taken to improve the situation and protect American interests.

Many Americans are dissatisfied, not just with the situation in Iraq but with the state of

our political debate regarding Iraq. Our political leaders must build a bipartisan approach to

bring a responsible conclusion to what is now a lengthy and costly war. Our country deserves a

debate that prizes substance over rhetoric, and a policy that is adequately funded and sustainable.

The President and Congress must work together. Our leaders must be candid and forthright with

the American people in order to win their support.

No one can guarantee that any course of action in Iraq at this point will stop sectarian

warfare, growing violence, or a slide toward chaos. If current trends continue, the potential

consequences are severe. Because of the role and responsibility of the United States in Iraq, and

the commitments our government has made, the United States has special obligations. Our

country must address as best it can Iraq’s many problems. The United States has long-term

relationships and interests at stake in the Middle East, and needs to stay engaged.

In this consensus report, the ten members of the Iraq Study Group present a new approach

because we believe there is a better way forward. All options have not been exhausted. We

believe it is still possible to pursue different policies that can give Iraq an opportunity for a

better future, combat terrorism, stabilize a critical region of the world, and protect America’s

credibility, interests, and values. Our report makes it clear that the Iraqi government and the

Iraqi people also must act to achieve a stable and hopeful future.

What we recommend in this report demands a tremendous amount of political will and

cooperation by the executive and legislative branches of the U.S. government. It demands

skillful implementation. It demands unity of effort by government agencies. And its success

depends on the unity of the American people in a time of political polarization. Americans can

and must enjoy the right of robust debate within a democracy. Yet U.S. foreign policy is

doomed to failure—as is any course of action in Iraq—if it is not supported by a broad,

sustained consensus. The aim of our report is to move our country toward such a consensus.

We want to thank all those we have interviewed and those who have contributed information

and assisted the Study Group, both inside and outside the U.S. government, in Iraq, and around

the world. We thank the members of the expert working groups, and staff from the sponsoring

organizations. We especially thank our colleagues on the Study Group, who have worked with

us on these difficult issues in a spirit of generosity and bipartisanship.

In presenting our report to the President, Congress, and the American people, we dedicate

it to the men and women—military and civilian—who have served and are serving in Iraq, and

to their families back home. They have demonstrated extraordinary courage and made difficult

sacrifices. Every American is indebted to them.

We also honor the many Iraqis who have sacrificed on behalf of their country, and the

members of the Coalition Forces who have stood with us and with the people of Iraq.

James A. Baker, III

Lee H. Hamilton

the prospects can be improved.

In this report, we make a number of recommendations for actions to be taken in Iraq, the

United States, and the region. Our most important recommendations call for new and enhanced

diplomatic and political efforts in Iraq and the region, and a change in the primary mission of

U.S. forces in Iraq that will enable the United States to begin to move its combat forces out of

Iraq responsibly. We believe that these two recommendations are equally important and reinforce

one another. If they are effectively implemented, and if the Iraqi government moves forward with

national reconciliation, Iraqis will have an opportunity for a better future, terrorism will be dealt

a blow, stability will be enhanced in an important part of the world, and America’s credibility,

interests, and values will be protected.

The challenges in Iraq are complex. Violence is increasing in scope and lethality. It is fed

by a Sunni Arab insurgency, Shiite militias and death squads, al Qaeda, and widespread

criminality. Sectarian conflict is the principal challenge to stability. The Iraqi people have a

democratically elected government, yet it is not adequately advancing national reconciliation,

providing basic security, or delivering essential services. Pessimism is pervasive.

If the situation continues to deteriorate, the consequences could be severe. A slide toward

chaos could trigger the collapse of Iraq’s government and a humanitarian catastrophe.

Neighboring countries could intervene. Sunni-Shia clashes could spread. Al Qaeda could win a

propaganda victory and expand its base of operations. The global standing of the United States

could be diminished. Americans could become more polarized.

During the past nine months we have considered a full range of approaches for moving

forward. All have flaws. Our recommended course has shortcomings, but we firmly believe that

it includes the best strategies and tactics to positively influence the outcome in Iraq and the

region.

External Approach

The policies and actions of Iraq’s neighbors greatly affect its stability and prosperity. No country

in the region will benefit in the long term from a chaotic Iraq. Yet Iraq’s neighbors are not doing

enough to help Iraq achieve stability. Some are undercutting stability.

The United States should immediately launch a new diplomatic offensive to build an

international consensus for stability in Iraq and the region. This diplomatic effort should include

every country that has an interest in avoiding a chaotic Iraq, including all of Iraq’s neighbors.

Iraq’s neighbors and key states in and outside the region should form a support group to

reinforce security and national reconciliation within Iraq, neither of which Iraq can achieve on its

own.

Given the ability of Iran and Syria to influence events within Iraq and their interest in

avoiding chaos in Iraq, the United States should try to engage them constructively. In seeking

to influence the behavior of both countries, the United States has disincentives and incentives

available. Iran should stem the flow of arms and training to Iraq, respect Iraq’s sovereignty and

territorial integrity, and use its influence over Iraqi Shia groups to encourage national

reconciliation. The issue of Iran’s nuclear programs should continue to be dealt with by the five

permanent members of the United Nations Security Council plus Germany. Syria should control

its border with Iraq to stem the flow of funding, insurgents, and terrorists in and out of Iraq.

