The 20-year development contract for the southern oilfield is the first of several deals that Iraq expects to sign in the coming weeks and months as it tries to catapult itself to third place from 11th in the league of oil producing nations.

The agreement faces huge political risk. There is no guarantee the next government following an election in January will honour it, and Iraq is still wracked by political violence and frequent bomb attacks by Sunni Islamist insurgents, such as al Qaeda.

BP and CNPC will be slow to pour investment funds into Iraq's supergiant Rumaila oilfield until they know the outcome of next year's election, energy experts said.

"BP will use the Rumaila deal as propaganda to bolster its position globally, but on the ground it will be different," said Mahmoud al-Jubouri, an oil expert with Iraq's South Oil Company, which has run Rumaila and will be BP's partner, to Reuters.

"They will try to reduce spending, fearing possible bad surprises in the future."

But Muhammad-Ali Zainy of the London-based Centre for Global Energy Studies said he expects BP and CNPC to move forward with investment, which may help with any possible problems.

"It would really play in their favour if they had invested their money and could say they had acted in good faith," he said.

As Iraq emerges from the sectarian carnage unleashed by the invasion, foreign capital and expertise is viewed as crucial to reviving the oil sector and raising the billions of dollars needed to rebuild.

The country holds the world's third largest crude reserves but has failed to ramp up production significantly after decades of war, sanctions and underinvestment.

Rumaila, with 17 billion barrels in estimated crude reserves, is the workhorse of Iraq's oil industry, producing almost half its total output of 2.5 million barrels per day.

The field's reserves alone are bigger than Algeria's.

Published: 03 November 2009 12:26 GMT  | Last updated: 03 November 2009 14:24 GMT