Awash with $100B in oil rev­enue, Iraq stays on U.S. dole

The Washington Times Weekly - - Geopolitics - BY KRISTINA WONG

Nearly two years af­ter end­ing mil­i­tary en­gage­ment in the Iraq War, the U.S. and its al­lies are still pay­ing mil­lions of dol­lars for re­con­struc­tion, even though Bagh­dad is reap­ing rev­enue from its oil in­dus­try as in­sta­bil­ity rises and the gov­ern­ment has grown closer to Iran.

Through an in­ter­na­tional trust fund es­tab­lished in 2004, the U.S. and 16 other donor na­tions have raised al­most $2 bil­lion for re­con­struc­tion projects in Iraq. Sched­uled to ex­pire Dec. 31, the trust fund re­ceived a one-year ex­ten­sion re­quested by Bagh­dad.

But do­na­tions for Iraq are be­com­ing harder to jus­tify, given its siz­able oil-based rev­enue.

“Th­ese high lev­els of pro­duc­tion, cou­pled with in­ter­na­tional oil prices buoyed by geopo­lit­i­cal wor­ries, de­liv­ered to Iraq’s cof­fers close to $100 bil­lion for the year,” the United Na­tions said in its most re­cent re­port on the trust fund. “Iraq’s sta­tus as a mid­dle-in­come coun­try has led to de­clin­ing donor in­ter­est and a re­duc­tion in in­ter­na­tional fund­ing.”

Two donor na­tions are pulling out of the trust fund and will have their un­spent con­tri­bu­tions re­turned to them next year, a World Bank of­fi­cial said, adding that the U.S. is not one of the two.

The trust fund’s largest donors are the Euro­pean Com­mis­sion, Ja­pan and Spain. Al­though the U.S. con­trib­uted $10 mil­lion, it spent about $60 bil­lion in re­con­struc­tion dur­ing the war.

Most of the do­na­tions have gone to more than 200 de­vel­op­ment projects, half of which were not com­pleted by the end of 2012, when at least $54 mil­lion was un­used.

The U.S. is sup­port­ing Iraq in other ways. This year, Wash­ing­ton gave Bagh­dad $470 mil­lion in for­eign aid, and has re­quested $500 mil­lion in aid for 2014. In ad­di­tion, the U.S. plans to loan Iraq $573 mil­lion to buy U.S. mil­i­tary equip­ment, a com­mon prac­tice known as for­eign mil­i­tary fi­nanc­ing.

A State Depart­ment of­fi­cial de­fended U.S. as­sis­tance to Iraq de­spite Bagh­dad’s in­creas­ing oil rev­enues, say­ing the aid is aimed at main­tain­ing a strate­gic part­ner­ship with Iraq — and it is work­ing.

For in­stance, Iraq agreed to in­crease its oil pro­duc­tion in part to fill gaps that re­sulted from crush­ing in­ter­na­tional sanc­tions on Iran and its petroleum in­dus­try, the of­fi­cial said.

“Did the Iraqis have to do that? Of course not,” said the of­fi­cial, who spoke on back­ground. “Iran clearly has an in­flu­ence in Iraq, but so do we. The Iraqis have pub­licly stated that we are their part­ner of choice.”

Grow­ing in­sta­bil­ity

Since U.S. troops left Iraq in De­cem­ber 2011, vi­o­lence there has been ap­proach­ing lev­els not seen since 2008.

Last month, 743 Iraqis were killed and 1,625 were wounded in bomb­ings and gun­bat­tles across the na­tion. In Oc­to­ber 2012, 136 were killed and 376 wounded in var­i­ous at­tacks, ac­cord­ing to sta­tis­tics from Agence France-Presse.

Ten­sions have wors­ened be­tween the coun­try’s Shi­ite Mus­lim ma­jor­ity, which leads the gov­ern­ment, and its Sunni Mus­lim mi­nor­ity, which ruled Iraq un­der strong­man Sad­dam Hus­sein and now feels per­se­cuted.

A gov­ern­ment raid of a camp of Sunni pro­test­ers in April killed at least 23 Iraqis and sparked a cy­cle of Sunni-Shi­ite at­tacks and coun­ter­at­tacks across the coun­try.

An­a­lysts say Iraqi Prime Min­is­ter Nouri al-Ma­liki, who took of­fice in 2006, could do more to tamp down the ten­sions but in­stead has con­tin­ued to marginal­ize Sun­nis, driv­ing some groups to armed re­sis­tance.

“He could ne­go­ti­ate lo­cal cease-fires with the Sunni com­mu­nity or ap­point a high-level Sunni fig­ure in his gov­ern­ment and give him some power,” said Ja­cob Stokes, an an­a­lyst at the Center for a New Amer­i­can Se­cu­rity. “There are things that he could do that could take sec­tar­ian el­e­ment down sev­eral lev­els, but that hasn’t been his ap­proach so far.”

