Turkey and Iraqi Kurdistan signed a package of contracts this week to export the semi-autonomous region's oil and gas via pipelines through Turkey.
The deal, believed to have been signed during Kurdistan Regional Government (KRG) Prime Minister Nechirvan Barzani's three hour-long meeting with Turkish Prime Minister Tayyip Erdogan on Wednesday, will likely infuriate Baghdad, which claims the sole authority to manage Iraqi oil resources.
Crude oil flow in the KRG's new pipeline will start very soon, and will link up with the 40 inch-line of the existing Kirkuk-Ceyhan pipeline to be exported to world markets.
The state-backed Turkish Energy Company (TEC), which Ankara set up to operate in northern Iraq, has also signed a contract to operate in thirteen exploration blocks, in about half of those it is teaming up with US giant ExxonMobil.
The contracts also envisage the building of a new oil pipeline and a gas pipeline, aimed to help the region's oil exports to climb to 1 million bpd by 2015. The gas flow is likely to start by early 2017.
Under the deal, payments for KRG's oil will be collected in an escrow account at a Turkish state bank. Once the contractor fees are paid, the balance will remain untouched until KRG and Baghdad reach a deal on the revenue sharing.