BAGHDAD, 17 March 2005 — In the northern Iraqi city of Kirkuk, where the air smells of crude and bright gas flares illuminate the night sky, the vast potential of Iraq’s oil industry — and its failures — are on dramatic display.

Ever since drillers unleashed a 50-foot oil gusher near the city in 1927, Iraq has been too unstable to take full advantage of its bounty.

This year, as happened last year, almost none of Kirkuk’s oil will reach the international market.

Incessant sabotage of the northern oil pipeline by insurgents has all but sealed it off from its export terminal in Turkey. Before the US-led invasion, the line handled around 750,000 barrels a day.

Across Iraq, insurgents have battered oil installations with an average of two dozen blasts a day.

“There’s always been something that held back Iraq’s oil potential,” said Jamal Qureshi, an Iraq oil analyst for Washington-based consultancy PFC Energy. “This is just another chapter in that saga.”

In 1979, the country’s best year, Iraqi oil production averaged roughly 3 million barrels a day. This year, analysts say it might not reach an average of 2 million, despite Oil Minister Thamer al-Ghadban’s target of pumping 2.9 million barrels a day by year’s end - and 3.5 million a day by mid-2006.

The IMF predicts Iraqi production won’t reach 3.5 million barrels until 2009.

Meanwhile, neglected oil reservoirs are filling up with salt water.

And untapped oil fields with huge proven reserves sit off-limits because foreign companies have no legal basis to drill nor the security to export the oil, analysts say.

Foreign oil companies keep a hopeful eye on Iraq. About 20 companies have offered its interim government training for oil personnel, free geological studies or other help as a way to maintain good contacts until things improve.

There is one bright spot: Energy forecasters expect crude oil prices to hover close to $50 a barrel for 2005 - a historic high that ought to earn the country just over $20 billion, about the same as last year, said Sharif Ghalib of Energy Intelligence Research in New York.