Too much money earmarked for rebuilding Iraq is being diverted to tackle security demands, the US official in charge of post-war reconstruction says.
Attacks on oil targets are costing Iraq millions
William Taylor, who heads the Iraq Reconstruction Management Office, said rebuilding the country was a costly and dangerous business.
Mr Taylor disclosed that 295 American contractors and their security guards had been killed since April last year.
He said there was "a long way to go" in providing adequate services to Iraqis.
A United Nations survey released earlier this month found that Iraqi living standards had been plummeting with only just over half of the population having access to safe drinking water.
Mr Taylor said the process of rebuilding Iraq after the US-led war and previous sanctions had only just begun.
"We recognise that Iraq is a risky place to do business," he said acknowledging that security costs had spiralled because of continued violence by Iraqi insurgents.
"Because of the increase in insurgent activity, contractors have had to include better site protection, hardened vehicles for personnel transportation and trained security teams," he said, adding this accounted for up to 16% of all project costs.
"Even oil companies, which usually go to dangerous places, are waiting," he said.
The official conceded that the money set aside by the US was limited and that Iraq would need foreign investment.
More than two years since the war, Iraqis still suffer from daily power cuts, and - in some areas - from contamination of drinking water by sewage.
In 2004, a year after the fall of Saddam Hussein, some 22,000 households were questioned by the UN about their lives.
The survey found that only just over a third of households were connected to a sewage network - and that almost a quarter of young children were chronically malnourished.
The report says that while the infrastructure exists to allow access to basic supplies - like electricity and clean running water - it is not reliable.