In March, Prime Minister Nouri al-Maliki tried to mask these seemingly intractable problems by hosting the first Arab League summit to be held in Baghdad since 1990.
But endemic corruption, a bumbling and bloated bureaucracy, a lack of coherent legislation to regulate the all-important energy industry and Maliki's lurch toward establishing a new dictatorship have combined to scare off badly needed foreign investment, particularly in the energy sector on which all future progress depends.
"Iraq should be enjoying tremendous strategic advantages at the moment when it comes to attracting investment," Oxford Analytica observed in an April assessment.
"It has one of the best balance sheets in the region, oil production is up, oil prices are surging, consumer spending is increasing and infrastructure -- while improving -- needs far more investment.
"The fact that investors remain wary is large due to its government's shortcomings."
The unease of big-ticket investors, such as major international oil companies whose expertise, technology and investment Baghdad desperately needs, is illustrated in the distinct lack of enthusiasm about the Oil Ministry's fourth auction of licenses to develop new oil and gas fields.
These are needed to expand Iraq's reserves, currently pegged at 143.1 billion barrels of oil. Industry analysts estimate there may be as much as 200 billion more lying in fields that remain untapped.
Iraq's gas reserves total around 110 trillion cubic feet, with probable reserves of another 150 tcf.
Twelve blocks are up for grabs May 30-31, mainly aimed at finding new reserves in remote areas of west and central Iraq.
Oil Ministry officials say these zones are expected to boost gas reserves by 29 tcf and 10 billion barrels of oil.
But industry sources report the ministry has no clear strategy for transporting any gas finds made or utilizing it, such as funneling it into electricity generation to overcome an acute power crisis that is impeding national development.
This, along with the government's tough terms for the new contracts, have made potential investors leery, even though the ministry has made some moves toward making the deals more financially attractive in recent weeks.
From a security standpoint, the sectarian violence, mainly between the majority Shiites and the Sunni minority that was once the pillar of Saddam Hussein's hated regime, that pushed Iraq to the brink of all-out civil war in 2005-2008 has largely abated.
But following the U.S. military withdrawal in mid-December, sectarian tensions are rising again, and Iraq's U.S.-trained forces are hard pressed to contain the new bloodletting in many parts of the country.
Added to this is Maliki's growing crackdown on his political opponents, particularly the Sunni political class and followers of fellow Shiite Moqtada Sadr, a leading cleric recently returned from Iran.
This is widely seen as a bid by Maliki to establish a new dictatorship nine years after the U.S.-led invasion toppled Saddam's tyrannical Baath regime.
"Maliki has launched a number of initiatives to attract foreign direct investment in housing and infrastructure," Oxford Analytica noted.
"Yet the vitriolic political environment, with Maliki engaged in a zero-sum game with his opponents, has created a climate whereby key legislation … moves at a snail's pace."
Threats by the semiautonomous Kurds -- who have their own oil fields and want to take over the northern Kirkuk fields as well -- and even southern Shiites in oil-rich Basra province to break away from the federal state further alienate potential investors.
Growing tensions in the Persian Gulf between Shiite Iran and the Sunni monarchies, led by Saudi Arabia, and the confrontation with the United States and the European Union over Tehran's nuclear program also make foreign investors wary.
The bloodletting in Syria, Iraq's northern neighbor, a likely transit route to the eastern Mediterranean for proposed gas pipelines, is also worrying investors.
Iraq's "massive reserves could bring untold wealth," analyst Bernhard Zand observed in German newsmagazine Der Spiegel in April.
"But before that happens, Baghdad needs to improve security and get corruption under control. …
"Even today, Iraq produces barely more than the nearly 2.5 million bpd it was exporting before the Iraq war."