Adding to the gloom descending on Iraq, the New York Times reported Wednesday that Sunni ultra-fundamentalists responsible for the slaughter of at least 700 Shiites over the weekend, had fought off government troops backed by helicopters to capture the country’s largest refinery at Beiji on Wednesday.

But the BBC and other news organizations say there were conflicting claims about the battle for the refinery, which is about 200 kilometres north of Baghdad and provides the capital with much of its fuel. It is also linked to a power plant that supplies most of northern Iraq with electricity.

The oil complex is so critical to Iraq’s economic well-being that as news spread on Iraqi radio and television stations that it had fallen or was about to fall, lines of cars and trucks soon stretched several kilometres outside gas stations in Irbil and other towns in the Kurdish autonomous region.

A religious war between Iraq’s Shiite majority and Sunni minority had begun and nobody knew how it might turn out, was Abdullah Saed’s conclusion about his country’s grim future Wednesday as he and his wife joined a jostling queue of refugees trying to find safe haven in this northern corner of the country. Kurdish Peshmerga have successfully repelled several violent probes by the rebels but have not been in anything like the bloody clashes and tit-for-tat murders that have rent vengeful Sunni and Shiite communities further south.

“I guess it (the war) has already started,” said Saed, who is a doctoral candidate in computer science at an Australian university.

At Kalak, the Saeds and thousands of other Iraqis sought safe haven in the Kurdish autonomous region from the rapidly spreading sectarian conflict. It already involves Syria and Iran and may soon draw in other Arab countries, Turkey and the U.S., despite the Obama government’s strong reluctance to get involved.

Only 90 minutes after shuttering his home in Mosul and reaching Kalak, Saed and others waiting to have their documents examined by Kurdish authorities spoke of their bewilderment at how Iraq’s army turned and ran on June 10, rather than defend the country’s second largest city from the Sunni extremists racing down the road from neighbouring Syria.

“We never expected that. We all thought that they could control the situation in a few days,” said Saed, who is a Sunni moderate. “There were a really huge number of soldiers there, but they couldn’t do anything. They just left their bases and ran away.”

Speaking about 100 metres away from the charred remains of U.S.-built Humvees and other military vehicles that had been towed to the Kurdish region to be sold for scrap after being abandoned by government forces in Mosul, Yunis Hassan said “we were shocked” by the behaviour of the Iraqi army. We have been wondering how this happened. “They just disappeared. ISIL (the Islamic State of Iraq and the Levant) is controlling the area. It is hard to see the army there again soon.”

The baker, who arrived at Kalak with his veiled wife and their three children, said they had made the journey because they feared air strikes “and this was the safest place we could go.”

In something of an understatement, Saed said, “The situation in Mosul is a bit unclear (because) there is no government there. People are afraid now and for the future.” It was possible, he said, that there could be “a dangerous military action” by the government.

Such a counter-punch has been promised for days now by Iraqi Prime Minister Nouri al-Maliki. But while the Shiite leader has talked tough, ISIL fighters have carried the battle to within 60 kilometres of Baghdad and have shored up their rear by taking Tal Afar, which was the last city near the Syrian border not under their control.

“Al-Maliki is a loser who belongs to Iran” shouted Wafaa Walam Mirza as her husband tried unsuccessfully to get her to lower her voice, lest any Shiites might be listening. “Al-Maliki does nothing for us. He takes his orders from Tehran.”

Other refugees at Kalak dreaded what was coming.

“I am expecting religious rule and how can I like that,” said Khaled Tariq Ahmed, who sold cigarettes for a living. “If there is a war there will be heavy Sunni and Shiite losses. All I know is that it will be poor people who die.”

Members of the city’s small Christian community were even more fearful. Salwan Saban recalled that the ISIL jihadis had murdered many Christians in cities such as Aleppo during the civil war in Syria and had vowed violence against anyone who would not follow their dire interpretation of Islamic religious law.

With a tattoo that said Jesus inked into his arm, Saban was at particular risk. “We are afraid for our lives,” he said as he and two Assyrian Catholic chums waited in their car at Kalak. “You must be Muslim or they will kill you.”

Iraqi television commentators have spoken often in recent days about how the country was likely to split in three, with Shiite, Sunni and Kurdish states.

“Nobody wants to divide up the country like a piece of cake, but we don’t make the decisions by ourselves,” Abdullah Saed said. “The government and international community will play a role in deciding what is the future. But we hope that they take the unity of Iraq into account.”

Nevertheless, he conceded, “It is really hard to repair what happened because the gap now is really huge.”