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Iraq’s ailing economy has been boosted by the sudden rise in crude oil production, which has outstripped pre-war levels for the first time.

According to a report released yesterday by the International Energy Agency, the country is producing 2.3 million barrels of oil a day, up from 1.9 million at the outbreak of war in 2003 and substantially higher than January this year, when it dipped to a low of 1.7 million barrels.

Iraq has the second-largest proven oil reserves in the Middle East, after Saudi Arabia. The US-led coalition had hoped to revive the industry and use the money to pay for the country’s post-war reconstruction. But the oil sector has been crippled by insurgent attacks, sabotage and smuggling.

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It is estimated that there have been nearly 500 attacks on oil-related targets since 2003. The current rise is due to increased production in the north, where the oil is exported to Turkey. The south of Iraq provides the mainstay of its oil exports, running at about two million barrels a day.

With prices of crude above $90 (£45) per barrel, the oil revenue could provide more cash for Baghdad’s reconstruction efforts and strengthen the Iraqi dinar. But keeping the oil pumping at current levels will prove challenging. Oil industry infrastructure desperately needs updating and repair work after more than a decade of sanctions and five years of war.

Insurgents are targeting the sector. Earlier this month two suicide bombers attacked the Baiji oil complex north of Baghdad, which handles two of the country’s major oil pipelines.

There are also fears that, with the reduction of British troops in the south and the handover of security to Iraqi forces, the oil sector may be more vulnerable to attack.

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