The damage from a car-bomb attack in the Iraqi city of Kirkuk on Nov. 27. The attack came a day after officials from the government and the Iraqi region of Kurdistan reached an agreement aimed at easing tensions in disputed areas of north Iraq. (Marwan Ibrahim/AFP/Getty Images)

With their opposing armies massed on either side of the contested border dividing southern and northern Iraq, leaders in Baghdad and the semiautonomous Kurdistan region are warning that they are close to civil war — one that could be triggered by Exxon Mobil.

Although leaders on both sides are negotiating a walk back from the brink, they also say their armies could easily be provoked into battle. One of the most sensitive tripwires is Exxon, which is preparing to drill for oil in the disputed territories at the heart of the military standoff. Iraq’s two most explosive political conflicts — over land and oil — are primed to combust.

“The prime minister has been clear: If Exxon lays a finger on this territory, they will face the Iraqi army,” said Sami al-Askari, a member of parliament and confidant of Prime Minister Nouri al-Maliki. “We don’t want war, but we will go to war, for oil and for Iraqi sovereignty.”

Iraq’s major ethnic groups have laid competing claims to a belt of land between the Kurdistan region and southern Iraq. An unofficial “line of control” bisects the disputed areas, demarcating the southern border of Kurdistan-governed territory.

The crisis began after a Nov. 16 battle in the town of Tuz Khurmatu, whose ethnic tensions are typical of the disputed areas. A shootout erupted when federal forces tried to arrest a Kurdish fuel seller, who asked Kurdish soldiers, known as the pesh merga, to protect him.

In Iraq, Exxon oil deal foments talk of civil war

Maliki and the Kurdistan region’s president, Massoud Barzani, quickly ordered thousands of reinforcements to move toward the line of control. “We do not want war,” Barzani said in a speech to troops on the front lines, “but if war comes, then all Kurdish people are ready to fight.”

Iraqi Kurds are scarred by memories of Saddam Hussein’s campaigns of ethnic cleansing. After the fall of his regime, they staked out substantial autonomy in northern Iraq, and now the Kurdistan region has many features of an independent state.

Many of the region’s southern Iraqi neighbors, however, complain that the Kurds are grasping for territory that is not rightfully theirs. Authorities in Baghdad say they had to deploy thousands of Iraqi troops to prevent further Kurdish encroachment.

“This recent crisis has given gains to the Kurds,” said a high-ranking military officer in Baghdad, speaking on the condition of anonymity because of political sensitivities.

Military leaders in Baghdad and the Kurdistan region say fighting could begin with a single misfire. In some areas near the city of Kirkuk — the epicenter of the territorial disputes — the Iraqi army and the pesh merga are well within firing range of each other’s weapons.

The military officer said the Iraqi army would open fire under three scenarios: if the pesh merga forces fire first or advance beyond their current positions, or if oil companies begin working in disputed areas.

“If they do this, it’s a declaration of war,” the officer said.

Exxon is not the only company with oil deals in Iraq’s disputed areas, but its contracts are the most controversial because of the company’s iconic stature and the location of its exploration blocks, on the southernmost edges of Iraqi Kurdistan’s expansive interpretation of its territory. Before Exxon signed the contracts in October 2011, Baghdad warned the company that it considered such deals illegal.

“It is the responsibility of the government to defend Iraq’s sovereignty,” Deputy Prime Minister Hussain al-Shahristani said in an interview, warning that if Exxon chooses to operate in disputed territories, “they would be committing a grave mistake.”

The Obama administration did little to discourage the Exxon deals, and it has not taken action to prevent the company from drilling next year, according to several U.S. officials. But American diplomats have mediated between leaders in Baghdad and the Kurdish capital of Irbil. They helped Iraqi army and pesh merga commanders agree on a plan in which all forces would have returned to their pre-crisis positions, but the plan was rejected — by Barzani, or Maliki, or both, according to varying accounts.

On Thursday, with American assistance, Iraqi President Jalal Talabani, a Kurd, brokered an agreement between Maliki and Barzani to tone down their public statements and form a committee to create a solution for security in disputed areas. But neither side has committed to military demobilization. Talibani was in intensive care at a Baghdad hospital Tuesday after reportedly suffering a stroke.

Meanwhile, Exxon’s contracts with Iraqi Kurdistan contain strict timelines. At the beginning of 2013, the company will begin surveying and other work in the disputed blocks, and Exxon plans to begin exploration drilling in the summer, according to an official who is close to the company and has direct knowledge of its plans. Changes would have to be negotiated with authorities in the Kurdistan region, said the official, who spoke on the condition of anonymity because of political sensitivities. An Exxon spokesman declined to comment on the company’s intentions, but the oil giant has a reputation for adhering to the letter of its contracts.

As Exxon ramps up, both Maliki and Barzani have political incentives not to back down.

Barzani has enjoyed a surge in stature as the fractious parties within Iraqi Kurdistan rally behind him against a common threat. He visited the pesh merga’s front lines in Kirkuk on Dec. 10 — a provocative move that demonstrated his physical control over that especially sensitive territory.

A day later, a procession of Maliki-aligned politicians denounced what they termed a “war visit.” They are also rallying a coalition in parliament to slash 2013 federal funding for the Kurdistan Regional Government.

The Kurds still rely on Baghdad for the vast majority of their budget, but they have taken steps to create their own oil sector, signing nearly 50 contracts with international companies, increasing the Kurdistan region’s control over its revenue streams. The Kurds could sever their economic dependence on Baghdad if they finalize a deal being negotiated with Turkey for oil exploration and pipelines.

Maliki’s advisers argue that Iraqi Kurdistan has more to lose from a civil war, because foreign companies are attracted by the region’s excellent security, whereas those that invest in southern Iraq anticipate a risk of violence.

“All of their success is built on the assumption that it’s a stable region,” said Askari, the Maliki ally. “Instead, it will be a conflict region.”