The United States cannot achieve its goals in the Middle East unless it deals directly with

the Arab-Israeli conflict and regional instability. There must be a renewed and sustained

commitment by the United States to a comprehensive Arab-Israeli peace on all fronts: Lebanon,

Syria, and President Bush’s June 2002 commitment to a two-state solution for Israel and

Palestine. This commitment must include direct talks with, by, and between Israel, Lebanon,

Palestinians (those who accept Israel’s right to exist), and Syria.

As the United States develops its approach toward Iraq and the Middle East, the United

States should provide additional political, economic, and military support for Afghanistan,

including resources that might become available as combat forces are moved out of Iraq.

Internal Approach

The most important questions about Iraq’s future are now the responsibility of Iraqis. The

United States must adjust its role in Iraq to encourage the Iraqi people to take control of their

own destiny.

The Iraqi government should accelerate assuming responsibility for Iraqi security by

increasing the number and quality of Iraqi Army brigades. While this process is under way, and

to facilitate it, the United States should significantly increase the number of U.S. military

personnel, including combat troops, imbedded in and supporting Iraqi Army units. As these

actions proceed, U.S. combat forces could begin to move out of Iraq.

The primary mission of U.S. forces in Iraq should evolve to one of supporting the Iraqi

army, which would take over primary responsibility for combat operations. By the first quarter

of 2008, subject to unexpected developments in the security situation on the ground, all combat

brigades not necessary for force protection could be out of Iraq. At that time, U.S. combat forces

in Iraq could be deployed only in units embedded with Iraqi forces, in rapid-reaction and special

operations teams, and in training, equipping, advising, force protection, and search and rescue.

Intelligence and support efforts would continue. A vital mission of those rapid reaction and

special operations forces would be to undertake strikes against al Qaeda in Iraq.

It is clear that the Iraqi government will need assistance from the United States for some

time to come, especially in carrying out security responsibilities. Yet the United States must

make it clear to the Iraqi government that the United States could carry out its plans, including

planned redeployments, even if the Iraqi government did not implement their planned changes.

The United States must not make an open-ended commitment to keep large numbers of

American troops deployed in Iraq.

As redeployment proceeds, military leaders should emphasize training and education of

forces that have returned to the United States in order to restore the force to full combat

capability. As equipment returns to the United States, Congress should appropriate sufficient

funds to restore the equipment over the next five years.

The United States should work closely with Iraq’s leaders to support the achievement of

specific objectives—or milestones—on national reconciliation, security, and governance.

Miracles cannot be expected, but the people of Iraq have the right to expect action and progress.

The Iraqi government needs to show its own citizens—and the citizens of the United States and

other countries—that it deserves continued support.

Prime Minister Nouri al-Maliki, in consultation with the United States, has put forward a

set of milestones critical for Iraq. His list is a good start, but it must be expanded to include

milestones that can strengthen the government and benefit the Iraqi people. President Bush and

his national security team should remain in close and frequent contact with the Iraqi leadership

to convey a clear message: there must be prompt action by the Iraqi government to make

substantial progress toward the achievement of these milestones.

If the Iraqi government demonstrates political will and makes substantial progress toward

the achievement of milestones on national reconciliation, security, and governance, the United

States should make clear its willingness to continue training, assistance, and support for Iraq’s

security forces and to continue political, military, and economic support. If the Iraqi government

does not make substantial progress toward the achievement of milestones on national

reconciliation, security, and governance, the United States should reduce its political, military,

or economic support for the Iraqi government.

Our report makes recommendations in several other areas. They include improvements to

the Iraqi criminal justice system, the Iraqi oil sector, the U.S. reconstruction efforts in Iraq, the

U.S. budget process, the training of U.S. government personnel, and U.S. intelligence -

capabilities.

Conclusion

It is the unanimous view of the Iraq Study Group that these recommendations offer a new way

forward for the United States in Iraq and the region. They are comprehensive and need to be

implemented in a coordinated fashion. They should not be separated or carried out in isolation.

The dynamics of the region are as important to Iraq as events within Iraq.

The challenges are daunting. There will be difficult days ahead. But by pursuing this new

way forward, Iraq, the region, and the United States of America can emerge stronger.

Saddam Hussein has been removed from power and the Iraqi people have a democratically

elected government that is broadly representative of Iraq’s population, yet the government is not

adequately advancing national reconciliation, providing basic security, or delivering essential

services. The level of violence is high and growing. There is great suffering, and the daily lives

of many Iraqis show little or no improvement. Pessimism is pervasive.

U.S. military and civilian personnel, and our coalition partners, are making exceptional

and dedicated efforts—and sacrifices—to help Iraq. Many Iraqis have also made extraordinary

efforts and sacrifices for a better future. However, the ability of the United States to influence

events within Iraq is diminishing. Many Iraqis are embracing sectarian identities. The lack of

security impedes economic development. Most countries in the region are not playing a

constructive role in support of Iraq, and some are undercutting stability.

Iraq is vital to regional and even global stability, and is critical to U.S. interests. It runs

along the sectarian fault lines of Shia and Sunni Islam, and of Kurdish and Arab populations. It

has the world’s second-largest known oil reserves. It is now a base of operations for international

terrorism, including al Qaeda.

Iraq is a centerpiece of American foreign policy, influencing how the United States is

viewed in the region and around the world. Because of the gravity of Iraq’s condition and the

country’s vital importance, the United States is facing one of its most difficult and significant

international challenges in decades. Because events in Iraq have been set in motion by American

decisions and actions, the United States has both a national and a moral interest in doing what

it can to give Iraqis an opportunity to avert anarchy.

An assessment of the security, political, economic, and regional situation follows (all

figures current as of publication), along with an assessment of the consequences if Iraq continues

to deteriorate, and an analysis of some possible courses of action.

