For better or worse, Iraq’s promise that stability and foreign investment would lead to a flood of oil within years is looking more like a hyped up salesman pitch.

Few believe its target of producing 6 million barrels a day (MMbpd) by 2015 and 12 MMbpd by 2020 is realistic, despite gradual production increases that resulted in a nearly 10-year production record of 2.5 MMbpd in December.

“The reality is (that) these targets are too ambitious,” said Manouchehr Takin, head of upstream research in the Center for Global Energy Studies. “The drilling industry alone couldn’t support it, just in terms of equipments. Then you need materials, expertise through service companies, etc., etc. It’s just not realistic.”

A recent CGES report that analyzes Iraq’s oil production potential at depth estimates that Iraq would have to increase production by an unprecedented 2 Mbpd annually. This would be a gigantic task even in the most politically and economically stable environment.

“The actual field operations required for reaching those targets” would involve drilling about 800-1,200 wells annually “and this means having 250-350 drilling rigs operating in Iraq at any one time in the coming years. Such a task will be a serious challenge for the global drilling industry. It is not certain if that number of drilling rigs could be mobilized and transported to Iraq within such a short period and that they could be properly maintained and operational over those years,” the report says.

The consequences, of course, depend largely on the judge. For oil producing countries and companies, especially those in Iraq, it’s good news because that kind of spare capacity coming online amid the very slow demand recovery expected for the next few years would have sent prices tumbling.

For countries that are investing heavily in non-conventional production like Venezuela, Brazil, and Canada, or even those that only recently started investing heavily in conventional production, like Colombia and several African countries, it is also certainly a relief.

But for oil consuming countries and for consumers in general, it’s bad news as Iraq was considered the best chance for a quick increase in production that could have dragged the price of oil down.

That doesn’t mean Iraq won’t reach its production target. The oil is there. In fact, proven reserves were hiked last year by 25 percent to 143 billion barrels from 115 Bbl, with general consensus that the figure is bound to increase as field development progresses.

But different estimates have lowered expectations in terms of timing. A report released this month by Bank of America-Merrill Lynch expects production to reach 4.4 MMbpd by 2015. The CGES expects the 4 MMbpd mark closer to 2018 and the IEA sees it as far back as 2020.

On top of that, internal demand is rising fast. Oil demand in Iraq has increased since the end of the latest Iraq war from 476,000 bpd in 2003 to 763,000 bpd in 2010, according to the BoA-ML report. And even assuming a more realistic increase in oil production, “the Iraqi economy is set to double in size every six years if oil production was to hit 6.7 MMbpd by 2025,” or a real GDP growth averaging 7 percent annually.

“A substantial rise in GDP growth and thus domestic oil demand growth within Iraq could reduce the barrels available for export to the rest of the world,” the BoA-ML report says. “Needless to say, oil demand will only continue to rise with the ongoing economic development and, most importantly, reconstruction, which is likely to be oil-intensive.”

Another issue sure to arise is the need for OPEC to redefine quota allocations. At its peak, Iraq produced 16 percent of the cartel’s output, compared to the current 9 percent. “There is an informal agreement that Iraq and Iran are at quota parity given similar reserve holdings. This would, theoretically, put Iraq’s production quota at a mere 3.3 million b/d, already well below expected production levels.”

“There will be tensions and hard bargaining. And companies that have invested there will suffer when quotas are set,” Takin said.

Foreign companies that went to great lengths to win contracts there, accepting low returns, will certainly move as fast as possible to reach breakeven points to start cashing in on their investment.

A year and a half after Iraq awarded foreign oil companies development of its most prized oil fields in its first auction, which together pump around 70 percent of the country’s crude, followed by a second round of oil fields, and a third of gas fields, along with several bilateral agreements, companies have largely fulfilled expectation.

“Most fields have already, or will imminently, reach this crucial 10% threshold level, at which point the international oil companies reach cost recovery and start collecting service fees,” the BoA-ML report says.

Which simply means that Iraq will have to renegotiate with just about everyone in the oil industry, from OPEC, to oil companies, to get a more realistic idea of how much oil to expect and when.