DUBAI: Iran has agreed to supply 2 million litres of diesel a day to neighbouring Iraq, Iran's oil ministry news service Shana said on Sunday.

Iranian oil minister Rostam Qasemi signed the deal during a visit to Iraq over the past few days and also agreed in principle to supply Iraq and Syria with gas, Shana said.

Shana gave no timeframe for when Iran would start supplying diesel to fellow OPEC member Iraq, which despite its own large oil reserves imports fuel because it lacks refining capacity.

Iran occasionally exports small quantities of diesel but has been a net importer over the past few years because its own demand exceeds its production capacity.

In November Qasemi announced plans to ration diesel sales to stem a surge in smuggling of cheap subsidised fuel across Iran's land borders, which include Pakistan, Iraq, Afghanistan and Turkemenistan.

GAS EXPORTS

The agreement in principle to supply Iraq and Syria with gas would involve transportation by pipeline from the South Pars field.

Iranian media reported in May 2011 that the three countries had agreed a deal to take gas from Iran's huge offshore gas field in the Gulf to feed Iraqi power plants and then lay a pipeline across southern Iraq to Syria. Shana gave no timeline for the project.

Iran sits on some of the world's largest gas reserves but western sanctions on its energy industry have prevented it from gaining access to technology needed to super-chill gas for export by ship to more lucrative markets in east Asia.

Progress building pipelines to export Iranian gas to neighbouring countries, notably Pakistan, has also been slow.