The powers of the Iraq National Oil Company (Inoc) are to be significantly curtailed under Baghdad’s latest energy policy, with two senior Iraqi ministers vowing to end its historical role in overseeing oil production.

The government-run Inoc was founded in 1964 to control the supply of crude but was forced to close in 1987 under Saddam Hussein’s regime.

However, it is due to be revived under the country’s new oil law. Considering recent suggestions that Iraq’s oil reserves could be even larger than Saudi Arabia’s, Inoc could play a critical role in the region’s oil industry.

Under the working draft of the proposed law, Inoc will be re-established, with the North Oil Company and South Oil Company, which currently manage production in their respective regions, to be incorporated within the larger group.

Fears have grown that the defunct company would have too much power and would lack the experience to deal with international oil majors once it is re-established.

However, Iraq’s Deputy Prime Minister Barham Salih says the emphasis is for Inoc to operate a less bureaucratic business model.

“The state monopoly has proved to be an utter disaster,” says Salih. “There are those of us, not just in Kurdistan but in other parts of Iraq, who think the old way of mismanaging oil should be done away with.”

Salih, who was Kurdistan’s prime minister from 2001 to 2004, adds that Iraq’s oil sector continues to underachieve, with production rates of just over 2 million barrels-a-day - a level that has barely changed since Hussein’s regime ended in 2003.

“We simply cannot do what is needed to launch Iraq’s oil sector recovery by allowing the state bureaucracy to retain its control and prevent competitive and efficient management taking hold,” says Salih.

“I am not interested in an inefficient Inoc that will mismanage the oil sector and that will not produce the best possible revenues for the Iraqi people. It needs to be smaller and more nimble.”

The oil law has faced significant delays but further progress is expected in the next few months, according to Iraqi Foreign Affairs Minister Hoshyar Zebari. However, he declined to give a deadline for its approval.

“The Americans are very keen to see this oil law pushed through this year,” says Zebari. “It came to a standstill but I think we have now broken the standstill and have agreed to go back to the original text. There will be progress this year.”

Salih says new studies put Iraq’s oil reserves at about 350 billion barrels of oil, three times the previous level, and more than Saudi Arabia’s 264 billion barrels of proven reserves.

“Yes, it is 350 billion barrels and we have a number of sources to verify it,” says Salih.

In 2007, US energy consultant IHS said there could be another 100 billion barrels of oil reserves in Iraq, in addition to the 116 billion barrels then identified.