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Update No: 064 - (26/08/08)

Washington to agree to complete withdrawal
As the end of August approached, Washington and Kabul seemed close to reaching a deal on the future presence of foreign troops on Iraq’s soil, after 10 months of tough negotiations. The Americans appears to have agreed to a complete withdrawal by a fixed deadline (2011), but the approval of the political leaderships is still being sought. Washington seems to have obtained some degree of immunity from prosecution for its troops, a point which has proved very controversial. The Iraqis would have liked a complete withdrawal of combat troops within two years, but seem to have settled for three years. The draft deal reportedly involves patrol activities of US troops ending by June 2009 and a withdrawal from Iraq’s cities in the summer of 2009. They would then be concentrated in a few large bases, as we have long predicted, and be largely away from public view. The existing mandate for the presence of US troops in Iraq ends in December 2008. In the meanwhile the Iraqi government is trying to boost its armed forces, in order to make them autonomous from the Americans by the time of the withdrawal. This year’s crackdown against the militias in Basra and a few other cities can now be seen as a political message sent to both the people of Iraq and to the Americans: American advisers strongly advised against the Iraq army moving in alone, but the government pressed on. Still, in terms of the development of capacity for fully autonomous operations, logistics and air support remain the key weak spots.

More spending, but not enough
In August the Iraqi parliament approved a supplementary spending bill, bringing this year’s budget from US$48 to US$70 billion, as a result of the unexpectedly high oil prices and of an increase in exports. There is s till a significant surplus being accumulated, to the irritation of many American congressmen and senators, who complain about the US paying for reconstruction projects that Baghdad could well afford. However, there are serious doubts that further increases in production and export can be achieved, as the existing infrastructure might not be able to carry significantly greater quantities of oil. The Oil Ministry has not been able to invest more than a small percentage of its allocated budget so far, in part due to the loss of skilled employees and to political contrasts. Much of the investment is going towards the renovation of old refineries and the construction of new ones, although in August the Oil Ministry also announced that for the first time after 20 years it was resuming oil exploration. There are also plans to revive a 1997 oil deal with China, for the exploitation of the 90,000 bpd Al-Ahdab field, south of Baghdad. The deal was never implemented due to UN sanctions. There are also signs of international investors’ interest in non-oil sectors like fertilisers and finance, particularly in southern Iraq. Economic recovery seems to be underway in Baghdad too, where property prices have doubled in four months.

Friction with the Kurds
On the political front the situation remains complicated. In August tension between Baghdad and the Kurdish regional government increased as a brigade of Kurdish troops refused to obey the order of the Ministry of Defence to withdraw from the northern part of Diyala province, where the Kurds have territorial claims. The status of the city of Kirkuk, also claimed by the Kurds, is preventing the approval of the electoral law. The law had been approved by the parliament despite a Kurdish boycott, but President Talabani (a Kurd) vetoed it and sent it back to parliament for further discussions.

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