Awash in oil revenue, Iraq stays on U.S. dole for reconstruction

Instability, Iran ties increase

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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.

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