The obstacles in the way of tapping Iraq's vast oil reserves are not primarily technical or even financial -- but rather the lack of a stable government and an insecure operating environment.

Iraqi Oil Minister Hussain al-Shahristani said Oct. 24 that Iraq plans to boost crude oil production to as much as 4.5 million barrels per day (bpd) by 2010. Iraq's oil production, currently at around 2.5 million bpd, could rise to 6.0 million bpd by 2012, al-Shahristani added. He also said Iraq would be able to raise production to 4 million bpd with its own capital and technical resources, without relying on foreign assistance.

Iraq is believed to have 115 billion barrels of oil reserves, though the government claims reserves of 214 billion barrels. The bulk of the country's oil is concentrated in the southern regions surrounding Basra and the northern region around Kirkuk. Iraq's oil is seen as particularly attractive by the industry because the Iraqi oil sector has some of the lowest production costs in the world, and most of the country's reserves have yet to be brought on-stream. Financing for the industry is not a major obstacle. On Oct. 24, the Japanese provided a $3.5 billion loan to reconstruct the Iraqi oil sector, with 25 percent to 30 percent already allocated to specific projects, such as refinery upgrades.

The goal for Iraqi oil is significant, given that the country has never produced more than 3.1 million bpd -- and that was way back in 1979. The year before the fall of Saddam Hussein, Iraq produced just 2.04 million bpd. A major production boost, then, could provide the country with much-needed resources to help it rebuild.

The primary factor holding back full international participation, including that of the Western supermajors, is politics. The northern oil fields in Iraqi Kurdistan may have already seen exploration activity by minor Western firms such as Norway's DNO, but the shaky political status of the Kurdish north and the lack of any overarching petroleum investment legislation have kept away major investment. Furthermore, militant attacks against the northern oil pipelines have been relentless. Iraqi oil officials have said that, in the absence of such attacks, an additional 400,000 bpd could be exported from the northern fields to the Turkish port of Ceyhan.

For Iraq to realize its full potential, it will need to convince the world's oil industry that it has a legitimate government -- one that is accepted both domestically and internationally -- and that it can offer a secure operating environment and an acceptable legal and regulatory system. The insurgency's strength deprives the current government of its domestic legitimacy, and continued squabbles over the rights and powers of the Kurdish north and Shiite south versus the central government in Baghdad stall efforts to codify investment laws. Furthermore, all parties involved acknowledge the complete breakdown of law and order in Iraq. Consequently, in such an environment, Iraq's oil industry, for the foreseeable future, will remain an also-ran.