IRAQ is probably the single greatest unexploited oil asset in the world. Its huge and easily accessible reservoirs of crude account for a tenth of the world’s proven reserves, yet its output is little more than a third of the barrels pumped daily by Iran, which has a comparable resource base.

Iraq’s oil production is in decline. Since September, when output reached a peak of two million barrels per day (bpd), a campaign of violence and sabotage of pipelines has caused output to dwindle to a February average of 1.5 million bpd. Whatever one’s opinion of the American and British presence in the country, there is little doubt that the invasion of Iraq has been to the detriment of its oil industry and its diminishing oil exports have been a major contributor to global energy insecurity and high oil prices.

Before the 2003 war, Iraq was pumping some 2.8-3.0 million bpd, volumes that rose and fell as Saddam Hussein played his cat-and-mouse game with the United Nations Security Council. In addition to crude smuggled by tanker lorries into Turkey and strange swap agreements with Syria, Iraq had official exports of up to one million bpd of Kirkuk-blended crude from its northern fields.

Kirkuk oil was exported by pipeline to an oil terminal on the Turkish Mediterranean coast, a direct link to Europe’s oil markets that has virtually ceased in recent months because Iraqi security forces and coalition forces are unable to defend this vital energy infrastructure.

What oil is still exported is Basra Light, crude blended from Iraq’s southern oilfields and lifted by tankers in the Gulf under heavy military supervision. There are numerous projections of what Iraq could produce were peace to break out and foreign investors welcomed with open arms. Within a decade, the proven resource base of 115 billion barrels could be doubled, optimists say, and output raised to ten million bpd.

At the very least, the absence of sabotage and moderate investment could restore Iraqi output to pre-war levels, restoring a significant cushion to world oil supplies.

Thierry Desmarest, chief executive of Total, the French oil multinational, has little doubt that loss of existing and potential output from Iraq is a big factor in energy insecurity. “In Iraq we were before the war at three million bpd and there were plans to double (production). Now we are at 1.5 million bpd,” he said. “On some grounds, we have between two and five million bpd missing because of the situation. If we added that to spare capacity, the market would be well supplied.”

Prospects for any imminent investment by Western oil majors is remote until a reasonable level of physical security is guaranteed. Before the conflict, Total had negotiated contracts to develop two giant oilfields, but the agreements were never signed, in compliance with United Nations sanctions. Lukoil, the Russian company, does claim some historic rights over Iraqi oilfields, which has attracted an investment by ConocoPhillips.

Adding to the confusion are new doubts over who in the long run has control over Iraqi oil. The new Iraqi Constitution gives substantial powers over oil revenues to provincial governments, a situation that increases uncertainty for foreign investors.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax