Russia has agreed to write off $12bn (£6bn) of Iraqi debt built up by the regime of former leader Saddam Hussein to buy military supplies.
Iraqi debt will be written off in exchange for access to oilfields
In return, Russian companies, including oil giant Lukoil, will be given access to invest up to $4bn in Iraq.
Lukoil is expected to develop oilfields including West Qurna, one of the country's largest.
Russia said the deal was meant to help rebuild Iraq's economy following the US-led invasion, which it opposed.
Russia says $12bn that Iraq owes will be written off.
The outstanding amount - some $900m dollars - will be repaid over 17 years.
The deal was signed by the Russian Finance Minister, Alexei Kudrin, and the Iraqi Foreign Minister, Hoshyar Zebari, who is visiting Moscow.
Mr Kudrin said the deal would involve Russian energy and electricity firms, which would be involved in the reconstruction of the country's infrastructure.
Lukoil previously had a deal to develop oil deposits in Iraq, but this was ended shortly before Saddam Hussein's government was removed from power in 2003.