By Nikolai Gorshkov In Moscow

Lukoil, the Russian oil giant, has received a letter from the Iraqi oil ministry cancelling a $3.7bn (�2.4bn) oilfield development deal.

The Russian company said it was surprised by what it called an unwarranted move and said it would defend its interests in international courts.

Russia's economic interests in Iraq appear to have been dealt a severe blow.

The huge Al-Qurnah oilfield was one of Lukoil's most prized possessions.

"We do not understand how a petty bureaucrat from the oil ministry of Iraq can cancel a law which has been passed by Iraq's parliament," a Lukoil spokesman said.

No proper investment

The multi billion dollar contract for its development was signed in 1997.

But the UN oil embargo imposed on Iraq prevented Lukoil from investing properly in the project.

Iraq had reportedly been pressuring Lukoil to breach the embargo, but failed.

It says it is entitled to sever the contract because Lukoil did not honour it.

Putin assurance

Only last week the head of Lukoil Vagit Alekperov told the BBC his company was confident its lucrative contracts with Iraq would survive a possible US attack and regime change in Baghdad.

He said he had assurances from none other than President Putin himself.

Russia's economic interests in Iraq were widely believed to be Moscow's main reason for resisting US plans, and Iraq was banking on Moscow's protection.

Now that this protection may be slipping away, Baghdad might have decided to punish Russia for being disloyal.

But there is another possible explanation for this surprise move - it coincided with a trip to Iraq of top managers of a rival Russian oil company to discuss joint projects, despite the looming war.