Saudi Arabia's trade minister announced a one-billion-dollar aid package for Iraq during a visit to Baghdad on Thursday, pledging stronger bilateral ties as the kingdom competes with rival Iran for influence over Iraq.

Majed al-Qasabi also inaugurated a new Saudi consulate in Baghdad, one of four planned branches to open in Iraq after decades of no diplomatic links between the two countries.

Speaking to reporters alongside Iraqi Oil Minister Thamer Ghadban, Qasabi said the relationship had entered "a new phase".

"There's no doubt that this exchange, this discussion, is a two-way street that will strengthen these ties," said Qasabi, wrapping up a two-day visit.

Saudi Arabia would provide Iraq with $1 billion in loans for development projects, said Qasabi, plus $500 million to boost exports and a gift of a 100,000-seat sports stadium to be built on Baghdad's outskirts.

A joint Saudi-Iraq business council also proposed dozens of opportunities in Iraq for Saudi private investors and a free trade zone along the desertic border between the two countries, he said.

Ghadban said the council had prepared "memoranda of understanding that will be signed in Riyadh during the upcoming visit of Iraq's prime minister."

He said the trip would take place in the "coming days," but Prime Minister Adel Abdel Mahdi is set to travel to Iran on Saturday.

Iraq is caught in a tug-of-war over influence pitting Iran against the United States and Saudi Arabia.

Iran is the second-largest supplier of imported goods to Iraq and also has deep-rooted political influence in the country, particularly over Shiite factions.

But Tehran's top foes Riyadh and Washington are seeking to increase their sway in Baghdad, including through trade.

Last year, Washington urged Baghdad to partner with US firms instead of relying on Iranian gas and electricity, key crutches for Iraq's faltering power sector.

Riyadh, too, has looked into providing electricity to Iraq through solar power and hosted Iraqi President Barham Salih last year, a major step in the bilateral relationship.

Saudi Arabia cut off ties with Iraq after former dictator Saddam Hussein's 1990 invasion of Kuwait and only reopened its embassy in Baghdad in 2016.

But eight months later, the newly arrived ambassador was recalled to Riyadh in protest over the influence of Iran-backed Shiite militias in Iraq.

Iraqis had to travel to neighbouring Jordan to apply for a Saudi visa, until the consulate opening on Thursday.

"Today, our brothers in Iraq can acquire a visa in Baghdad directly, without having to suffer a trip abroad," Qasabi said outside the consulate.

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