UPDATE 3-Kurds offer talks with Baghdad on airport, banks ban

* Iraqi government wants Kurds to cancel referendum results

* Denies plan to attack Kurds, say focused on Islamic State

* Sets pre-conditions for any negotiations with Kurds

* Iraqi leaflets dropped on IS-held area by Syrian border (Adds Baghdad setting conditions for talks, leaflet drop on IS area)

BAGHDAD, Oct 12 (Reuters) - The Kurdistan Regional Government (KRG) has offered talks with Iraqi authorities on the status of Kurdish airports, border posts and banks after Baghdad placed restrictions following an independence referendum.

Iraq's central government imposed a ban on direct international flights to the northern autonomous region as part of measures to isolate the KRG after last month's referendum, which Baghdad says was illegal.

It also demanded that the KRG hand over control of its border posts and halt independent crude oil exports. Baghdad also stopped selling dollars to four Kurdish-owned banks.

"To avoid this collective punishment, we invite (Iraqi Prime Minister) Haider al-Abadi, again, ... (to) any form of dialog and negotiations in conformity with the Iraqi Constitution," the KRG said a statement published overnight.

It offered discussions "regarding the crossings, internal trade, providing services to the citizens, the banks and the airports."

Iraqi Kurds overwhelmingly voted for independence in the Sept. 25 referendum. Baghdad demands that the KRG cancel the result of the vote before negotiations to resolve the crisis.

Commenting on Thursday on the KRG offer, an Iraqi government spokesman outlined a series of pre-conditions for any dialog, starting with a Kurdish "commitment to Iraq's unity."

The KRG "must accept the sovereign authority of the federal government on (..) oil exports, security and border protection, including land and air entry points," he told Reuters.

Kurdish authorities on Wednesday accused Iraqi forces and Iranian-trained Iraqi paramilitaries of "preparing a major attack" on the oil-rich region of Kirkuk and near Mosul in northern Iraq.

Abadi said on Thursday he would not use the army against the Kurdish region and a military spokesman denied any attack on Kurdish forces was planned, saying government troops were preparing to oust Islamic State militants from an area near the Syrian border.

"We won't use our army against our people or to launch a war against our Kurdish citizens," Abadi said in a statement.

Iraq's Supreme Judicial Council issued arrest warrants on Wednesday for the chairman of the Kurdish referendum commission and two aides for "violating a valid (Iraqi) court ruling" banning the independence vote as against the Constitution.

Neighboring Iran and Turkey support Iraq's uncompromising stance, fearing the spread of separatism to their own Kurdish populations.

Turkey will gradually close border gates with northern Iraq in coordination with the central Iraqi government and Iran, President Tayyip Erdogan's spokesman said on Thursday.

Turkish Prime Minister Binali Yildirim is expected to visit Baghdad on Sunday to meet with Iraqi counterpart Abadi.

Iraq's Kurdistan region is landlocked and all of its oil exports transit through Turkish territory.

Kirkuk, a Kurdish-held, multi-ethnic region, has emerged as a flashpoint in the crisis between Baghdad and Erbil as it is claimed by both sides.

Iraqi forces and Shi'ite Muslim paramilitaries, known as Popular Mobilisation, are deployed south and west of Kirkuk, in areas previously under the control of Islamic State.

The area around the border post of al-Qaim, in western Iraq, is the last Iraqi region still under the control of the militants, who overran a third of the country in 2014.

On Thursday, the Iraqi military dropped leaflets on al-Qaim urging the militants to surrender or face death.

IS also holds areas on the Syrian side of the border, but is retreating there in the face of two sets of hostile forces - a U.S.-backed, Kurdish-led coalition and Syrian government troops with foreign Shi'ite militias backed by Iran and Russia.

Islamic State's cross-border "caliphate" effectively collapsed in July when U.S.-backed Iraqi forces captured Mosul, the group's de facto capital in Iraq, after a nine-month battle.

(With additional reporting by Ahmed Rasheed; Editing by Mark Heinrich)

10/12/2017 11:02

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