NEW YORK (CNN/Money) - Unocal Corp. said it will start talks soon with Chinese state-run oil company CNOOC Ltd. over its $18.5 billion takeover bid -- after receiving permission from merger partner Chevron Corp.

Unocal, the nation's No. 9 oil and gas company, agreed to be purchased by Chevron in April for $16.4 billion in cash and stock. CNOOC made a competing all-cash bid Wednesday.

Unocal said it would start discussions with CNOOC immediately.

Despite CNOOC's all-cash bid, Unocal said its recommendation to shareholders in favor of the $16.4 billion offer of cash and stock from Chevron remains in effect.

CNOOC's bid for Unocal raises the possibility of bidding war between the Chinese oil giant and Chevron, the nation's No. 2 oil company behind ExxonMobil.

Officials at Chevron have expressed confidence that the Unocal deal could be completed in August if Unocal's shareholders approve the deal.

If CNOOC's bid for Unocal was successful, it would be the largest overseas acquisition by a Chinese company.

CNOOC Chairman Fu Chengyu told Reuters Thursday that he expected to win the takeover battle.

But CNOOC's bid has been met with heavy resistance from lawmakers in Washington.

The move by the Chinese oil company comes while Washington is running a record trade deficit with Beijing, piracy of American goods in China is soaring and there are growing tensions over China's reluctance to revalue its currency, the yuan.

With aspirations of becoming a major natural gas producer, CNOOC has pursued Unocal for its oil and gas holdings in Asia while it also hopes to gain a competitive edge against rival domestic producers PetroChina and Sinopec.

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