bstocksdev

It's hard to picture an oil sector projecting production in Iraq as a significant factor in global oil supply, but that, in fact, is what some analysts in the sector are doing.

While the policy debate on the political merits and national security impact of the Iraq war continues at full-throttle in the United States -- the issue is almost certain to be a factor in the 2008 U.S. president election, many political analysts agree -- Iraq's oil sector continues to make slow, but nevertheless steady progress.

With the decline in successful sabotage against Iraq's petroleum facilities, oil output has increased by 400,000 barrels daily to about 2.4 million barrels per day, inching closer to Iraq's production of 2.8 million barrels per day before the removal of Saddam Hussein in 2003, The Christian Science Monitor reported Monday.

Further, the Centre for Global Energy Studies, in a new study, argues that Iraq's output could rise to 6-8 million barrels per day, given a favorable economic and political climate, The Monitor reported.

"The potential is enormous," Leo Drollas, chief economist for the Centre for Global Energy Studies told The Monitor.

Iraq's 112.5 billion barrels in proven reserves ranks third in the world behind Saudi Arabia and Iran, according to the Central Intelligence Agency.

Hurdles remain

Jim Dietz, independent energy trader, told BloggingStocks on Monday that the oil market currently is not factoring in Iraq's oil production upside potential, and he doesn't expect the market to do so in the foreseeable future.

"From a trading standpoint, it's hard to put too much weight on Iraq's production, due to the ongoing war and political hostilities in the area," Dietz said. "Normally, the market would factor in the added production, but until the area becomes more stable politically, the market is going to side with the risk premium." Dietz added that in his interpretation, the risk premium for Iraq is adding about $10-$12 to the price of oil. Oil was down $1.02 to $90.25 in Monday afternoon trading.

Dietz also said Iraq's depleted and inadequate oil infrastructure "will require tens of billions of dollars in upgrades and repairs" before Iraq's oil production can exceed 4 million barrels per day.

"That means they'll need outside expertise, and probably investment from foreign oil companies for 10, 15, 20 years. The companies aren't going to come in in a big way unless stability and safety exists. And right now we're a long way from that," Dietz said.

Oil Analysis: As trader Dietz noted, the oil market shows little signs of counting on Iraq oil production, even as output increases incrementally. The sense here is that the markets would have to see some enduring, brokered peace treaty among Iraq's factions, along with signed investment agreements to rebuild Iraq's oil infrastructure, before the oil market would begin to emphasis Iraq's oil production potential over the risk premium.