Letter #1

December 2, 2005

Dear Colleague:

As Congress continues to debate policy options in Iraq, I believe that we have a responsibility to thoroughly examine information that is available related to the security, economic, and political conditions in that country. Some debate that has occurred both inside and outside of Congress has not been well informed or has failed to acknowledge the complexities that we face as we try to achieve stability in Iraq.

Congress, like the President, must speak with credibility about Iraq. Public confidence in our decision-making depends on the rigorousness of our research on Iraq and our understanding of the nuances of the policy choices before us. Even as we urge Administration officials to be forthcoming with accurate and complete information on Iraq, we have an obligation to absorb the information they provide and seek out as many other knowledgeable sources as possible. The quality of Congressional debate has an impact on events in Iraq and our prospects for success. It is followed closely by our coalition allies, our enemies, our troops, and the Iraqi people. We should continually strive to elevate our debate by studying thoughtful sources of information and embracing civility in our discourse.

Making an extra effort to educate ourselves on conditions and events in Iraq is particularly important during this time of year, when we will be out of session for several weeks and, therefore, more remote from daily sources of information.

With this in mind, I wanted to call your attention to the attached report produced by the Brookings Institution. The Iraq Index provides a broad spectrum of data on innumerable security, economic, and political factors affecting the situation on the ground in Iraq. I believe that all Members would benefit from a careful review of the details presented in this report.

The Iraq Index, overseen and frequently updated at the Brookings Institution by Michael E. O’Hanlon and Nina Kamp, draws on U.S. government reports, as well as other sources. It provides both an excellent snapshot of current conditions in Iraq, and month-by-month comparisons of many important indicators that have received little attention. The report, which was updated on November 28, can be found on the Brookings website at www.brookings.edu/fp/saban/iraq/index.htm.

I hope that you find this resource useful.

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Letter#2

December 7, 2005

Dear Colleague:

With the President's speech today on Iraq and the approaching December 15 Iraqi elections, I want to follow up on my December 2 submission to you of the Brookings Institution's Iraq Index. I am sharing the latest Foreign Relations Committee report entitled Iraq: Assessment of Progress in Economic Reconstruction and Governmental Capacity.

Written as a trip report by one of the Committee's senior staff members, it provides insights into several areas - particularly economic reconstruction and the capacity of Iraqi governing institutions - that will be central to a stable and democratic Iraq. The report also focuses on the U.S. strategy to improve Iraqi institutional capacity, and highlights certain policy reforms that have led to some recent successes, in addition to expanding upon the challenges that lie ahead.

I believe that all Members will benefit from a careful review of this report. The report can also be found on the GPO website at http://www.access.gpo.gov/congress/senate.

I hope you find this resource useful.

In addition to this letter, Lugar issued the following press release with highlights of the report:

U.S. Senate Foreign Relations Committee Chairman Dick Lugar released a new committee report today that assesses the progress of Iraq economic reconstruction and government capacity.

The full committee staff Iraq trip report, S. Prt. 109-40 -- Iraq: Assessment of Progress in Economic Reconstruction and Governmental Capacity, is available at:
http://www.access.gpo.gov/congress/senate/senate11cp109.html.

“Staff found that U.S. and coalition reconstruction projects, investments and other program and policy reforms implemented since 2003 appear to be having a stabilizing effect on the economy,” the report begins. “Iraqis enjoy their new civic and religious freedoms, but some are finding it hard to give up the financial benefits of a state-controlled system.”

On Oil: “Iraq is the world’s second largest oil reserve, with large upside potential from future exploration. The industry, however, remains crippled after decades of sanctions and Saddam’s mismanagement. Current production hovers around 2.3 mbpd (million barrels per day), about a half million below existing feasible capacity because of insurgent attacks in the North and “field decline” in the South . . . Because of steady attacks, money originally allocated for this sector is now limited to repairing existing infrastructure, helping to sustain operations and set the stage for revenue growth. Despite lagging production, the world market oil price increases have boosted revenues.”

