Iraqi police officers secure an oil pipeline from the Rumaila oil refinery, June 22, 2008, near the southern city of Basra, Iraq. The Iraqi government approved a deal late Friday with a consortium led by British giant BP PLC to develop a prized oil field in the south in a major step forward for the country’s oil industry.

Baghdad ? The Iraqi government said Saturday it has approved a contract with a British-Chinese consortium to develop a prized oil field in southern Iraq, a significant achievement for a country that has struggled to attract foreign investors despite its vast natural resource wealth.

The deal was the only one to emerge from a disappointing bidding round in June offering development rights for six oil and two gas fields. It was Iraq’s first such bidding process in over three decades, but foreign firms felt the prices set by the government were too low given continued violence in the country and disputes over natural resource control.

But things have been looking up in recent days for Iraq’s hope to use increased oil revenue to recover from years of war and sanctions. Earlier in the week, three international consortiums agreed to meet the Iraqi government’s price to develop oil fields in the country.

Even more important is the Iraqi Cabinet’s approval of the bid by Britain’s BP PLC and its Chinese partner CNPC to develop the 17.8 billion barrel Rumaila field near Iraq’s southern city of Basra. The deal was approved late Friday, Iraqi government spokesman Ali al-Dabbagh told The Associated Press, without providing further details.

According to the agreement, BP will hold a 38 percent stake in the venture and CNPC will have a 37 percent share. Iraq’s State Oil Marketing Organization will control the rest.

“It is a very important event … very promising for Iraq,” said Samuel Ciszuk, an energy analyst with the London-based IHS Global Insight. “The huge incremental this project alone could bring in a relatively short period of time … is very important.”

Iraq has the world’s third-largest known oil reserves, and crude exports are the country’s most important source of revenue. But Iraq’s current daily output of 2.4 million barrels is far below the country’s potential.

Iraq’s oil industry has been hampered by years of devastating wars, crippling sanctions and sabotage attacks by insurgents after the 2003 U.S.-led invasion. In addition, Iraq’s oil law, governing natural resources and regulating foreign investment, has been stalled in parliament since 2007, prompting international companies to stay away.

The Rumaila deal is the second major one struck by CNPC in postwar Iraq. Last year, CNPC signed a $3 billion deal to develop the al-Ahdab oil field in southern Iraq.

The deal also marks the return of BP to Iraq after the British oil giant and other Western companies were pushed out following the nationalization of the oil industry in the 1970s.

Daily production from the Rumaila field is at about 1 million barrels a day. BP’s targeted production for the oil field is 2.85 million barrels a day within seven years.

The BP-CNPC consortium originally bid to take $3.99 per barrel produced, but later slashed the offer to the $2 per barrel payment sought by the Iraqi Oil Ministry. The competing bid in June was from a consortium led by U.S. giant Exxon Mobil, which refused to amend its offer of $4.80 per barrel.

Earlier this week, Iraq’s oil minister Hussain al-Shahristani said the ministry was revisiting the June bidding after three international oil consortiums submitted revised offers and accepted Iraq’s terms for developing two oil fields in southern Iraq.