UK-based oil major BP has agreed to cut its budget to develop the Rumaila field in southern Iraq by $1bn amid a government budget crisis in the country.

The company agreed with the Iraqi Oil Ministry to reduce its planned 2015 spending to $2.5bn from $3.5bn, Reuters reported, citing an industry source familiar with the matter.

Baghdad has been struggling to meet its payments to international oil companies (IOCs) developing the southern Iraq fields due to the drop in crude prices lowering government revenues.

The war against Islamic State in Iraq and Syria (Isis) has also drained the government’s budget.

The Paris-based International Energy Agency (IEA) says the federal government already owes $9bn to contractors for 2014 and is due to pay about $18bn to investors this year. However, only $12bn has been allocated in the 2015 national budget to pay cost recovery and remuneration fees.

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