Sections:

1. Assessment of the Current Situation in Iraq
2. Consequences of Continued Decline in Iraq
3. Some Alternative Courses in Iraq
4. Achieving Our Goals

1. Security
2. Politics
3. Economics
4. International Support
5. Conclusion

of national unity was formed in May 2006 that is broadly representative of the Iraqi people. Iraq

has ratified a constitution, and—per agreement with Sunni Arab leaders—has initiated a process

of review to determine if the constitution needs amendment.

The composition of the Iraqi government is basically sectarian, and key players within the

government too often act in their sectarian interest. Iraq’s Shia, Sunni, and Kurdish leaders

frequently fail to demonstrate the political will to act in Iraq’s national interest, and too many

Iraqi ministries lack the capacity to govern effectively. The result is an even weaker central

government than the constitution provides.

There is widespread Iraqi, American, and international agreement on the key issues

confronting the Iraqi government: national reconciliation, including the negotiation of a

“political deal” among Iraq’s sectarian groups on Constitution review, de-Baathification, oil

revenue sharing, provincial elections, the future of Kirkuk, and amnesty; security, particularly

curbing militias and reducing the violence in Baghdad; and governance, including the provision

of basic services and the rollback of pervasive corruption. Because Iraqi leaders view issues

through a sectarian prism, we will summarize the differing perspectives of Iraq’s main sectarian

groups.

Sectarian Viewpoints

The Shia, the majority of Iraq’s population, have gained power for the first time in more than

1,300 years. Above all, many Shia are interested in preserving that power. However, fissures

have emerged within the broad Shia coalition, known as the United Iraqi Alliance. Shia factions

are struggling for power—over regions, ministries, and Iraq as a whole. The difficulties in

holding together a broad and fractious coalition have led several observers in Baghdad to

comment that Shia leaders are held “hostage to extremes.” Within the coalition as a whole,

there is a reluctance to reach a political accommodation with the Sunnis or to disarm Shiite

militias.

Prime Minister Nouri al-Maliki has demonstrated an understanding of the key issues facing

Iraq, notably the need for national reconciliation and security in Baghdad. Yet strains have

emerged between Maliki’s government and the United States. Maliki has publicly rejected a

U.S. timetable to achieve certain benchmarks, ordered the removal of blockades around Sadr

City, sought more control over Iraqi security forces, and resisted U.S. requests to move forward

on reconciliation or on disbanding Shiite militias.

Sistani, Sadr, Hakim

The U.S. deals primarily with the Iraqi government, but the most powerful Shia figures in

Iraq do not hold national office. Of the following three vital power brokers in the Shia

community, the United States is unable to talk directly with one (Grand Ayatollah Ali al-

Sistani) and does not talk to another (Moqtada al-Sadr).

GRAND AYATOLLAH ALI AL-SISTANI: Sistani is the leading Shiite cleric in Iraq.

Despite staying out of day-to-day politics, he has been the most influential leader in the

country: all major Shia leaders have sought his approval or guidance. Sistani has

encouraged a unified Shia bloc with moderated aims within a unified Iraq. Sistani’s

influence may be waning, as his words have not succeeded in preventing intra-Shia

violence or retaliation against Sunnis.

ABDUL AZIZ AL-HAKIM: Hakim is a cleric and the leader of the Supreme Council for

the Islamic Revolution in Iraq (SCIRI), the largest and most organized Shia political

party. It seeks the creation of an autonomous Shia region comprising nine provinces in the

south. Hakim has consistently protected and advanced his party’s position. SCIRI has

close ties with Iran.

MOQTADA AL-SADR: Sadr has a large following among impoverished Shia,

particularly in Baghdad. He has joined Maliki’s governing coalition, but his Mahdi Army

has clashed with the Badr Brigades, as well as with Iraqi, U.S., and U.K. forces. Sadr

claims to be an Iraqi nationalist. Several observers remarked to us that Sadr was following

the model of Hezbollah in Lebanon: building a political party that controls basic services

within the government and an armed militia outside of the government.

Sunni Arabs feel displaced because of the loss of their traditional position of power in Iraq. They

are torn, unsure whether to seek their aims through political participation or through violent

insurgency. They remain angry about U.S. decisions to dissolve Iraqi security forces and to

pursue the “de-Baathification” of Iraq’s government and society. Sunnis are confronted by

paradoxes: they have opposed the presence of U.S. forces in Iraq but need those forces to protect

them against Shia militias; they chafe at being governed by a majority Shia administration but

reject a federal, decentralized Iraq and do not see a Sunni autonomous region as feasible for

themselves.

Hashimi and Dhari

The influence of Sunni Arab politicians in the government is questionable. The leadership

of the Sunni Arab insurgency is murky, but the following two key Sunni Arab figures have

broad support.

tariq al-hashimi: Hashimi is one of two vice presidents of Iraq and the head of the Iraqi

Islamic Party, the largest Sunni Muslim bloc in parliament. Hashimi opposes the

formation of autonomous regions and has advocated the distribution of oil revenues based

on population, a reversal of de-Baathification, and the removal of Shiite militia fighters

from the Iraqi security forces. Shiite death squads have recently killed three of his siblings.

sheik harith al-dhari: Dhari is the head of the Muslim Scholars Association, the most

influential Sunni organization in Iraq. Dhari has condemned the American occupation and

spoken out against the Iraqi government. His organization has ties both to the Sunni Arab

insurgency and to Sunnis within the Iraqi government. A warrant was recently issued for

his arrest for inciting violence and terrorism, an act that sparked bitter Sunni protests

across Iraq.

