The resignation of Iraq’s finance minister amid an upsurge in violence in the oil-producing nation added to investor concerns that are sending bond yields to the highest in four months.

The yield on the Iraqi 5.8 percent dollar-denominated government bonds maturing in January 2028 rose 56 basis points from a 12-month low on Jan. 17 to 6.72 percent Friday, according to data compiled by Bloomberg. That compares with a 25 basis-point gain to 4.24 percent Thursday in the average yield on regional debt, the HSBC/Nasdaq Dubai Middle East Conventional Sovereign U.S. Dollar Bond Index shows. Iraq’s yield rose to 6.76 percent on Feb. 27, the highest since Oct. 11.

“From the point of view of domestic policymaking, yes there’s going to be more turmoil, and yes we see stagnation continuing at least until after the election and formation of the next government,” scheduled for next year, said Liz Martins, a Dubai-based senior economist at HSBC Bank Middle East Ltd. “This will continue to impact on investment in both the public and private sector outside of the oil sector.”

Finance Minister Rafaie al-Issawi, one of the most senior Sunni Muslims in the Shiite-led government, stepped down March 1, heightening tensions nearly a decade after the U.S.-led invasion that ousted Saddam Hussein from power. Unrest has spread to eight regions as protesters demand that Prime Minister Nouri al-Maliki share more power. Authorities in Iraq’s semi-autonomous Kurdish north are withholding oil from the central government-controlled export pipeline amid disputes over energy contracts and land.

The premium investors demand to hold Iraqi sovereign bonds over U.S. Treasuries has widened by 71 basis points, or 0.71 of a percentage point, since Jan. 17, JPMorgan Chase & Co.’s EMBIG Sovereign Spread Iraq index shows. The spread was 496 basis points Thursday. The average premium for Middle East government bonds rose 36 basis points to 431, the data show.

Violence has escalated since the U.S. withdrew its last combat troops at the end of 2011, with 4,568 civilians killed in 2012 compared with 4,144 in the previous year, according to the Iraq Body Count website.

Forty-eight Syrian soldiers and nine Iraqi troops were killed this week inside Iraq, raising concern that the civil war in neighboring Syria may spill over and destabilize parts of the country. A pipeline for oil products in northern Iraq was attacked on March 4 for the fifth time in less than a month, according to the Oil Ministry, and the government deployed troops the same day to break up a protest by people seeking work at the OAO Lukoil-run West Qurna-2 oil field.

Lukoil and other international companies are helping Iraq restore its crude oil output and generate revenue to rebuild an economy hobbled by decades of conflict and economic sanctions. Output swelled by 24 percent last year as Iraq became the biggest producer, after Saudi Arabia, in the Organization of Petroleum Exporting Countries. Iraq’s oil fields produced 3.2 million barrels a day in February, according to data compiled by Bloomberg.

The country, which holds the world’s fifth-largest crude deposits, has budgeted $118 billion in spending for 2013, up 18 percent from 2012.

The International Monetary Fund forecasts that Iraq’s economy will register the region’s quickest growth in each of the next four years, after expanding 14.7 percent this year. Iraq’s stock exchange drew investors after the Feb. 2 listing of Asiacell Communications PJSC, which raised $1.3 billion in Middle East’s biggest initial public offering since 2008.

“Asiacell is important because it attracts global investors to look at Iraq for the first time,” said Sanjay Motwani, president of Sansar Capital Management LLC. “Are there a lot of issues in Iraq? Yes, it’s all there, we get it, but it’s already included in the risk,” said Motwani, who runs the Sansar Capital Frontier Fund with about $30 million invested in Iraqi equities.

Still, political strife between Iraq’s ruling coalition and other groups, including Sunnis leading the protests and the Kurds, has hurt investment. Investors are also discouraged by the country’s failure to pass an energy law, and the Oil Ministry failed to find bidders for most of the blocks in its latest auction of energy rights. The government has also been slow to invest in industries unrelated to oil.