BP, which appears to be committed to Iraq, secured a major production-sharing contract from Baghdad in 2009 to develop the Rumaila superfield in the south.
Now it's reported to be close to an agreement with Baghdad to upgrade the declining Kirkuk oil fields in the north. These straddle the border between Kurdistan and territory controlled by Baghdad.
The semiautonomous Kurds claim the Kirkuk region is historically part of their turf and want to get their hands on its oil reserves, which constitute about one-third of Iraq's proven reserves of 143.1 billion barrels.
So the last thing they want is for BP -- or anyone else -- to arrest the fields' decline to strengthen Iraq's claim.
"Iraq's citizens are simply tired of Baghdad's ... language of threat and intimidation, which in the cynical pursuit of narrow political agendas only serves to create division and strife," said KRG President Massoud Barzani.
The confrontation is fast becoming a major threat to Iraq's stability and unity and has hamstrung Prime Minister Nouri al-Maliki's drive to entrench his authority since U.S. forces withdrew in 2011.
The dispute went toxic in October 2011 when the KRG defied the central government by signing a six-block exploration deal with Exxon Mobil, the world's largest oil company.
Baghdad branded that illegal. The Kurds, who control three northeastern provinces, responded by signing deals with Chevron Corp. of the United States, Total of France and Gazprom of Russia.
Like Exxon, they were fed up with Baghdad's bureaucratic morass, corruption, supply delays and stingy production-sharing contracts and favored the KRG's more lucrative deals and better operating conditions.
With a long-delayed Oil Law snarled in Iraq's fractious Parliament since 2007, the Kurds' action undermined Baghdad's claim to be the sole authority in the energy sector, and heightened the prospect of the independence-minded Kurds breaking away.
This perilous crisis is certain to deepen even more following the KRG's disclosure Sunday it's negotiating with "two or three other significant companies" it didn't identify.
A military confrontation is a distinct possibility. For weeks, heavily armed forces from both sides have been locked in an uneasy standoff along Kurdistan's southern boundary, centered on the bitterly contested oil-rich region of Kirkuk.
This political fault line could be widened if Exxon goes ahead with exploratory drilling, expected this summer, in three of its blocks that lie in disputed territory.
Maliki's Shiite-dominated coalition is under growing pressure from minority Sunnis opposed to his increasingly dictatorial style, as well as the Kurds and daily attacks by a resurgent al-Qaida in which hundreds of Shiites have been slaughtered in recent months.
He cannot afford to let the KRG defy him. If the Kurds, who sit on 45 billion barrels of oil, decide to go it alone, that would encourage other grumbling regions, including the Shiite-controlled south that sits on two-thirds of Iraq's oil reserves, to pursue greater autonomy.
Maliki last week met with Exxon Chief Executive Officer Rex Tillerson in Baghdad in an effort to persuade him to abandon the company's Kurdish enterprise.
What infuriated Maliki about Exxon signing with the Kurds is that it did so knowing it would forfeit its 60 percent stake in the $50 billion West Qurna field in the south, one of the biggest in Iraq, that it secured under a deal with Baghdad in 2010.
But Exxon has shown no sign of quitting Kurdistan despite Baghdad's pressure. Nor is there's any indication the KRG's burgeoning energy program is slowing down.
It's stopped pumping oil into the Iraqi pipeline network for export, and is trucking oil north through Turkey for export via its Ceyhan terminal on the Mediterranean.
Turkey, with scarce energy resources of its own, is firmly allied with the KRG. It has plans to build oil and gas pipelines to Ceyhan to give the landlocked Kurds an independent direct export route.
European oil companies are buying a growing volume of Kurdish crude and more majors may follow the path to Kurdistan.
Chevron, indeed, has added a third block to its Kurdish operation and is eyeing other prospects there.