Iraqi Kurds have succeeded in presenting a united front of two main political blocs—the

Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK). The Kurds have

secured a largely autonomous Kurdish region in the north, and have achieved a prominent role

for Kurds within the national government. Barzani leads the Kurdish regional government, and

Talabani is president of Iraq.

Leading Kurdish politicians told us they preferred to be within a democratic, federal Iraqi

state because an independent Kurdistan would be surrounded by hostile neighbors. However, a

majority of Kurds favor independence. The Kurds have their own security forces—the

peshmerga—which number roughly 100,000. They believe they could accommodate themselves

to either a unified or a fractured Iraq.

Barzani and Talabani

Kurdish politics has been dominated for years by two figures who have long-standing ties

in movements for Kurdish independence and self-government.

MASSOUD BARZANI: Barzani is the leader of the Kurdistan Democratic Party and the

President of the Kurdish regional government. Barzani has cooperated with his longtime

rival, Jalal Talabani, in securing an empowered, autonomous Kurdish region in northern

Iraq. Barzani has ordered the lowering of Iraqi flags and raising of Kurdish flags in

Kurdish-controlled areas.

JALAL TALABANI: Talabani is the leader of the Patriotic Union of Kurdistan and the

President of Iraq. Whereas Barzani has focused his efforts in Kurdistan, Talabani has

secured power in Baghdad, and several important PUK government ministers are loyal to

him. Talabani strongly supports autonomy for Kurdistan. He has also sought to bring real

power to the office of the presidency.

Key Issues

NATIONAL RECONCILIATION. Prime Minister Maliki outlined a commendable program of

national reconciliation soon after he entered office. However, the Iraqi government has not taken

action on the key elements of national reconciliation: revising de-Baathification, which prevents

many Sunni Arabs from participating in governance and society; providing amnesty for those

who have fought against the government; sharing the country’s oil revenues; demobilizing

militias; amending the constitution; and settling the future of Kirkuk.

One core issue is federalism. The Iraqi Constitution, which created a largely autonomous

Kurdistan region, allows other such regions to be established later, perhaps including a

“Shi’astan” comprising nine southern provinces. This highly decentralized structure is favored

by the Kurds and many Shia (particularly supporters of Abdul Aziz al-Hakim), but it is

anathema to Sunnis. First, Sunni Arabs are generally Iraqi nationalists, albeit within the context

of an Iraq they believe they should govern. Second, because Iraq’s energy resources are in the

Kurdish and Shia regions, there is no economically feasible “Sunni region.” Particularly

contentious is a provision in the constitution that shares revenues nationally from current oil

reserves, while allowing revenues from reserves discovered in the future to go to the regions.

The Sunnis did not actively participate in the constitution-drafting process, and acceded to

entering the government only on the condition that the constitution be amended. In September,

the parliament agreed to initiate a constitutional review commission slated to complete its work

within one year; it delayed considering the question of forming a federalized region in southern

Iraq for eighteen months.

Another key unresolved issue is the future of Kirkuk, an oil-rich city in northern Iraq that

is home to substantial numbers of Kurds, Arabs, and Turkmen. The Kurds insisted that the

constitution require a popular referendum by December 2007 to determine whether Kirkuk can

formally join the Kurdish administered region, an outcome that Arabs and Turkmen in Kirkuk

staunchly oppose. The risks of further violence sparked by a Kirkuk referendum are great.

Iraq’s leaders often claim that they do not want a division of the country, but we found

that key Shia and Kurdish leaders have little commitment to national reconciliation. One

prominent Shia leader told us pointedly that the current government has the support of 80

percent of the population, notably excluding Sunni Arabs. Kurds have fought for independence

for decades, and when our Study Group visited Iraq, the leader of the Kurdish region ordered the

lowering of Iraqi flags and the raising of Kurdish flags. One senior American general commented

that the Iraqis “still do not know what kind of country they want to have.” Yet many of Iraq’s

most powerful and well-positioned leaders are not working toward a united Iraq.

SECURITY. The security situation cannot improve unless leaders act in support of national

reconciliation. Shiite leaders must make the decision to demobilize militias. Sunni Arabs must

make the decision to seek their aims through a peaceful political process, not through violent

revolt. The Iraqi government and Sunni Arab tribes must aggressively pursue al Qaeda.

Militias are currently seen as legitimate vehicles of political action. Shia political leaders

make distinctions between the Sunni insurgency (which seeks to overthrow the government) and

Shia militias (which are used to fight Sunnis, secure neighborhoods, and maximize power

within the government). Though Prime Minister Maliki has said he will address the problem of

militias, he has taken little meaningful action to curb their influence. He owes his office in large

part to Sadr and has shown little willingness to take on him or his Mahdi Army.

Sunni Arabs have not made the strategic decision to abandon violent insurgency in favor of

the political process. Sunni politicians within the government have a limited level of support

and influence among their own population, and questionable influence over the insurgency.

Insurgents wage a campaign of intimidation against Sunni leaders—assassinating the family

members of those who do participate in the government. Too often, insurgents tolerate and

cooperate with al Qaeda, as they share a mutual interest in attacking U.S. and Shia forces.

However, Sunni Arab tribal leaders in Anbar province recently took the positive step of agreeing

to pursue al Qaeda and foreign fighters in their midst, and have started to take action on those

commitments.

Sunni politicians told us that the U.S. military has to take on the militias; Shia

politicians told us that the U.S. military has to help them take out the Sunni insurgents and al

Qaeda. Each side watches the other. Sunni insurgents will not lay down arms unless the Shia

militias are disarmed. Shia militias will not disarm until the Sunni insurgency is destroyed. To

put it simply: there are many armed groups within Iraq, and very little will to lay down arms.

