US oil giant ConocoPhillips has bought a 7.6% stake in Russia's Lukoil from the Russian state.
Lukoil accounts for about 2% of global oil output
ConocoPhillips clinched the deal on Wednesday after other potential buyers failed to match its $1.98bn (£1.1bn) bid in a government auction.
The US firm's winning bid was only marginally ahead of the $1.9bn opening price set by the Russian government.
The deal marks the latest in a series of major investments in Russia by foreign oil firms.
Foreign oil companies are keen to gain a foothold in Russia, home to some of the world's biggest oil reserves.
Last year, British oil giant BP bought a 50% stake in Russia's TNK for $4bn, the biggest such investment to date.
Lukoil and ConocoPhillips said they planned to form a strategic partnership based around joint ventures focused on exploration and production activities in northern Russia and Iraq.
"This investment is consistent with our strategy of increasing reserves and production growth in new legacy areas at attractive costs," said ConocoPhillips chief executive James Mulva.
Under the deal, ConocoPhillips is entitled to raise its stake in Lukoil to a maximum of 20%.
Shadow of Yukos
The firm said it expected to start making money from the acquisition from 2005.
There had been speculation that concerns over government intervention in Russian business affairs would deter foreign buyers from taking part in the Lukoil auction.
Those fears have been heightened by an aggressive tax investigation into Yukos, Lukoil's main Russian rival.
Some commentators see the government's pursuit of Yukos as part of an effort to reimpose state control over Russia's lucrative oil industry, much of which was sold off in rushed privatisations during the early 1990s.
Others suggest that the crackdown on Yukos is a response to the political ambitions of its former chief executive Mikhail Khodorkovsky, who had supported liberal opposition groups.
Mr Khodorkovsky is currently in jail on fraud and tax evasion charges.
Tom James, a consultant with Global Risk Partners, said the "breakthrough deal" would ease concerns felt by many potential foreign investors.
And he said it could encourage foreign firms to buy a stake in Yukos if, as some analysts have predicted, the company is eventually broken up by the Russian government.
"This certainly will clear some of the fog that has been coming down over the whole issue of foreign investment and Putin's view on that," Mr James told the BBC World Service's World Business Report.
"Yukos still sits on very large oil reserves and makes up a very large percentage of global supply.
"So if that situation can also be sorted out... then I think this won't be the last international investment to go ahead over the next 6 to 12 months."