The growing confidence of the Iraqi Government is reflected in the Prime Minister’s insistence on a timetable for the withdrawal of US troops.Security provides the breathing space to increase basic services such as sewage, health, water and electricity (on average available for only 7 hours each day in Baghdad). And other simmering political and economic conflicts stand a far better chance of being resolved.

Oil is central to the Iraqi economy and provides well over 90% of its revenues. Production has moderately increased and revenues are much higher thanks to soaring oil prices. But the Iraqi oil industry is a basket case, neglected for decades and Iraq has a massive potential which requires foreign expertise and investment.

The Iraqi Cabinet agreed a hydrocarbons law in February 2007 but its implementation has been stalled since. There are big differences between the Kurds and Baghdad. The Kurds concede a greater role to foreign companies than Baghdad where many wish to keep a nationalised oil industry. There is a dispute over a fair Barnett-type formula for revenue sharing between the different parts of the country. High-level talks are taking place to resolve these issues.

The status of the disputed and oil-rich Kirkuk governorate is still in the balance. The city is historically part of the Kurdistan region but was forcibly Arabised by Saddam. If it is returned to Kurdistan, its government would then receive a higher proportion of oil revenues which are distributed via the central government. Baghdad and the Turks worry that returning Kirkuk to the Kurds would provide the material basis for separatism although the Kurdish leadership has made it plain that they aim to stick with Iraq, despite their own wretched treatment by the Ba’athists.