GOVERNANCE. The Iraqi government is not effectively providing its people with basic services:

electricity, drinking water, sewage, health care, and education. In many sectors,

production is below or hovers around prewar levels. In Baghdad and other unstable areas, the

situation is much worse. There are five major reasons for this problem.

First, the government sometimes provides services on a sectarian basis. For example, in

one Sunni neighborhood of Shia-governed Baghdad, there is less than two hours of electricity

each day and trash piles are waist-high. One American official told us that Baghdad is run like a

“Shia dictatorship” because Sunnis boycotted provincial elections in 2005, and therefore are not

represented in local government.

Second, security is lacking. Insurgents target key infrastructure. For instance, electricity

transmission towers are downed by explosives, and then sniper attacks prevent repairs from

being made.

Third, corruption is rampant. One senior Iraqi official estimated that official corruption

costs Iraq $5–7 billion per year. Notable steps have been taken: Iraq has a functioning audit

board and inspectors general in the ministries, and senior leaders including the Prime Minister

have identified rooting out corruption as a national priority. But too many political leaders still

pursue their personal, sectarian, or party interests. There are still no examples of senior officials

who have been brought before a court of law and convicted on corruption charges.

Fourth, capacity is inadequate. Most of Iraq’s technocratic class was pushed out of the

government as part of de-Baathification. Other skilled Iraqis have fled the country as violence has

risen. Too often, Iraq’s elected representatives treat the ministries as political spoils. Many

ministries can do little more than pay salaries, spending as little as 10–15 percent of their capital

budget. They lack technical expertise and suffer from corruption, inefficiency, a banking system

that does not permit the transfer of moneys, extensive red tape put in place in part to deter

corruption, and a Ministry of Finance reluctant to disburse funds.

Fifth, the judiciary is weak. Much has been done to establish an Iraqi judiciary, including

a supreme court, and Iraq has some dedicated judges. But criminal investigations are conducted

by magistrates, and they are too few and inadequately trained to perform this function.

Intimidation of the Iraqi judiciary has been ruthless. As one senior U.S. official said to us, “We

can protect judges, but not their families, their extended families, their friends.” Many Iraqis feel

that crime not only is unpunished, it is rewarded.

But economic development is hobbled by insecurity, corruption, lack of investment, dilapidated

infrastructure, and uncertainty. As one U.S. official observed to us, Iraq’s economy has been

badly shocked and is dysfunctional after suffering decades of problems: Iraq had a police state

economy in the 1970s, a war economy in the 1980s, and a sanctions economy in the 1990s.

Immediate and long-term growth depends predominantly on the oil sector.

Economic Performance

There are some encouraging signs. Currency reserves are stable and growing at $12 billion.

Consumer imports of computers, cell phones, and other appliances have increased dramatically.

New businesses are opening, and construction is moving forward in secure areas. Because of

Iraq’s ample oil reserves, water resources, and fertile lands, significant growth is possible if

violence is reduced and the capacity of government improves. For example, wheat yields

increased more than 40 percent in Kurdistan during this past year.

The Iraqi government has also made progress in meeting benchmarks set by the

International Monetary Fund. Most prominently, subsidies have been reduced—for instance, the

price per liter of gas has increased from roughly 1.7 cents to 23 cents (a figure far closer to

regional prices). However, energy and food subsidies generally remain a burden, costing Iraq $11

billion per year.

Despite the positive signs, many leading economic indicators are negative. Instead of

meeting a target of 10 percent, growth in Iraq is at roughly 4 percent this year. Inflation is above

50 percent. Unemployment estimates range widely from 20 to 60 percent. The investment

climate is bleak, with foreign direct investment under 1 percent of GDP. Too many Iraqis do not

see tangible improvements in their daily economic situation.

Oil Sector

Oil production and sales account for nearly 70 percent of Iraq’s GDP, and more than 95 percent

of government revenues. Iraq produces around 2.2 million barrels per day, and exports about 1.5

million barrels per day. This is below both prewar production levels and the Iraqi government’s

target of 2.5 million barrels per day, and far short of the vast potential of the Iraqi oil sector.

Fortunately for the government, global energy prices have been higher than projected, making it

possible for Iraq to meet its budget revenue targets.

Problems with oil production are caused by lack of security, lack of investment, and lack

of technical capacity. Insurgents with a detailed knowledge of Iraq’s infrastructure target

pipelines and oil facilities. There is no metering system for the oil. There is poor maintenance at

pumping stations, pipelines, and port facilities, as well as inadequate investment in modern

technology. Iraq had a cadre of experts in the oil sector, but intimidation and an extended migration of experts to other countries have eroded technical capacity. Foreign companies have been reluctant to invest, and Iraq’s Ministry of Oil has been unable to spend more than 15 percent of its capital budget.

Corruption is also debilitating. Experts estimate that 150,000 to 200,000—and perhaps as

many as 500,000—barrels of oil per day are being stolen. Controlled prices for refined products

result in shortages within Iraq, which drive consumers to the thriving black market. One senior

U.S. official told us that corruption is more responsible than insurgents for breakdowns in the

oil sector.

The Politics of Oil

The politics of oil has the potential to further damage the country’s already fragile efforts to

create a unified central government. The Iraqi Constitution leaves the door open for regions to

take the lead in developing new oil resources. Article 108 states that “oil and gas are the

ownership of all the peoples of Iraq in all the regions and governorates,” while Article 109 tasks

the federal government with “the management of oil and gas extracted from current fields.” This

language has led to contention over what constitutes a “new” or an “existing” resource, a

question that has profound ramifications for the ultimate control of future oil revenue.