Since the U.S. mil­i­tary’s de­par­ture, Iraq has grown closer to the Shi­ite-dom­i­nated Iran and has al­lowed Iran, de­spite protest from Wash­ing­ton, to fly weapons to Syr­ian dic­ta­tor Bashar As­sad through its airspace.

Al Qaeda fight­ers, who are mostly Sun­nis, are at­tempt­ing to take over Iraq and Syria in or­der to join the two coun­tries into an Is­lamic state. Al Qaeda is now at its strong­est lev­els in Iraq since 2006, Na­tional Coun­tert­er­ror­ism Center Di­rec­tor Matthew G. Olsen told a Se­nate panel Thurs­day.

An­a­lysts note some irony in Mr. al-Ma­liki’s re­cent visit to the U.S., dur­ing which he re­quested more mil­i­tary equip­ment.

“If you’re com­ing to the U.S. for more, you can’t also be help­ing Iran ship weapons to Syria,” Mr. Stokes said. “I think Congress would be giv­ing more help if it weren’t for the over­flights.”

The State Depart­ment of­fi­cial said there has been a de­crease in Ira­nian flights to Syria through Iraqi airspace, but there is “room for fur­ther im­prove­ment.”

Mean­while, Iraq’s oil sec­tor is boom­ing. The coun­try now ex­ports more than 3 mil­lion bar­rels of oil a day, which ac­counted for al­most all of its 9.38 per­cent gross do­mes­tic prod­uct growth in 2012.

Oil rev­enue is ex­pected to grow. The In­ter­na­tional En­ergy Agency pre­dicts Iraq will be re­spon­si­ble for half of the in­crease in global oil pro­duc­tion through 2035.

U.S. in­flu­ence

Al­though more needs to be done on the po­lit­i­cal front in Bagh­dad, U.S. of­fi­cials say they are see­ing some progress in reach­ing out to Iraq’s mi­nor­ity Sunni and Kur­dish com­mu­ni­ties.

“There is paral­y­sis on the po­lit­i­cal sit­u­a­tion. It’s hard for them to ad­dress the lit­tle is­sues when they can’t agree on the big­ger is­sues,” the State Depart­ment of­fi­cial said. “It’s far from per­fect, but you now have Ma­liki reach­ing out to tribal lead­ers in An­bar, to the Sunni speaker of the par­lia­ment. They had a unity meet­ing last month to es­tab­lish a code of ethics and code of honor.”

“It’s a slog. It’s hard work … but to say that we don’t have any lever­age there, if you look at the last eight months of where they were then and where we are now, that hasn’t hap­pened by magic dust,” the of­fi­cial said.

The of­fi­cial noted that U.S. aid to Iraq has been re­duced sharply — nearly half of the $850 mil­lion that was given in 2012, and that for­eign mil­i­tary fi­nanc­ing is about 50 per­cent of what was given that year.

De­spite its oil rev­enue, Iraq has tremen­dous de­vel­op­ment needs be­cause of three decades of de­pra­va­tion un­der Sad­dam and the war with Iran in the 1980s, the of­fi­cial said.

A key fo­cus of co­op­er­a­tion is on al Qaeda’s re-emer­gence in Iraq and its spread to Syria.

“Iraq’s big­gest con­cern is if Sunni ex­trem­ists were to take power in Syria,” the State Depart­ment of­fi­cial said. “It would be a ma­jor com­pli­ca­tion on their western bor­der.”

The U.S. plans to send mil­i­tary equip­ment and in­tel­li­gence sup­port to Iraq to deal with the threat, which will give the U.S. greater in­flu­ence in the coun­try, an­a­lysts say.

“At the end of the day, we couldn’t con­trol Ma­liki when we had tens of thou­sands of U.S. forces on the ground,” Mr. Stokes said. “But we can con­vince Ma­liki that he doesn’t want to see his coun­try fall­ing back into chaos. You don’t want to be the per­son who caused that.”

AS­SO­CI­ATED PRESS

A $165 mil­lion chil­dren’s hos­pi­tal in Basra is among hun­dreds of projects in Iraq funded by U.S. tax­pay­ers. The U.S. and its al­lies are still pay­ing mil­lions of dol­lars for re­con­struc­tion of the war-rav­aged coun­try, even though Bagh­dad is reap­ing rev­enue from its oil in­dus­try. Two donor na­tions are pulling out of the trust fund. A State Depart­ment of­fi­cial de­fended U.S. as­sis­tance, say­ing it is aimed at main­tain­ing a strate­gic part­ner­ship with Iraq. How­ever, the of­fi­cial said, there is “room for im­prove­ment”

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