Turkey may impose sanctions on KRG if referendum held: Erdoğan

Rosneft spokesperson Mikhail Leontyev

So come the vote on September 25, will Iraq be plunged deeper into turmoil, distracting the country and the global coalition from the war against Islamic State?

European Union on its part is concerned that the referendum may result in further destabilization of a region already in turmoil after civil wars and the still on-going fight against the Islamic State in Iraq and Syria which have claimed hundreds of thousands of civilian victims and the displacement of millions of people.

The Kurdish area has repeatedly ignored efforts to cancel the referendum. Economic sanctions on Iraqi Kurds would be a double-edged sword, while any military action could drag Turkey into a quagmire and possibly isolate the country. But since the end of the US -led first Gulf War in 1991, they have gained a high degree of autonomy.

The official added that the recent decision by the Iraqi parliament to reject the referendum would not stop the referendum commission from preparing and conducting the independence vote as it follows only Kurdistan's autonomous legislation and orders from President of Iraqi Kurdistan Masoud Barzani. The Iraqi Supreme Court has already asked the Kurdistan Regional Government to suspend the vote, scheduled for September 25, till its legality is settled. Rather, it would be the first concrete step in the Kurdish movement toward declaring independence.

Residents in provinces controlled by the KRG are scheduled to vote September 25 on independence from Baghdad.

Experts say the regional government led by Barzani wants to make use of the claim to independence for internal politics.

Of the five permanent members of the Security Council, who hold a veto, the United States, one of the strongest allies of the Kurdish regional government, described the decision of holding referendum as "ill-advised" and "ill-timed".

As the two parties boycotted, 68 lawmakers of the 111-seat parliament did not show up for the vote on Friday.

Barzani has said the Kurds will never surrender any of the territory they now hold in Iraq.

CNBC contacted several other oil companies operating in Iraq - including Norwegian gas and oil operator DNO, Austria's OMV group and the U.K.'s Gulf Keystone Petroleum company - regarding the extent to which business operations are likely be impacted by the referendum.

"The leaders of the US, Britain and the United Nations would have had to commit to the date by which Kurdistan and Iraq would have negotiated Kurdish sovereignty - or commit to supporting a Kurdish unilateral declaration of independence". And especially when it's done with a vision that there is a problem within the region itself, the Kurdish region.

Turkey, which has always been fighting its own Kurdish separatists, carried out military exercises at the Iraqi border and amassed dozens of tanks on its southern frontier. Displaced Kurds were provided with incentives to return, while Kurds from other areas were also moved in, angering other minorities.

Iran, with a sizeable Kurdish minority of its own, warned on Sunday that Iraqi Kurdish independence would mean an end to all border and security arrangements with the KRG.

His comments were echoed by President Recep Tayyip Erdogan during a speech at the UN General Assembly yesterday.

Asked by The Brussels Times if worldwide election observers will attend the referendum, he replied that they would be welcome.

Iraq's prime minister says Iraqi forces have begun the operation to retake the town of Hawija from the Islamic State group.

Amid the rising tensions, the United Nations and the US government have called for resolving the Kurdish issue through peaceful dialogue.

Iran-backed Iraqi Shi'a militias have threatened to dislodge the Peshmerga from Kirkuk should the Kurds proceed with the vote.