“In order not to look as if we had designs on Iraqi oil, the United States has foregone meaningful investment in the one area that would have made the biggest difference, namely Iraq’s oil-exporting infrastructure. Coupled with economic and subsidy reforms, the Iraqis need to repair the pipeline, install storage tanks at the ports and borders so that a pipeline interruption doesn’t mean export interruption, build refineries, and secure the whole system.”

Reducing the fuel subsidy will begin in later this month when the price of gasoline will go from 5 cents to 13 cents a gallon and is supposed to increase to normal market price around $1.82 in 2006.

On Corruption: “While U.S. efforts have helped put in place several institutions to fight corruption and have worked to train and empower Inspectors General, corruption has not abated and we should not expect that it will for quite some time. As one official pointed out, ‘it is not only endemic, it is systemic.’ The Treasury Attaché offered that one cannot just fight corruption by itself. He said that the largest source of corruption is ‘simply the lack of proper modern administration and controls.’ Iraq continues to be a cash economy, and there are no checks and cross-checks in the system. They are very good at record-keeping and receipts, but, ‘you can’t have the guy that wrote the contract paying it too.’

“Reformed systems are coming online. USAID has developed a government-wide strategy to support the automation of planning, budgeting and reporting processes across ministries, including the creation of a Financial Management Information System (FMIS), an accounting and reporting system for all Iraqi ministries. Montran, a payment solutions company, is working with Treasury and OTA to install a direct deposit system for government workers. These and other systems, however, must ultimately be paid for by Iraqi banks and the government of Iraq; a fact the Ministry of Finance understands.”

A US run program has been "providing loans of up to $25,000 through Iraqi-trained loan officers working in a dozen neighborhood offices to provide seed money for small or start up local business, has made more than 16,000 loans disbursing more than $31 million with no write-offs in two years."

The report’s first section also analyzes the electricity and food sectors. The second section analyzes the progress of institution building, legal developments, and provincial government capacity. The final section reviews U.S. Embassy construction, security and staffing.

This is second in a series of letters Chairman Lugar is sending to his colleagues to elevate the congressional debate on Iraq, and to help bring about stability and success in Iraq.

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Letter #3

December 13, 2005

Dear Colleague:

This week, Iraqis are going to the polls for the third time in 2005. They will elect a 275-member Council of Representatives that will form the basis of the permanent Iraqi government. These Representatives will serve four-year terms and will elect a President, a Prime Minister, other government ministers, and the Federal Supreme Court.

In a White House meeting today with President Bush, Vice President Cheney and Secretaries Rice and Rumsfeld, Ambassador Khalilzad and General Casey briefed us from Baghdad about what to expect after Thursday's election. They said that we should anticipate that the work of the Independent Electoral Commission of Iraq to certify election results could take up to three weeks. After elections have been certified, members of the Council of Representatives must undertake the politically complex process of building coalitions and forming a government. The briefers cautioned that given the multiplicity of parties and interests, solidifying a parliamentary government will not be instantaneous. They indicated that under some scenarios, the selection of ministers might not be finalized until April.

The news from Iraq suggests that candidates are campaigning and that interest among voters is extremely high. One poll conducted by the International Republican Institute (IRI) indicates that 85% of eligible Iraqis intend to vote in Thursday’s election. The success of the election is critical for the achievement of stability in Iraq. With more than 200 parties and contestant groups vying for seats in the Representative Council, understanding this parliamentary-style election and the possible outcomes requires a close examination of election procedures and participants. With that it mind, I would like to share with you the enclosed Brief Guide to Iraq General Elections, produced by Danilo Bakovic and his IRI team in Baghdad. The report illuminates the upcoming elections in a concise format.

Mr. Bakovic brings a wealth of personal and professional experience to the task of analyzing transitional elections. A native of Belgrade, he was a member of the executive board of the People's Movement Resistance, which played an important role in peacefully removing the Serbian dictator, Slobodan Milosevic. He also led the "Fight Against Corruption Project” in Serbia and ran as a candidate for parliament.

An electronic version of the Brief Guide to Iraq Elections can be found here . I hope you find this resource useful.

