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Replacing Dinars for Dollars: Iraq’s Security Forces and Oil Sharing Law March 22, 2010

Posted by Matthew Leatherman in Analysis.
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Military force does not solve political problems.  It’s the first principle of modern war, but that hasn’t stopped Congress and the Administration from trying to buy a military solution to Iraq’s political problem.

“With the Government of Iraq’s inability to achieve its oil revenue goals and the related decline in its cash reserves,” the Department of Defense observed, “[Iraq Security Forces] are not likely to get the resources they need over the next few years.”  DOD’s budget justification consequently insists that the “requested U.S. funding for FY 2010 and FY 2011 is key to the Iraq Security Forces achieving the minimum essential capability.”

Congress has bought this logic quite literally, spending over $18 billion since FY2005 to provide the Iraqi Security Forces (ISF) with “equipment, supplies, services, training, facility and infrastructure repair, renovation, construction, and funding.” (§1512).  This is in addition to the training provided by tens of thousands of service-members and contractors deployed in Iraq.  If the FY10 supplemental and FY11 budget requests are fully enacted, that total will grow by another $3 billion.  Paradoxically, next year would double this year’s spending just as U.S. forces are completing their withdrawal.

Replacing dinars from oil production with dollars in security assistance lets the Iraqi government off the hook for passing a revenue sharing law.  Political resolution on how to share oil profits, not DOD-driven security assistance, clearly is the key to the Iraq Security Forces’ capability.  Spending in the absence of that legislation merely subsidizes the Iraqi government’s inaction.

Passing oil revenue sharing legislation is no simple task.  Indeed, beyond the technical arrangements, the structure of the Iraqi state and the identities of the groups that compose it hang in the balance.  Favoring the producing regions benefits disproportionately the Shi’a and Kurdish communities most oppressed by Saddam Hussein and, thus, least inspired by the idea of an Iraqi nation.  Centralizing revenues in Baghdad, by contrast, assists the U.S. in building a viable, unitary state – a cause shared by Sunnis that recently depended on Hussein’s largesse to compensate for lesser oil reserves in their regions.

Encouragingly, Iraq made real headway on this issue in its 2010 budget.  This year Baghdad will distribute an extra dollar to the producing regions for each barrel sold, while also compensating non-producing regions with subsidies unrelated to oil.  The long-term revenue sharing agreement, however, remains unpassed.

This failure reinforces a troubling reality.  The United States needs oil revenue sharing legislation to pass more than many of Iraq’s own leaders.  Ambiguity inspires Kurdish autonomy, creates hope for Shi’a ascendancy, and postpones the expected decline in Sunni power – all while keeping the American cash coming.  The only thing ambiguity doesn’t do, in fact, is support the unitary and stable country needed for the United States to depart.  We therefore continue to pay.

Some ways of paying are better than others, however.  On one hand, we can subsidize the Iraqi government’s inaction by upping our contribution to the ISF even as our troops withdraw.  On the other, we could invest in a diplomatic push that creates incentives for Iraq’s government to pass an oil revenue sharing law and allows us to decrease our assistance.

Investing in a diplomatic push would require redirecting requested money into a new account and allowing Iraqis to distribute it in a way that compensates those that ‘lose’ from revenue sharing negotiations.  Iraqis themselves would be free to decide who ‘won’ and who ‘lost,’ but funds would be released slowly to give the deal staying power – and nothing would be released until that deal is formalized in law.

Realities on the ground probably mean that the U.S. cannot shift all of the ISF funds requested for FY10 and FY11 ($3B) into an account like this.  ISF funding should not increase next year, though.  That merely switches Iraq’s dependency on the U.S. from the military to the financial sector.  Instead, the $1 billion increase requested in FY11 should be redirected to this new account.  Relative to Iraq’s 2010 budget of $72 billion, a billion dollar incentive would truly turn heads – while also allowing the U.S. to end this commitment next year.

The administration missed this point in its budget request.  Congress can still choose, however, to continue replacing dinars with dollars or to switch the flow and begin replacing dollars with dinars.  The only thing it cannot do is change reality: trying to buy a military solution to a political problem is no different than trying to solve that problem outright with military force.

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