Iraq will not pay oil companies operating in Kurdistan because the autonomous region has failed to export the volume of crude it pledged to, a spokesman for Hussain al-Shahristani, Iraq's deputy prime minister for energy said on Friday.
The comments ramp up a standoff between Baghdad and the region, which have been locked in a long-running spat over land and petroleum rights.
Tension appeared to ease in September, when Kurdistan and Baghdad struck a deal under which the autonomous region agreed to continue pumping its share of national oil exports in return for payment from the central government.
An export target of 200,000 bpd has been set.
Following that agreement, Baghdad transferred an initial sum of $650 million to the Kurdistan regional government (KRG), but a subsequent payment is now overdue and Kurdish crude exports this week dropped to around 5,000 barrels per day.
"The Iraqi side gave them the (initial) sum, but they haven't supplied the 200,000 bpd," Faisal Abdullah told Reuters via telephone.
"The government fulfilled its obligations according to the agreement but Kurdistan shirked theirs," he said.
In recent weeks, oil exports from Kurdistan have slumped from a peak of around 200,000 bpd. The reason for the reduction is not clear, but the region has previously halted exports in protest at Baghdad's withholding of payments.
Baghdad rejects the deals signed between Kurdistan and oil companies including majors Exxon Mobil, Chevron and Total as illegal and has blacklisted some that have ventured into the northern region.
Kurdistan says its right to grant contracts to foreign oil firms is enshrined in the Iraqi constitution, which was drawn up following the 2003 invasion that ousted Sunni dictator Saddam Hussein.
The oil payment dispute is part of a broader debate between Baghdad and Kurdistan over control of oil and territories which is straining Iraq's uneasy federal union one year after U.S. troops left.