Iraq has agreed the terms of its first major oil contract with a foreign company, since the US-lead invasion of Iraq in 2003, with Chinese state-owned oil giants CNPC.
Iraq’s Oil Ministry announced on Thursday that the oil service contract, worth $3 billion (£1.3 billion) will help to develop the Ahdab oil field - a project previously cancelled after the fall of Saddam Hussein.
The historic deal is the first important commitment to Iraq by a foreign company since the government nationalised its industry back in 1972.
Iraq’s Oil Minister, Hussain al-Shahristani, warned that time was running out for big Western oil companies - who have pressed for years for Iraqi contracts. The Chinese have trumped oil’s major international players, who have been looking to seal even short-term deals that had been expected to mark their return to Iraq - which has the world's third-largest oil reserves after Saudi Arabia and Iran.
Major oil companies have been reluctant to commit to deals in Iraq because Baghdad has yet to enact a law to govern the oil industry.
Under the new deal – with energy-craving China, output from the Iraqi oilfield will be 110,000 barrels per day (bpd), up from the 90,000 barrels forecast in the original deal.
“Finally we have reached an agreement,” said Shahristani after sealing the renegotiated deal- which was first signed back in 1997.
Iraq has toughened the terms of the new contract, changing the contract to a set-fee service from the production-sharing agreement signed under Saddam Hussein.
Quite simply after years of both war and sanctions, Iraq needs billions of dollars of investment in its energy sector. With high oil prices and strong competition for access to some of the world's cheapest oil to produce, Iraq has been negotiating from a position of strength.
The Iraqi government says its aim is to increase crude oil production from the current 2.5m bpd to 4.5m by 2013.
Production is now set to begin at the Ahdab oilfield in 3 years time, and the contract is set to run for 20 years from now.
The field is located in Wasit province, 100 miles south of Baghdad, in a Shiite-dominated area that has seen outbreaks of sporadic violence.
CNPC will own 75% of the joint venture set-up by the contract, with the remainder being held by Iraq's Northern Oil Company.