Senior members of Iraq’s oil industry argue that a national oil company could reduce

political tensions by centralizing revenues and reducing regional or local claims to a percentage

of the revenue derived from production. However, regional leaders are suspicious and resist this

proposal, affirming the rights of local communities to have direct access to the inflow of oil

revenue. Kurdish leaders have been particularly aggressive in asserting independent control of

their oil assets, signing and implementing investment deals with foreign oil companies in

northern Iraq. Shia politicians are also reported to be negotiating oil investment contracts with

foreign companies.

There are proposals to redistribute a portion of oil revenues directly to the population on a

per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the

nation’s chief natural resource, but it would take time to develop a fair distribution system. Oil

revenues have been incorporated into state budget projections for the next several years. There is

no institution in Iraq at present that could properly implement such a distribution system. It

would take substantial time to establish, and would have to be based on a well-developed state

census and income tax system, which Iraq currently lacks.

U.S.-Led Reconstruction Efforts

The United States has appropriated a total of about $34 billion to support the reconstruction of

Iraq, of which about $21 billion has been appropriated for the “Iraq Relief and Reconstruction

Fund.” Nearly $16 billion has been spent, and almost all the funds have been committed. The

administration requested $1.6 billion for reconstruction in FY 2006, and received $1.485

billion. The administration requested $750 million for FY 2007. The trend line for economic

assistance in FY 2008 also appears downward.

Congress has little appetite for appropriating more funds for reconstruction. There is a

substantial need for continued reconstruction in Iraq, but serious questions remain about the

capacity of the U.S. and Iraqi governments.

The coordination of assistance programs by the Defense Department, State Department,

United States Agency for International Development, and other agencies has been ineffective.

There are no clear lines establishing who is in charge of reconstruction.

As resources decline, the U.S. reconstruction effort is changing its focus, shifting from

infrastructure, education, and health to smaller-scale ventures that are chosen and to some degree

managed by local communities. A major attempt is also being made to improve the capacity of

government bureaucracies at the national, regional, and provincial levels to provide services to

the population as well as to select and manage infrastructure projects.

The United States has people embedded in several Iraqi ministries, but it confronts

problems with access and sustainability. Moqtada al-Sadr objects to the U.S. presence in Iraq,

and therefore the ministries he controls—Health, Agriculture, and Transportation—will not

work with Americans. It is not clear that Iraqis can or will maintain and operate reconstruction

projects launched by the United States.

Several senior military officers commented to us that the Commander’s Emergency

Response Program, which funds quick-impact projects such as the clearing of sewage and the

restoration of basic services, is vital. The U.S. Agency for International Development, in

contrast, is focused on long-term economic development and capacity building, but funds have

not been committed to support these efforts into the future. The State Department leads seven

Provincial Reconstruction Teams operating around the country. These teams can have a positive

effect in secure areas, but not in areas where their work is hampered by significant security

constraints.

Substantial reconstruction funds have also been provided to contractors, and the Special

Inspector General for Iraq Reconstruction has documented numerous instances of waste and

abuse. They have not all been put right. Contracting has gradually improved, as more oversight

has been exercised and fewer cost-plus contracts have been granted; in addition, the use of Iraqi

contractors has enabled the employment of more Iraqis in reconstruction projects.

billion to support reconstruction, but less than $4 billion has been delivered.

An important agreement with the Paris Club relieved a significant amount of Iraq’s

government debt and put the country on firmer financial footing. But the Gulf States, including

Saudi Arabia and Kuwait, hold large amounts of Iraqi debt that they have not forgiven.

The United States is currently working with the United Nations and other partners to

fashion the “International Compact” on Iraq. The goal is to provide Iraqis with greater debt

relief and credits from the Gulf States, as well as to deliver on pledged aid from international

donors. In return, the Iraqi government will agree to achieve certain economic reform milestones,

such as building anticorruption measures into Iraqi institutions, adopting a fair legal framework

for foreign investors, and reaching economic self-sufficiency by 2012. Several U.S. and

international officials told us that the compact could be an opportunity to seek greater

international engagement in the country.

The Region

The policies and actions of Iraq’s neighbors greatly influence its stability and prosperity. No

country in the region wants a chaotic Iraq. Yet Iraq’s neighbors are doing little to help it, and

some are undercutting its stability. Iraqis complain that neighbors are meddling in their affairs.

When asked which of Iraq’s neighbors are intervening in Iraq, one senior Iraqi official replied,

“All of them.”

The situation in Iraq is linked with events in the region. U.S. efforts in Afghanistan have

been complicated by the overriding focus of U.S. attention and resources on Iraq. Several Iraqi,

U.S., and international officials commented to us that Iraqi opposition to the United States—

and support for Sadr—spiked in the aftermath of Israel’s bombing campaign in Lebanon. The

actions of Syria and Iran in Iraq are often tied to their broader concerns with the United States.

Many Sunni Arab states are concerned about rising Iranian influence in Iraq and the region. Most

of the region’s countries are wary of U.S. efforts to promote democracy in Iraq and the Middle

East.

