Recent weeks have seen a striking ebb and flow of tensions between Iraq’s central government in Baghdad and the Kurdish Regional Government (KRG). To some extent this is not new. A number of quarrels have been simmering for years. Disputes over oil revenues and the extent of the KRG’s authority to conclude economic agreements with foreign corporations have led to repeated political clashes between regional authorities and the government of Prime Minister Nouri al-Maliki. Likewise, territorial controversies, especially those involving the status of the city of Kirkuk, have resulted in exchanges of angry accusations. Kurdish leaders are especially irritated at Baghdad’s continued stalling on holding a referendum to resolve Kirkuk’s status.

But tensions escalated from a simmer to a boil during the autumn of this year. Prime Minister Maliki’s creation of a new northern military command in September to cover several of the disputed territories infuriated KRG officials. Baghdad’s latest move had all the earmarks of a power grab, and Kurdish leaders regarded the new military command as a direct threat to the region’s hard-won autonomy. They viewed the Maliki government’s official justification—that security in disputed territories had deteriorated and that the areas could become a sanctuary for terrorists—with open skepticism.

Matters escalated further in mid November when a skirmish erupted between KRG and central government military personnel. Erbil then sent units of the KRG’s security forces, the Peshmerga, to reinforce existing units, and commanders warned that their troops were fully prepared to defend the Kurdish region against any assault by Baghdad’s military forces.

Negotiations to resolve the crisis seemed on the verge of leading to an agreement in late November, but talks in Baghdad, brokered by an American general, broke down at the beginning of December. Kurdish Regional President Massoud Barzani accused Maliki of reneging on the preliminary accord. He also backed the vow of his military commanders to resist Badhdad’s “militarism” by whatever means necessary.

Even if the current crisis subsides rather than leading to a full-scale armed conflict, this latest incident does not bode well for the long-term unity of the Iraqi state. The disputes between Baghdad and Erbil are simply too numerous and intense. Although some kind of compromise agreement might be reached and sustained regarding the issue of revenues, even that is far from certain. From Baghdad’s perspective, KRG control over the vast sums involved inevitably fosters ambitions for an independent Kurdish state. From the KRG’s perspective, Baghdad’s control over those moneys means that Kurdistan’s autonomy would always exist at the sufferance of Iraqi authorities. Given Baghdad’s abuse of the Kurdish people over the decades, especially under Saddam Hussein, only the most trusting Kurdish leader would be willing to take such a risk.

The territorial disputes are even more intractable. Maliki and his supporters view Erbil’s position regarding Kirkuk and other unresolved territorial issues as a thinly disguised bid to strengthen the KRG and pave the way for an expanded, independent Kurdistan with greatly enhanced financial resources at its disposal. Barzani and his allies see the resolution of the territorial controversies as merely ratifying facts on the ground—that these are rightfully Kurdish areas stolen by Arab authorities during the Saddam Hussein era. It is extraordinarily hard to envision a compromise acceptable to both sides over the long term.

The current flare-up is merely a warning about the extent of the deep ethnic divisions in Iraq. U.S. officials desperately want to see Iraq remain a unified country. The urgent, high-level mediation efforts by a U.S. general confirm Washington’s priorities and the extent of the Obama administration’s worries. But the administration needs to adopt a “Plan B,” and do so soon, given the growing tensions and the increasing probability of Iraq’s breakup.

Ted Galen Carpenter, a senior fellow at the Cato Institute, is the author of nine books on international affairs. He is also a contributing editor to The National Interest and a member of the editorial board of Mediterranean Quarterly.