Tensions between the Kurdish and Iraqi authorities have escalated once more over the past few weeks. The semi-autonomous Kurdistan Regional Government (KRG) says it has resumed its contribution to Iraq’s oil exports to Turkey, but in the same breath threatens to halt exports if their demands over payments are not met.

If outstanding payments amounting to more than $500m are made by Baghdad, Kurdish exports will increase to the 175,000 barrels a day agreed by the KRG as part of the 2012 budget. However, if payments are not released, the KRG says it will halt exports from midnight on 31 August.

The KRG published its correspondence with the three oil firms, Norway’s DNO, UK-listed Genel Energy and the local KAR Group, which contribute to its oil exports. According to the letters, they are reluctant to restart exports given Baghdad’s poor track record of payments, but stuck in the middle of the Baghdad-Erbil dispute, there is little they can do about the situation.

The KRG has been telling these firms since 2007 that a federal hydrocarbons law will soon be signed, which would finally set the basis for regulating Iraq’s most important resource. But there is little indication that this will happen, particularly as Baghdad and Erbil continue to trade accusations, insults and even hinder each other’s developments.

Erbil has blocked the import of oil-field equipment entering Iraq from the north of the country. This is making life difficult for the international oil companies working in the south of Iraq which had hoped to circumvent the long delays at the main port of Umm Qasr in the south. The response has been for Baghdad to block shipments into the Kurdistan region of oil products refined in the south. It is unlikely this situation will change soon.