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Letter #4

December 20, 2005

Dear Colleague:

I write to you again this week to share two reports related to Iraq that I hope you will find enlightening as we continue to study the nuances of the policy choices before us. These reports examine how Iran exerts influence on Iraq and how the interplay between Iran and Iraq affects both societies and political systems. The first report, “Iran’s Influence in Iraq ,” is authored by Kenneth Katzman, Specialist in Middle Eastern Affairs at the Congressional Research Service. The second report, “Iran and Iraq: the Shia Connection, Soft Power, and the Nuclear Factor ,” is published by the United States Institute of Peace and authored by Geoffrey Kemp, Director of Regional Strategic Programs at the Nixon Center.

Events in Iraq are not insulated from regional forces. Efforts to stabilize Iraq have been complicated by the geopolitical interests of neighbors, the difficulty of fully controlling Iraq’s frontier, and cross border ethnic and sectarian influences. As the United States assists Iraqis in strengthening their government and economy, our efforts are more likely to succeed if we understand the interests and actions of neighboring nations.

Iran is particularly significant because of its close connections to the Shia majority in Iraq, its history of sponsoring terrorist activities, its pursuit of nuclear weapons, its regional ambitions, and many other factors. Attempts by Iran and other regional actors to exert influence on the Iraqi political process will be especially relevant in the coming weeks and months as the newly-elected Iraqi Council of Representatives attempts to work its way through factional politics to form a permanent government.

In recent weeks, we have heard extremely inflammatory statements from Iranian President Mahmoud Ahmadinejad, and Iran has continued to resist efforts to contain its nuclear program. Beyond Iran’s impact on our efforts in Iraq, we must understand how the outcome in Iraq will affect our pursuit of national security objectives related to Iran and the Persian Gulf region.

I hope you will find these reports useful.

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Letter #5

January 6, 2006

Dear Colleague:

I write to you again to share information about Iraq’s economy. Attached is a short summary of a report from the International Monetary Fund (IMF) that details the December 23, 2005, approval of a Stand-By Arrangement (SBA) for Iraq that is the next step in Iraq’s re-entry into the IMF and world economy. The first step was the Emergency Post-Conflict Agreement (EPCA) entered into in November 2004, which stipulated policy and performance goals for Iraq. The EPCA also allowed small IMF borrowings and led to the first tranche (30%) of debt forgiveness from the Paris Club. According to the Paris Club, Iraq has $120 billion of external debt, approximately $37 billion of which is held by Paris Club members.

Although the SBA did not make headlines, it is a significant event in the economic recovery of Iraq. Although Iraq does not intend to draw funds from the IMF at this time, the SBA is a signal to the market that the country has put policies in place that support economic recovery and growth. Like the EPCA, this agreement is a condition of Paris Club debt reduction, 20% of which is to be forgiven this month. In general, countries enter into an SBA to provide more flexibility in future balance-of-payments transactions.

Iraq Minister of Finance, Dr. Ali Allawi, and Governor of the Central Bank of Iraq, Dr. Sinan Shabibi detailed their economic strategy in their letter to the IMF requesting the SBA. Their goals are “to maintain macroeconomic stability while increasing our efforts to advance Iraq’s transition to a market economy and establish the basis for sustainable growth in the medium term” as well as to reduce “subsidies on petroleum products and the expansion of the market that is now open to the private sector.” We have witnessed already some of these price increases, which media reports have detailed along with protests spurred by those who benefited greatly from illicit activity.

Additional details, including IMF-collected economic indicators, a staff report, and a memorandum detailing economic and fiscal policies that the government of Iraq intends to put in place this year are available on the IMF website (http://www.imf.org).

Finally, as we all wait for Iraq electoral results, I commend to you the Independent Electoral Commission Iraq’s website (http://www.ieciraq.org), where you can now view and download preliminary results.

I hope you will find this information useful.

