decade ago, the Kirkuk fields, discovered in 1927, were producing 900,000 bpd, which was exported through pipelines running to Turkey's Ceyhan terminal on the Mediterranean.
BP is developing Iraq's largest field at Rumaila in southern Iraq under a 2009 production contract.
The KRG, which has incensed the central government by signing exploration deals with Exxon Mobil and several other oil majors, branded the move by Baghdad as "illegal and unconstitutional."
That echoed Baghdad's description of the deals the KRG has made in its effort to exploit the 45 billion barrels of oil estimated to lie under Kurdistan, which covers three of Iraq's 18 provinces.
In selecting Kirkuk as a venue for BP, Maliki couldn't have chosen a region more likely to spur Kurdish fury. That may well have been the intention.
"The oil issue is an existential threat to Maliki," explained Iraq expert Toby Dodge in London. "And the KRG and Maliki know it."
The Kurds claim the city of Kirkuk and the surrounding oil fields, which hold about one-third of Iraq's reserves of 143.1 billion barrels, were historically part of Kurdistan during four centuries of Ottoman rule that ended after World War I. Baghdad rejects that.
The KRG branded the possibility of BP being brought in to boost Kirkuk's output as "intimidation."
It warned that would create "division and strife," a comment that seemed somewhat ingenuous given the actions of the KRG in its capital Erbil in recent months.
The disputes over oil and land threaten to undermine Maliki's Shiite-dominated coalition, not to mention his efforts to amass power in his own hands following the U.S. military withdrawal in December 2011.
Other groups in Iraq, not just the Kurds, view Maliki's dictatorial ambitions with growing alarm.
These events have taken place amid widening political fights between Maliki and his Shiite and minority Sunni rivals, and a surge of sectarian terrorist attacks across the country, largely bombings and killings by Sunni extremists against the majority Shiites.
Baghdad's threat to get tough with the KRG over its contracts with Exxon, Chevron, Gazprom of Russia and Total of France, could be the most perilous step in the escalating dispute with Erbil.
Luaibi said the government could sue Genel Energy, an independent Anglo-Turkish company that recently began trucking crude oil north from Kurdistan to Turkey for export, a direct challenge to Maliki's authority.
Genel is headed by Tony Hayward, former chief executive of BP, who has been one of the driving forces behind the Kurds' defiant export drive.
The Kurds, who have pretty much run their own affairs since the U.S.-led coalition forces set up a protected zone for them after the 1991 Gulf War to protect them from Saddam Hussein's wrath.
KRG spokesman Safeen Dizayee said Luaibi's threat reflected "a degree of panic and desperation" as well as "a lack of respect" for Iraq's constitution and the KRG.
The Kurds fought Baghdad for decades seeking self-rule. Their aspirations have grown enormously since Saddam Hussein was toppled in 2003.
With oil reserves that could last 50 years, as well as an estimated 123 trillion cubic feet of natural gas, they now envisage a state with strong economic underpinnings, and energy-starved Turkey as a key ally.
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