The Iranian oil ministry and Sinopec inked the deal to pump oil from the Yadavaran onshore field in southwestern Iran, which was first agreed back in late 2004, at a ceremony in Tehran, an AFP correspondent reported.

"The initial estimation of cost of the project is about 2.0 billion dollars and the final cost of the project will be decided after the offering of the tenders," said Iranian Oil Minister Gholam Hossein Nozari.

The field will be producing 185,000 barrels of oil a day within the next seven years, he added.

The signing came at a time when the United States has been pressuring European and Asian firms, including oil majors, to cut their business ties with Iran to exert pressure on the Islamic republic in the nuclear crisis.

"The signing shows that there is no lack of investment in Iran and we are solidifying our economic relations with China more," said Nozari.

"The second message is that if other countries are willing to invest in the big oil and gas fields of Iran they should not lose the opportunity," he added, in an apparent warning to any dithering Western firms.

The deal is one of the biggest foreign energy contracts ever signed by Iran, which holds the world's second-largest oil and gas reserves and is seeking development of its oil fields.

The contract was signed in Tehran by Zhou Baixiu, the head of Sinopec's international arm, and Iranian Deputy Oil Minister for international affairs Hossein Noghrehkar Shirazi.

The talks to finalise the contract had been long held up by disagreements on the terms of the Yadavaran deal, most notably involving the rate of return proposed by Sinopec.

Sinopec had orginally asked for a 15 percent rate of return from its investment but Nozari said this had been finalised at 14.98 percent.

However he added that the period of reimbursement for Sinopec had been decreased from eight years in the initial agreement to four in the final contract.

"The development will be carried out in two phases," added Nozari.

"The first phase to produce 85,000 barrels per day will be carried out in four years and the second phase to produce another 100,000 bpd will be carried out in another 36 months."

"So in total, the field will produce 185,000 barrels a day."

The National Iranian Oil Company's (NIOC) director for exploration Mahmoud Mohades had earlier put the Yadavaran field's reserves at 18.3 billion barrels, estimating recoverable oil at 3.2 billion barrels.

The 2004 initial agreement also envisaged China's purchase of an annual 10 million tons of Iranian liquefied natural gas (LNG) for 25 years, beginning in 2009.

But Zhou indicated that this was not in the final contract and would be discussed at a later date.

"China is willing to buy LNG from Iran and we hope to talk about the LNG project later."

Sinopec is the sole main partner and investor in the field, although it will be employing sub-contractors, more than half of whom must be Iranian.

Iran and China have significant economic ties and Beijing is the second largest importer of Iranian goods after Japan.

China is a veto-wielding permanent member of the UN Security Council and has until now been reluctant to support fully a US-led drive to impose a third set of UN sanctions against Tehran over its nuclear programme.

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