In July 2005, Shia-led Iran signed a deal to buy 150,000 barrels per day of Basra light crude in return for petrol, heating oil and kerosene.

Hussein Al Shahristani, who is on a four-day visit to fellow OPEC member Iran, and his counterpart Kazem Vaziri-Hamaneh also discussed cooperation in exploiting jointly-shared oil fields, IRNA said.

Iraq, which has the world’s third largest proven reserves of crude, has faced chronic shortages of refined products ever since the US-led invasion of 2003, as insurgents have targeted its oil infrastructure, bringing production from the northern fields around Kirkuk to a virtual standstill.

The Iraqi government has been forced to import refined products from a number of neighbouring countries.

Relations between Iraq and Iran, which were at war from 1980-88 when Saddam Hussein was in power in Baghdad, have improved markedly since a Shia-led government took power this year.