BAGHDAD (Reuters) - Oil payments from Baghdad to Iraq's Kurdish region will be transferred today, Kurdish Energy Minister Ashti Hawrami said on Sunday, offering hope that a long-running conflict between the central government and autonomous region is easing.

Baghdad and Kurdistan agreed earlier this month to draw a line under a dispute over oil payments after the latter pledged to continue exports and Baghdad said it would pay foreign companies working there.

Kurdistan has riled Baghdad by signing deals with foreign oil majors, such as Exxon and Chevron, contracts the central government rejects as illegal.

"Payments will be transferred to the Kurdish regional government today: that's what I've been told in Baghdad today," Hawrami told reporters in the Iraqi capital.

Small oil producers like London-based Genel Energy and DNO of Norway have been in the region for about a decade. Majors including Exxon, Chevron and Total are newer arrivals.

"This is great news. Payments are crucial for us to keep oil flowing," said an official with a company operating in Kurdistan.

The oil contracts row, however, is part of a broader battle between the Baghdad government and Kurdistan over oil rights, territory and regional autonomy that is straining Iraq's uneasy federal union.

Hawrami was in Baghdad for the meeting of a special committee formed earlier this month to try to resolve differences over the country's long-awaited oil and gas law.

Iraqi Oil Minister Abdul-Kareem Luaibi, who also attended, described the talks as "very positive".

More than nine years after the toppling of Saddam Hussein, the OPEC member still has no binding hydrocarbon law. A 2007 draft national oil law that aims to resolve the disputes over crude has been caught up in political infighting.

A draft national oil law that aims to resolve the disputes over crude has been caught up in political infighting for years.

Another member of the committee tasked with forging consensus over the oil and gas law said Sunday's discussions were a small step.

"We don't expect much from this meeting. It's the first meeting for the committee. Building confidence and removing tension is the topic of today's meeting," said Qasim Mohammed, a Kurdish member of the panel.

Luaibi said crude exports would exceed 2.6 million barrels per day (bpd) in September and estimated production at more than 3.3 mln bpd this month.

With the help of foreign firms, Iraq has ambitious plans to boost production capacity beyond 12 million bpd by 2017, but this target has proved unrealistic due to infrastructure bottlenecks and logistical shortcomings.

It is expected to target 8-8.5 million bpd, but some oil analysts and executives see even 6 million bpd by 2017 as stretch for the war-torn country.

Under U.S. and European sanctions on the country over its controversial nuclear program, Iranian output has declined sharply this year, forcing it into third place on OPEC's list of largest oil producers, just behind Iraq.

(Writing by Isabel Coles; Editing by David Goodman and Patrick Graham)

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