Iraq's cabinet has approved a draft law setting up a new National Oil Company, a spokesman said, but the company will not be able to operate until a package of delayed energy laws was passed.

The long-awaited creation of a new National Oil Company, which would revive a company originally established in the 1960s and merged into the Iraqi Oil Ministry in 1987, is a central plank of Iraq's plan to turn around its struggling oil sector and more effectively take advantage of its vast mineral wealth.

Shamkhi Faraj, a former Oil Ministry official, said the new oil company would be the umbrella organisation for Iraqi state oil firms, and would spearhead national and local oil strategy.

The firm would also partner with or even compete against foreign firms to develop Iraqi fields, Faraj said.

"Under the National Oil Company will be the Maysan Oil Company, the North Oil Company, South Oil Company ... This will be very helpful in organizing everything," he said.

Government spokesman Ali Al-Dabbagh said the proposed law, even if passed by parliament, could not on its own lead to the establishment and operations of the national firm without passage of a package of oil and gas laws stuck in parliament.

"This law is connected to the oil and gas law; they're all one package," Dabbagh said, describing the cabinet's approval on Tuesday of the proposal as a "technical" move.

"It's tied to a political issue," he said.

Politicised indeed have been the years of fierce debate surrounding the energy package, also including a revenue-sharing law and other measures, pitting minority Kurds in their largely autonomous northern enclave against Arab leaders in Baghdad.

Kurds have been moving aggressively to develop oil and gas reserves in their own territory, clashing with Iraqi Oil Minister Hussain al-Shahristani as he seeks foreign investors for major oil and gas firms elsewhere in Iraq.

Iraq is desperate to boost oil production of 2.5 million barrels per day (bpd), around the same level it was when Saddam Hussein was ousted in the US-led invasion of 2003.

Oil exports are virtually the government's sole source of income, so officials were encouraged by news that oil exports may hit levels in July not seen since before the 2003 invasion.

While Iraq boasts the world's third-largest oil reserves, the sector is in shambles. Punishing sanctions and years of war have starved the oil sector of modern facilities and sophisticated technology, and many engineers and experts have fled to safer countries.-Reuters