The agreement wipes out $12 billion out of $12.9 billion that Iraq owed Russia and comes on the heels of an agreement, signed earlier in the day, spelling out cooperation in trade, science and technology, the RIA Novosti reported.

After signing the agreement, Russia's Foreign Minister Sergei Lavrov said Russia would be heavily involved reconstruction of Iraq.

"We are counting on long-term joint projects in the oil and natural gas and energy sectors," he said.

Kudrin said Russia was also considering as much as a $4 billion investment in Iraq.