The security situation in Iraq appears to be deteriorating at a time when Baghdad is making a major effort to attract foreign investment and increase its oil production. Last week the government sent revised contracts to potential bidders on six oil and two gas fields it seeks to develop. The new contracts ask for large payments up front as soon as the contracts are signed in an effort to offset the precipitous drop in oil prices since last summer. Last year Baghdad earned nearly $62 billion from oil sales; so far this year they have earned less than $9 billion.

The US Defense Department issued a report last week pointing out numerous obstacles to further exploitation of Iraq’s oil resources. Among the problems are endemic corruption in the government and business, and the inability to pass legislation that will establish a framework for exploiting the oil and distributing the revenue.

Last month 200 Iraqis were killed in a renewed surge of suicide bomb attacks – four times the number killed in February.  Next month the US is scheduled to pull its forces out of Iraq’s cities and there is growing concern that violence may increase in the wake of those withdrawals. Last week unidentified insurgents blew up a power station feeding an oil field that the Chinese are developing under a $3 billion contract in southern Iraq.

The Iraqi government, which is totally dependent on oil revenues, has plans to increase production from the current 2.3 million b/d to 6 million over the next five years. Given the decrepit state of much of Iraq’s oil production infrastructure, the deep-seated splits among the various factions, and the likelihood that the new American administration will reduce the US military presence, prospects for significantly increasing production do not seem good.