Iraqi forces seized control of the disputed city of Kirkuk on Monday as Kurdish forces appeared to melt away, escalating a crisis triggered by last month’s independence referendum in the autonomous Kurdistan region.

Elite Iraqi counter-terrorism forces moved into the provincial government headquarters in the centre of the oil-rich city, which has been run by the Kurdistan Regional Government (KRG) since 2014. The Iraqi military said it had taken control of Kirkuk’s airport, while its forces also secured North Oil Company facilities, including the state company’s headquarters.

The crisis pits US allies against each other as Washington has spent several years and millions of dollars arming and training the Iraqi military and Kurdish forces to help in the battle against Isis. It helped drive oil prices up 2 per cent to $58.47 a barrel, the highest level this month over concerns that crude supplies could be disrupted.