The central government claims sole decision-making rights over oil and demands that all exports go through state-run pipelines. The Kurds say they have the right to develop their own energy policy and accuse the government of stalling on negotiating a new deal on sharing oil revenues.
The Kurds have also passed their own energy law and signed more than 50 deals with foreign oil companies, offering more generous terms than Baghdad.
An oil company doing business in the region, Genel Energy, began shipping Kurdish oil by truck to Turkey in January.
The planned direct export pipeline is of strategic importance, said Ali Balo, a senior Kurdish oil official. "Why are we building it? Because we always have problems with Baghdad."
The project also highlights Turkey's growing involvement in the region, a marked change from just a few years ago when ties were strained over Ankara's battle against Kurdish insurgents seeking self-rule in Turkey.
Mutual need forged the new relationship.
Turkey, part of the region's Sunni Muslim camp, needs more oil to fuel its expanding economy. It prefers to buy from the Kurds rather than the Shiite-led government in Baghdad, seen as a member of the region's rival Iranian-influenced axis. The Kurds, also predominantly Sunni, need Turkey not just as a gateway for oil exports but also as a business partner.
Almost half of nearly 1,900 foreign companies operating here are Turkish, government officials say. Seventy percent of Turkey's annual $15 billion Iraq trade is with the Kurdish region.
In a sign of the times, Turkish and English are the languages of instruction at a top private school in Irbil. During music class at the Bilkent school, third-graders sitting cross-legged on a large carpet sang "Twinkle, twinkle, little star" in Turkish, followed by "London Bridge" in English.
The 351 students start studying Kurdish, the native language of most, in third grade. Arabic is introduced last, in fourth grade.