The Iranian Oil Ministry last year signed a contract with state-controlled oil companies to develop the Azar oil field within five years. Tehran said production at the field could reach more than 50,000 barrels per day.
Iranian First Vice President Mohammed Reza Rahimi attended a ceremony at the field to mark the first drilling operations there, the Oil Ministry's website SHANA reports.
The ministry report states development of Azar would require drilling 19 wells. The government said oil reserves there are estimated at 400 million barrels.
Formal markings defining much of the border were destroyed during the Iran-Iraq war in the 1980s.
Abodollah Tamimi, a lawmaker from the country's energy committee, said sanctions imposed on the Iranian energy sector by Western countries provided an opportunity for Iran to expand development of domestic reserves.
"We should identify domestic capabilities and take advantage of existing potentials in the best way," he told SHANA.