The plant is expected to start operating within five to six years.
Industry Minister Nasser al-Esawi said on Wednesday that the Nibras complex in Basra would make Iraq the largest petrochemical producer in the Middle East. The deal boosts the country's aim to become a major regional energy player and diversify its income, Reuters reported.
A Shell spokesman told the news agency that Iraq's cabinet had authorized the project on January 13.
"Shell has been working with the Iraqi ministries of industry and minerals and jointly with the ministries of oil and transport to develop a joint investment model for a world-scale petrochemical cracker and derivative complex in the south of Iraq," the spokesman added.
According to al-Esawi, the facility will have the capacity to produce 1.8 million tonnes of petrochemical products per year.
"The Nibras complex will be one of the largest [foreign] investments [in Iraq] and the most important in the petrochemical sector in the Middle East," the minister said.
Shell's existing operations in southern Iraq include the Majnoon oil field and Basra Gas Company, a joint venture with Iraq's state-owned South Gas Company and Mitsubishi Corp of Japan.
The Nibras project was first announced in 2012, when Shell entered into a memorandum of understanding with the Industry Ministry.