British oil major BP and China's CNPC on Tuesday signed Iraq's first major new oil deal since the 2003 US invasion, snapping up a development contract for the Rumaila oilfield, one of the world's biggest.

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.

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.   

BP and its Chinese partner expect to increase Rumaila's output to 2.85 million barrels per day.

It was the only one out of six oilfields and two gas fields on offer that was successfully auctioned off in Iraq's first tender of development contracts at the end of June. Other oil companies balked at Iraq's stiff terms.

But subsequent negotiations behind closed doors and the   sweetening by Iraq of its taxation terms have since narrowed the differences between the oil ministry and the companies and several other contracts are expected to be finalised soon.

Among them is the 4-billion-barrel Zubair oilfield in the south. Italy's Eni, US major Occidental Petroleum Corp and South Korea's Kogas inked an initial deal over Zubair on Monday.   

Another is the 9-billion-barrel West Qurna oilfield, also in the south. Four consortiums led by France's Total, CNPC, US oil company Exxon Mobil and Russia's Lukoil submitted revised bids for West Qurna and three of them are still in the running.  A decision is expected soon.

Iraq is also talking to Royal Dutch Shell about resubmitting a bid for the Kirkuk oilfield in the north.   

The Rumaila, Zubair and West Qurna deals alone are expected to add 4.5 million barrels per day to Iraq's oil output capacity, roughly equal to 5 percent of global oil supply.

A second auction of 10 largely undeveloped oilfields will be held on December 11-12.

In addition, Iraq is expected to sign a different kind of deal with a consortium led by Japan's Nippon Oil Corp for the Nassiriya oilfield. - Reuters