The local authority in an Iraqi province handed its governor power to sign deals with foreign oil firms independently of the central government, which rejected the move as unconstitutional.
The provincial council of Nineveh, a predominantly Sunni Muslim governorate in Iraq's northwest, is following the example of the autonomous Kurdistan region, which has pursued an increasingly independent energy policy in recent years.
Iraq's Shi'ite-led government claims sole authority over the exploration and export of the country's vast hydrocarbon resources, but Kurdistan and other provinces says the constitution allows decision-making to be decentralised.
"Taking the constitution as a starting point, we are in the process of setting laws and regulations to organise the work of oil companies to invest in Nineveh province," governor Atheel Nujaifi told Reuters.
The disagreement is rooted in divergent readings of the federal constitution, which was drawn up following the U.S.-led invasion that toppled Saddam Hussein in 2003.
Nujaifi confirmed that several oil companies, including majors, had already contacted Nineveh to discuss investment opportunities, but said no concrete negotiations were under way.
Baghdad rejected the provincial council vote.
"The government will not tolerate such a decision, whether from Nineveh or any other province. Iraq's energy resources are a red line and we advise Nineveh council not to cross it," said a senior government official on condition of anonymity.
"All options are open for the government to contest this decision, including taking it to the federal court to nullify it for breaching the constitution".
"COORDINATE AND COOPERATE"
Nineveh's move could strengthen Kurdistan's position in its long-running dispute with Baghdad.
Nineveh local government has also decided to "coordinate and cooperate" with Kurdistan in managing joint exploration blocks and oilfields to ensure maximum benefit for both sides.
ExxonMobil, the world's largest publicly traded energy company, infuriated Iraq by signing production sharing contracts with Kurdistan for the exploration and development of six blocks in 2011.
Two of those blocks are in areas where Nineveh and Kurdistan both claim jurisdiction.
Nineveh council last year rejected a call by Iraqi Prime Minister Nuri al-Maliki to sack Nujaifi over his initiative to start talks with ExxonMobil about operations in blocks inside the province.
Maliki has been at loggerheads with the governor on several fronts in recent years, including Nujaifi's support for protests by Iraq's Sunni minority against the Shi'ite-led government.
Those who backed Nineveh's move accused Baghdad of focusing on developing energy resources in Iraq's mainly Shi'ite south.
"We can't tolerate more neglect by central government, which has done nothing to improve energy resources in the province, so we simply decided to take on the job," said provincial councillor Hussam Abbar.
Council members who voted against the decision warned it could potentially lead to the break-up of Iraq.
"This decision is detrimental to Iraq's unity and sends a wrong message to other provinces to break away from the central authority," said Dildar Zebari. "Oil should be a factor of unity and not disintegration".
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