Baghdad's Al-Rasheed Hotel was once the domain of Saddam Hussein's spooks; a towering 80s marble labyrinth of slowly decaying Arab grandeur that had held its own as a clearing house of power through decades of sanctions, war and occupation. Any Western businessman or official allowed into Iraq during the dictator's 30-year rule would have likely ended up here. The few deals done between Saddam's Iraq and Europe were mostly fashioned in the Rasheed's lobby lounge, always with his security men (the dreaded Mukhabarat) lurking nearby.

However, it had never seen anything like the gathering of oil men and business chiefs who arrived in late June to literally stake their claims in Iraq's financial future.

In late June, Iraq officially overturned almost 40 years of policy banning foreign companies from extracting or exploring for oil in Iraq. Before seizing the presidency, Saddam Hussein nationalised the oil industry, believing it would one day transform Iraq from a regional backwater to a global gas pump. His instinct was right; but his timing was way out.

On offer at the 30 June meeting were eight contracts – six oil and two gas fields – to partner with Iraq's state-owned oil companies to start extracting up to 115 billion barrels of oil from Iraq's north and south. In May, Baghdad had signed an accord with the Kurdish administration allowing for limited development of two northern oil fields along pipelines it controls, Tawke and Taq Taq, the spoils of which would be shared three-ways, between the central government, which will take 73%, the Kurds, who will pocket 15% and private companies that had struck renegade deals directly with the Kurds accounting for the rest.

The new contracts were structured around offering the foreign companies a set fee per barrel, which would only kick in once a daily target was reached.

Throughout the past six years, Iraq had determined it could not increase oil production by itself. Its oil infrastructure was in places 50 years old and it needed to find efficient ways of getting oil out of the ground before it could pay for new rigs, drills and pipelines. Around 30% less oil is currently being extracted in Iraq than when Saddam Hussein seized power.

The June auction, televised live from a sweeping function room was the culmination of 18 months of cajoling in the parliament and assuring stakeholders throughout Iraqi society that the elected government was not about to give away the nation's inheritance. Up to 40% of Iraq's total reserves were up for grabs. Up to 31 foreign firms were in town, among them European and American heavyweights, Exxon Mobil and Shell, as well as South Koreans, Indians, Indonesians and Chinese.

Chinese firms made bids in every tender, but were only prepared to sign on to one – the BP consortium. The interest of Asia's largest economy was not lost on the Iraqi government, which knows well that the insatiable demand for old world energy from the developing industrial powers of Asia will drive demand and help push along the shaky global oil price.

"China was decisive in entering the sector at any cost," says Iraqi government spokesman, Ali al-Dabbagh. "Even if they were not making a profit they just want to buy in."

The lead up to deal day was tense, witheven some of the Iraqis who had signed on to the doctrine of private sector partnerships fearing they were about to lose control of the only natural resource Iraq had.

"It came down to personal pleas from some of the big players in Iraq, (prime minister Nouri) al-Maliki included," says one senior Iraqi oil ministry employee, who identifies himself as Abu Kareem. "We knew that Westerners and their science and technology was the only way we could do this, but there was a huge reluctance among all levels of the society, even members of the government who lived in the West during exile.

"We don't have any fallbacks and we don't have much leverage except the price we will pay for each barrel."

The vice-chairman of the Iraqi parliament's Economic and Investment committee adds: "We could no longer compete with technological developments around the world, especially in oil industries. We had lost all Iraq's expertise and our fields are dilapidated. We can't extract, transfer and refine oil efficiently. This is the shortest route to raise the production ceiling."

As it turned out, the oil ministry misread its first large-scale dealings with cashed-up Western corporations, refusing to budge on per barrel prices that most companies deemed were too low to entice their bids. The much anticipated oil tender process led to only three signed contracts, the largest between a consortium led by BP and China's CNPC to develop the giant Rumaya oil field near Basra.

The BP consortium signed on at a fee of US$2 per barrel, which will kick in once the extraction of barrels reaches a minimum output of 2.85 million barrels per day. BP had initially had an asking price of $3.99. To its competitors, the BP deal was way too cheap.

However, BP executives said at the auction that they were happy with the deal, which will give the company access to close to 18 billion verified barrels. They have six years to reach minimum output levels.

Despite being bit players in Middle Eastern oil until now, Iraq appears to have learned the market lessons. It knows that global energy demand is likely to increase thanks, in no small part, to the burgeoning economies of India and China. It also knows that the global oil price, which fell to around $35 per barrel last year, is on its way to a sustainable recovery.

Iraqi budget forecasts were predicated on an oil price of around $80 and a daily production of around $2.5m (€1.7m). The government feels that both those targets are again in site, but it also knows it must drop its hard-ball approach in order to lure back Western bidders for a second auction.

"We need to learn the lessons of the first conference to make sure that the second conference will be more effective," says al-Dabbagh. "That will encourage the other companies to review their prices and return to look at the other fields. Some fields are shallow, some are deep. The bidding process will be different from field to field. But when BP starts to operate, it will be a big incentive for other companies to start producing as well.

"Three to four million barrels per day will help build Iraq. The second round will be totally different."