US oil major ExxonMobil is moving ahead with controversial plans for the development of oil resources in northern Iraq in areas claimed by both the federal government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG).

After a high-level executive visit to the territories at the end of January, sources close to the company tell MEED ExxonMobil has now submitted several hundred staff employments to the KRG for subcontractors, despite warnings from Baghdad not to pursue any upstream development.

The KRG has allocated land for a base camp at Kani Kuchal in the disputed Qara Hanjer exploration and production block, which is located near the Chemchemaal gas field under development by the UAE’s Crescent Petroleum and Dana Gas. The border area between federal and KRG territory has seen a build-up of troops from both sides over the past year. The two rival forces even clashed briefly on 16 November at the ethnically mixed town of Tuz Khurmato, 170 kilometres north of the Iraqi capital.

“If ExxonMobil starts drilling operations, Baghdad will have no option, but to try and stop them. But they will have the KRG and the Peshmerga [Kurdish paramilitary forces] behind them”, says a source in Erbil.

ExxonMobil has damaged relations with the Oil Ministry in Baghdad since signing a raft of exploration and production sharing agreements with the KRG in late 2011, showing willingness to compromise its access to Iraq’s southern oil fields by accepting KRG offers. ExxonMobil had already signed a major upstream deal with Baghdad for the development of the one of Iraq’s largest producing oil field, West Qurna phase 1 in the south of Iraq.

The signing angered many in Baghdad and the issue was even raised in a letter from Prime Minister Nouri al-Maliki to US President Barack Obama last summer. ExxonMobil chief executive officer Rex Tillerson met with Al-Maliki for the first time since signing the deals in January, but no resolution has been reached. Shortly after the meeting, Oil Minister Abdulkarim al-Luaibi released a statement on 28 January saying: “We can’t allow ExxonMobil to step over the constitution. It can’t continue to work in both places at the same time; they have to choose to work either in Iraq or in Kurdistan. We are waiting for a final answer in the coming few days.”

ExxonMobil still faces the prospect of being removed from the West Qurna project for defying Baghdad, although a replacement has yet to be found. China National Petroleum Corporation (CNPC) has been touted as the frontrunner to take over ExxonMobil’s 60 per cent share of the development. Chinese state-owned firms are already working at the Rumaila, Halfaya and Missan oil fields.

The southern boundaries of the Kurdistan region touch the three, ethnically diverse provinces of Diyala, Ninevah and Tameem. The last of these contains the ethnically mixed city of Kirkuk and is home to the giant Kirkuk field, which has reserves of some 4 billion barrels of oil.

In 2003, in the aftermath of the fall of Saddam Hussein, Kurdish forces staked their claim to these provinces, which are populated predominantly by Kurds, but also contain substantial numbers of Arabs and Turkmen.

The area remains a critical bone of contention between Erbil and Baghdad. After Baghdad’s censure of the ExxonMobil deals, the KRG heavily criticised Baghdad after reports in March 2012 that the state-owned North Oil Company had signed a preliminary agreement with BP to increase production at the Kirkuk field to 580,000 b/d from about 260,000 b/d currently. A request has now been sent to the Iraqi cabinet to approve negotiations with BP.

ExxonMobil could not be reached for a comment.