Neighboring States

IRAN. Of all the neighbors, Iran has the most leverage in Iraq. Iran has long-standing ties to

many Iraqi Shia politicians, many of whom were exiled to Iran during the Saddam Hussein

regime. Iran has provided arms, financial support, and training for Shiite militias within Iraq, as

well as political support for Shia parties. There are also reports that Iran has supplied

improvised explosive devices to groups—including Sunni Arab insurgents—that attack U.S.

forces. The Iranian border with Iraq is porous, and millions of Iranians travel to Iraq each year to

visit Shia holy sites. Many Iraqis spoke of Iranian meddling, and Sunnis took a particularly

alarmist view. One leading Sunni politician told us, “If you turn over any stone in Iraq today,

you will find Iran underneath.”

U.S., Iraqi, and international officials also commented on the range of tensions between the

United States and Iran, including Iran’s nuclear program, Iran’s support for terrorism, Iran’s

influence in Lebanon and the region, and Iran’s influence in Iraq. Iran appears content for the

U.S. military to be tied down in Iraq, a position that limits U.S. options in addressing Iran’s

nuclear program and allows Iran leverage over stability in Iraq. Proposed talks between Iran and

the United States about the situation in Iraq have not taken place. One Iraqi official told us:

“Iran is negotiating with the United States in the streets of Baghdad.”

SYRIA. Syria is also playing a counterproductive role. Iraqis are upset about what they

perceive as Syrian support for efforts to undermine the Iraqi government. The Syrian role is not

so much to take active measures as to countenance malign neglect: the Syrians look the other

way as arms and foreign fighters flow across their border into Iraq, and former Baathist leaders

find a safe haven within Syria. Like Iran, Syria is content to see the United States tied down in

Iraq. That said, the Syrians have indicated that they want a dialogue with the United States, and

in November 2006 agreed to restore diplomatic relations with Iraq after a 24-year break.

SAUDI ARABIA AND THE GULF STATES. These countries for the most part have been

passive and disengaged. They have declined to provide debt relief or substantial economic

assistance to the Iraqi government. Several Iraqi Sunni Arab politicians complained that Saudi

Arabia has not provided political support for their fellow Sunnis within Iraq. One observed that

Saudi Arabia did not even send a letter when the Iraqi government was formed, whereas Iran has

an ambassador in Iraq. Funding for the Sunni insurgency comes from private individuals within

Saudi Arabia and the Gulf States, even as those governments help facilitate U.S. military

operations in Iraq by providing basing and overflight rights and by cooperating on intelligence

issues.

As worries about Iraq increase, the Gulf States are becoming more active. The United Arab

Emirates and Kuwait have hosted meetings in support of the International Compact. Saudi

Arabia recently took the positive step of hosting a conference of Iraqi religious leaders in Mecca.

Several Gulf States have helped foster dialogue with Iraq’s Sunni Arab population. While the

Gulf States are not proponents of democracy in Iraq, they worry about the direction of events: -

battle-hardened insurgents from Iraq could pose a threat to their own internal stability, and the

growth of Iranian influence in the region is deeply troubling to them.

TURKEY. Turkish policy toward Iraq is focused on discouraging Kurdish nationalism, which

is seen as an existential threat to Turkey’s own internal stability. The Turks have supported the

Turkmen minority within Iraq and have used their influence to try to block the incorporation of

Kirkuk into Iraqi Kurdistan. At the same time, Turkish companies have invested in Kurdish

areas in northern Iraq, and Turkish and Kurdish leaders have sought constructive engagement on

political, security, and economic issues.

The Turks are deeply concerned about the operations of the Kurdish Workers Party

(PKK)—a terrorist group based in northern Iraq that has killed thousands of Turks. They are

upset that the United States and Iraq have not targeted the PKK more aggressively. The Turks

have threatened to go after the PKK themselves, and have made several forays across the border

into Iraq.

JORDAN AND EGYPT. Both Jordan and Egypt have provided some assistance for the Iraqi

government. Jordan has trained thousands of Iraqi police, has an ambassador in Baghdad, and

King Abdullah recently hosted a meeting in Amman between President Bush and Prime

Minister Maliki. Egypt has provided some limited Iraqi army training. Both Jordan and Egypt

have facilitated U.S. military operations—Jordan by allowing overflight and search-and-rescue

operations, Egypt by allowing overflight and Suez Canal transits; both provide important

cooperation on intelligence. Jordan is currently home to 700,000 Iraqi refugees (equal to 10

percent of its population) and fears a flood of many more. Both Jordan and Egypt are concerned

about the position of Iraq’s Sunni Arabs and want constitutional reforms in Iraq to bolster the

Sunni community. They also fear the return of insurgents to their countries.

The International Community

The international community beyond the United Kingdom and our other coalition partners has

played a limited role in Iraq. The United Nations—acting under Security Council Resolution

1546—has a small presence in Iraq; it has assisted in holding elections, drafting the

constitution, organizing the government, and building institutions. The World Bank, which has

committed a limited number of resources, has one and sometimes two staff in Iraq. The

European Union has a representative there.

Several U.S.-based and international nongovernmental organizations have done excellent

work within Iraq, operating under great hardship. Both Iraqi and international nongovernmental

organizations play an important role in reaching across sectarian lines to enhance dialogue and

understanding, and several U.S.-based organizations have employed substantial resources to help

Iraqis develop their democracy. However, the participation of international nongovernmental

organizations is constrained by the lack of security, and their Iraqi counterparts face a

cumbersome and often politicized process of registration with the government.

The United Kingdom has dedicated an extraordinary amount of resources to Iraq and has

made great sacrifices. In addition to 7,200 troops, the United Kingdom has a substantial

diplomatic presence, particularly in Basra and the Iraqi southeast. The United Kingdom has

been an active and key player at every stage of Iraq’s political development. U.K. officials told

us that they remain committed to working for stability in Iraq, and will reduce their

commitment of troops and resources in response to the situation on the ground.

treasure. As of December 2006, nearly 2,900 Americans have lost their lives serving in Iraq.

