By Serena Chaudhry
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Iraq is trying to rebuild after decades of war and economic sanctions and needs investment in every sector. The OPEC member country has signed a series of deals with international firms to develop its oil fields, the fourth-biggest in the world.
Foreign investors like oil majors Royal Dutch Shell
"Any impact on investment will be short-term and quite muted, assuming the security situation doesn't deteriorate drastically," said Economist Intelligence Unit's Ali al-Saffar.
"This is primarily because Iraq has only really managed to attract (beyond the oil sector), frontier investors who have some level of appetite for risk so far. These more adventurous investors know the risks associated with doing business in the country, and have become quite adept at dealing with them."
Iraqi security forces continue to battle a stubborn Sunni insurgency and Shi'ite militias, and bombings and killings still occur on a daily basis despite a sharp drop in violence from the height of sectarian fighting in 2006-07.
For investors on the ground, primary concerns center around kidnapping threats and attacks on development sites. Oil pipelines are targeted by insurgents in the north and south.
Some production at the southern Rumaila oilfield was stopped this month when two bombs hit pipelines.
Most foreign companies with a footprint in Iraq hire personal security guards for their protection and analysts say it is unlikely the departure of U.S. troops by year-end will raise extensive concern.
"For quite some time, investors have been operating in Iraq without very much in the way of assistance from the U.S. military so they may not notice a big difference following the withdrawal," said AKE Group senior risk consultant John Drake.
Iraq's government aims to attract $86 billion in investment by 2014 under a five-year economic development plan. Rehabilitation of the oil, housing, agriculture and power sectors are seen as most pressing.
Examples of deals include a $472 million contract with Italy's Saipem
Foreign investors have also been net buyers on the Iraq Stock Exchange (ISX) so far this year, buying 66 billion shares to end-September with a volume of $110 million, according to ISX chief executive Taha Abdulsalam.
"The complete pullout will probably slow down flows to ISX in the short-term, but overall this news is priced into the market by serious investors," said Carl Wahlquist Ortiz, investment manager at City of London Investment Management in Dubai.
"Typically, if you're looking at Iraq, you're looking for something a bit more risky, generally speaking."
Iraq's stock market is still relatively small compared to international exchanges and its regional counterparts, but volume on the local bourse is expected to rise as more companies, particularly the local mobile phone firms, list.
"It (the withdrawal) has to bring more confidence in the political and economic management of Iraq and confidence in the capability of enforcing security," said Amar Essa al-Jawahiri, an independent industrial and investment consultant in Baghdad.
Iraq's northern Kurdish region is a prime example of a part of Iraq where foreign investment and construction is booming.
The area has been a place of relative calm since becoming a semi-autonomous zone under Western protection in 1991 and is widely regarded as a safe haven.
(Editing by Jim Loney and Mike Nesbit)