(Bloomberg) --

One of the biggest oil producers in Iraqi Kurdistan has started to lower output as a dispute between the region’s government and Baghdad drags on.

Norway’s DNO ASA has started an “orderly shutdown of its operated oil fields” in Kurdistan, it said on Wednesday. It’s been diverting flows into storage since Saturday, but space is now running out.

A legal fight is halting roughly 400,000 barrels a day of Iraqi crude exports from the Turkish port of Ceyhan and has helped push up global prices. Those shipments may not resume for two or three weeks, leading to Iraq’s overall production falling by 200,000 barrels a day in April, according to FGE, a consultant for energy companies.

Negotiations aimed at getting the oil flowing again will continue, according to Lawk Ghafuri, head of foreign media affairs for the Kurdish government. A Kurdish delegation is expected to return to Baghdad soon, he said late on Wednesday.

The US has also weighed in, asking Iraq, the Kurdistan Regional Government and Turkey to ensure the oil starts flowing again soon. Oil prices have risen on concerns of an extended halt.

Turkey closed the pipeline running from northern Iraq to Ceyhan last week after an international business tribunal ruled that Kurdish authorities shouldn’t export oil from the Mediterranean terminal without Baghdad’s approval.

“It is unfortunate it has come to this given the likely impact of a continuing supply disruption on oil prices and at a fragile time in global financial markets,” said DNO’s Executive Chairman Bijan Mossavar-Rahman.

The company’s shares fell 1.5%.

Paris Ruling

The Paris-based International Chamber of Commerce largely ruled against Turkey in a case brought by Iraq’s federal government. The move was part of Baghdad’s long-running attempt to rein in the Kurdistan Regional Government, which ultimately wants independence, and take more control of its oil.

The ICC said Turkey had violated a pipeline transit agreement by allowing the KRG’s shipments to go ahead without consent from Baghdad.

Ankara says it’s essentially a clash between the KRG and Baghdad and that it’s always respected Iraq’s territorial integrity.

Turkey “stands ready to contribute in every way possible in finding a lasting solution between the true parties of this dispute,” its Energy Ministry ministry said on Tuesday.

Baghdad says it’s up to the KRG to break the deadlock by accepting that Iraq’s state oil-marketing firm, known as SOMO, should handle Kurdish exports.

“The ball now is in the Kurds’ court,” Asim Jihad, a spokesman for Iraq’s Federal Ministry of Oil, said in an interview on Tuesday. “What matters for the ministry is to speed up the resumption of exports.”

KRG’s Lifeblood

Oil is the lifeblood of the Kurdistan economy, accounting for more than half the KRG’s revenues. The regional government is losing out on millions of dollars for each day that exports are stopped.

The ICC ruling “leaves Baghdad in a strong negotiating position to regain control of the sales of Kurdish oil exports,” FGE said in a note to clients. “Despite the complexity of the situation, it is not out of the question that the parties can come to a temporary deal this week that sees exports resume this week or next.”

DNO is lowering output at the Tawke and Peshkabir fields, which together pumped 107,000 barrels a day of crude last year.

Peshkabir production was halted on Tuesday night, DNO said, adding it had drawn up plans to conduct maintenance. Tawke’s full shut down “will take an additional day or so given the much larger numbers of wells spread across some 10 kilometers,” according to DNO.

Genel Energy Plc, which is also in Kurdistan, said to Bloomberg on Wednesday that it’s continuing to send oil into storage from Taq Taq and Sarta, two fields it operates.

HKN Energy said it will stop output from the Sarsang Block, which pumps about 30,000 barrels a day, within a week if export flows do not resume soon.

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