Another 21,000 Americans have been wounded, many severely.

To date, the United States has spent roughly $400 billion on the Iraq War, and costs are

running about $8 billion per month. In addition, the United States must expect significant “tail

costs” to come. Caring for veterans and replacing lost equipment will run into the hundreds of

billions of dollars. Estimates run as high as $2 trillion for the final cost of the U.S. involvement

in Iraq.

Despite a massive effort, stability in Iraq remains elusive and the situation is deteriorating.

The Iraqi government cannot now govern, sustain, and defend itself without the support of the

United States. Iraqis have not been convinced that they must take responsibility for their own

future. Iraq’s neighbors and much of the international community have not been persuaded to

play an active and constructive role in supporting Iraq. The ability of the United States to shape

outcomes is diminishing. Time is running out.

United States, the region, and the world.

Continuing violence could lead toward greater chaos, and inflict greater suffering upon the

Iraqi people. A collapse of Iraq’s government and economy would further cripple a country

already unable to meet its people’s needs. Iraq’s security forces could split along sectarian lines.

A humanitarian catastrophe could follow as more refugees are forced to relocate across the

country and the region. Ethnic cleansing could escalate. The Iraqi people could be subjected to

another strongman who flexes the political and military muscle required to impose order amid

anarchy. Freedoms could be lost.

Other countries in the region fear significant violence crossing their borders. Chaos in Iraq

could lead those countries to intervene to protect their own interests, thereby perhaps sparking a

broader regional war. Turkey could send troops into northern Iraq to prevent Kurdistan from

declaring independence. Iran could send in troops to restore stability in southern Iraq and

perhaps gain control of oil fields. The regional influence of Iran could rise at a time when that

country is on a path to producing nuclear weapons.

Ambassadors from neighboring countries told us that they fear the distinct possibility of

Sunni-Shia clashes across the Islamic world. Many expressed a fear of Shia insurrections—

perhaps fomented by Iran—in Sunni-ruled states. Such a broader sectarian conflict could open a

Pandora’s box of problems—including the radicalization of populations, mass movements of

populations, and regime changes—that might take decades to play out. If the instability in Iraq

spreads to the other Gulf States, a drop in oil production and exports could lead to a sharp

increase in the price of oil and thus could harm the global economy.

Terrorism could grow. As one Iraqi official told us, “Al Qaeda is now a franchise in Iraq,

like McDonald’s.” Left unchecked, al Qaeda in Iraq could continue to incite violence between

Sunnis and Shia. A chaotic Iraq could provide a still stronger base of operations for terrorists

who seek to act regionally or even globally. Al Qaeda will portray any failure by the United

States in Iraq as a significant victory that will be featured prominently as they recruit for their

cause in the region and around the world. Ayman al-Zawahiri, deputy to Osama bin Laden, has

declared Iraq a focus for al Qaeda: they will seek to expel the Americans and then spread “the

jihad wave to the secular countries neighboring Iraq.” A senior European official told us that

failure in Iraq could incite terrorist attacks within his country.

The global standing of the United States could suffer if Iraq descends further into chaos.

Iraq is a major test of, and strain on, U.S. military, diplomatic, and financial capacities.

Perceived failure there could diminish America’s credibility and influence in a region that is the

center of the Islamic world and vital to the world’s energy supply. This loss would reduce

America’s global influence at a time when pressing issues in North Korea, Iran, and elsewhere

demand our full attention and strong U.S. leadership of international alliances. And the longer

that U.S. political and military resources are tied down in Iraq, the more the chances for

American failure in Afghanistan increase.

Continued problems in Iraq could lead to greater polarization within the United States.

Sixty-six percent of Americans disapprove of the government’s handling of the war, and more

than 60 percent feel that there is no clear plan for moving forward. The November elections were

largely viewed as a referendum on the progress in Iraq. Arguments about continuing to provide

security and assistance to Iraq will fall on deaf ears if Americans become disillusioned with the

government that the United States invested so much to create. U.S. foreign policy cannot be

successfully sustained without the broad support of the American people.

Continued problems in Iraq could also lead to greater Iraqi opposition to the United

States. Recent polling indicates that only 36 percent of Iraqis feel their country is heading in the

right direction, and 79 percent of Iraqis have a “mostly negative” view of the influence that the

United States has in their country. Sixty-one percent of Iraqis approve of attacks on U.S.-led

forces. If Iraqis continue to perceive Americans as representing an occupying force, the United

States could become its own worst enemy in a land it liberated from tyranny.

These and other predictions of dire consequences in Iraq and the region are by no means a

certainty. Iraq has taken several positive steps since Saddam Hussein was overthrown: Iraqis

restored full sovereignty, conducted open national elections, drafted a permanent constitution,

ratified that constitution, and elected a new government pursuant to that constitution. Iraqis may

become so sobered by the prospect of an unfolding civil war and intervention by their regional

neighbors that they take the steps necessary to avert catastrophe. But at the moment, such a

scenario seems implausible because the Iraqi people and their leaders have been slow to

demonstrate the capacity or will to act.

the region, and the world, the Iraq Study Group has carefully considered the full range of

alternative approaches for moving forward. We recognize that there is no perfect solution and that

all that have been suggested have flaws. The following are some of the more notable

possibilities that we have considered.

Sections:

1. Precipitate Withdrawal
2. Staying the Course
3. More Troops for Iraq
4. Devolution into Three Regions