Iraq was the world’s 13th largest oil producer in 2008, and has the world’s third largest proven petroleum reserves after Saudi Arabia and Canada. Just a fraction of Iraq’s known fields are in development, and Iraq may be one of the few places left where vast reserves, proven and unknown, have barely been exploited. Iraq’s energy sector is heavily based upon oil, with approximately 94 percent of its energy needs met with petroleum. According to the International Monetary Fund, crude oil export revenues represented over 75 percent of GDP and 86 percent of government revenues in 2008.

Iraq’s oil sector has suffered over the past several decades from sanctions, and its oil infrastructure is in need of modernization and investment. As of March 31, 2009, the United States had allocated$2.05 billion to the Iraqi oil and gas sector to begin this modernization, but ended its direct involvement as of the first quarter of 2008, and does not have any on going construction projects in the oil and gas sector. The 2009 Iraqi budget allocated $3.2 billion to the Ministry of Oil, a 50% increase from the 2008 base budget, to continue this work.

According to reports by various U.S. government agencies, multilateral institutions and other international organizations, long-term Iraq reconstruction costs could reach $100-billion or higher, of which a third will go to the oil, gas and electricity sectors. In addition, the World Bank estimates that at least $1 billion in additional revenues needs to be committed annually to the oil industry just to sustain current production. Investment by the international oil companies will be aided by the passage of the proposed Hydrocarbons Law, which governs oil contracting and regulation. The law has been under review in the Council of Ministers since October 26, 2008, but has not received final passage.