New Iraq strategy: US president should disclaim oil interest

By Pat Reber Dec 7, 2006, 10:23 GMT

Washington - The US president must make clear to the world that Washington is not seeking to control Iraq's oil wealth, part of a new strategy to avert political and economic chaos in the country, according to a much-awaited bipartisan report.

In sweeping terms, the report released Wednesday presented a sobering picture of a country riven by sectarian violence and nearly beyond 'the ability of the United States to influence events.'

It urged US President George W Bush to change course in Iraq, calling for diplomacy with foes Syria and Iran and a possible pullout of most US combat troops by early 2008 to help reverse a 'grave and deteriorating' situation.

But the report, called The Way Forward - a New Approach, also focussed on details like those in the oil sector, where corruption, not terrorist acts, was blamed for much of the 200,000 to 500,000 barrels of oil a day that are stolen or go missing.

The country currently produces around 2.2 million barrels a day, less than prewar production levels and the government's own goal of 2.5 million barrels a day and 'far short of the vast potential of the Iraqi oil sector,' the report says.

But a key to US credibility in guiding the country through constructive changes in the oil industry and also in gaining broad international support for Iraq's future could be a move by Bush to distance the US from its interest in the industry, the report suggests.

Iraq has the world's second largest oil reserves, and many US critics, especially in the Middle East, charge that the US-led invasion to topple Saddam Hussein was motivated by greed for the energy resources.

'The United States can begin to shape a positive climate for its diplomatic efforts, internationally and within Iraq, through public statements by President Bush that reject the notion that the United States seeks to control Iraq's oil, or seeks permanent military bases within Iraq,' the report suggested.

The 10-member panel that drew up the report was co-chaired by former secretary of state, the Republican James Baker, and former Democratic Congressman Lee Hamilton.

The report carries more weight than many other Iraq proposals because it was commissioned by a Republican Congress that gave equal say to opposition centre-left Democrats on the panel.

Moderates of both parties have been pushing the White House for years to talk to both sides of the political divide in mapping a way out of increasing violence in Iraq. Voters loudly rejected Bush's current Iraq path at the polls in November, and denied the Republicans the majority in both houses when the new Congress convenes in January.

Control of oil income has become an incendiary topic in Iraq. Iraq's new constitution provides for equal distribution of oil income nationally by population from existing reserves, but allows income from new reserves to flow to the regions where new wells are found, the report notes.

Minority Sunnis, who lost their power with the fall of Saddam, would also lose out economically under such a provision, since most of Iraq's energy resources are in the Kurdish and Shia regions, the panel wrote.

The panel urged Iraq to reconsider the provision when it tackles a constitutional review over the coming year or so, and make sure all oil income is equally distributed, regardless of when the reserves are opened.

'Immediate and long-term growth depends predominantly on the oil sector,' the panel said.

The report praised moves by the government to cut back on energy subsidies to consumers. The price per litre of gas has increased from roughly 1.7 cents to 23 cents, 'a figure far closer to regional prices,' the report said.

Overall economic growth was 4 per cent this year, instead of the target of 10 per cent, the report said.

The investment climate is bleak, with foreign direct investment under 1 per cent of GDP, the report said.

To cut back on corruption and make protection of the oil infrastructure more palatable to local groups, the report recommends 'paying local tribes soley on the basis of throughput.' Metering should also be installed at both ends of the supply line to improve accountability.

But the report says the US should stop paying for oil infrastructure improvements and get private energy companies involved.