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Letter #6

January 19, 2006

Dear Colleague:

Iraqis went to the polls three times in 2005. The turnout for the December 15, 2005, election was higher than any we have seen in any national election in this country in our lifetimes. To put this event in perspective, I wanted to share with you an article by Iraq historian and frequent Foreign Relations Committee witness, Dr. Phebe Marr. Her article, “Democracy in the Rough,” appears in the January 2006 issue of Current History magazine. Dr. Marr provides a succinct tutorial on the political evolution that has occurred in Iraq over the last year, some initial perspectives on the election results, and insights into the backroom political haggling and public compromises that will be necessary in the coming months for Iraq to achieve stability.

“Whatever the outcome of the bargaining,” she states, “two results are clear from the December elections. From a relatively unified country with nationalist orientation under most years of the Baathist state, Iraq has now shifted to the politics of cultural identity. Voting has been organized around ethnicity and sect, rather than platforms and mutual interests; indeed, the political process itself has been divisive. As a result, the sense of Iraqi identity has weakened, although it has not yet disappeared entirely. Second, oil will be a key component in holding the state together. Provisions made by the new legislature to develop and distribute the country’s oil resources will be a main determinant of just how much ‘unity’ Iraq may have.”

In analyzing a political strategy to counter the insurgency, Dr. Marr suggests that we look at the motivations of insurgents and put them in three broad categories: (1) foreign Al Qaeda supporters who “are a minority without much local support;” (2) “supporters of Hussein still loose in Iraq; they too are a tiny minority;” and (3) a “far more numerous group is the Iraqi ‘rejectionists.’” She states that the “first two groups are unsuitable negotiating partners for the new government or the United States and are likely to continue their violence. But the new government must begin to deal with the third group, some of whose representatives have just been elected. In time, layers of Sunni opposition must be peeled back and rejectionists brought into the political process. With the December election, this process is well under way. But electoral participation is not enough. Easing some Sunni grievances is also essential, as is greater Sunni acceptance of the new order in Iraq.”

The members of the Foreign Relations Committee and I have appreciated the counsel of Dr. Marr over the years on the complicated matters of Iraqi politics. She writes with pragmatism and a profound understanding of Iraq based on years of study and interaction with the Iraqi people. I commend to you her analysis and the sense of focus she urges in seeing the mission in Iraq through to success.

Democracy in the Rough is reprinted with permission from Current History (January, 2006) c 2006, Current History, Inc.

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Letter #7

January 30, 2006

Dear Colleague:

This week I write to share with you a recently-released Congressionally-mandated report on Iraq produced by the State Department. This quarterly report on progress in Iraq is known as the “2207 Report,” after the section of Public Law 108-106 that mandates it. I encourage all members to become familiar with the report, because it tracks the programs and initiatives being funded by the Iraq Relief and Reconstruction Fund (IRRF) -- the $18.4 billion that Congress appropriated for Iraq in FY 2004.

The report’s length comes from the degree of detail it provides about reconstruction activities and accomplishments in Iraq during the last quarter. Of particular interest are the charts summarizing the IRRF’s status on pages 19-21 and Appendix II cataloging the contributions of other donors.

The 2207 Report documents how American taxpayer dollars are being spent in an effort to create a foundation upon which a stable Iraq can grow. It provides helpful information on the Rule of Law Program (p. I-30), school construction (p. I-113), private sector development (p. I-95), the production of clean water (p. I-70), improved agriculture capacity (p. I-100), and many other areas of interest. Congressional understanding of these efforts is essential, because success in Iraq will depend greatly on how well these programs work.

I hope you find this information useful.

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Letter #8

February 10, 2006

Dear Colleague:

This week, the Committee on Foreign Relations heard from four government officials during an oversight hearing on the U.S.-led stabilization and reconstruction mission in Iraq.

Our witnesses were Stuart Bowen, the Special Inspector General for Iraq Reconstruction; Joseph Christoff, the Director of International Affairs and Trade at the GAO; Ambassador James Jeffrey, the Senior Advisor to the Secretary of State and Coordinator for Iraq Policy; and James Kunder, the Assistant USAID Administrator for Asia and the Near East. Their statements may be found below.

The Committee requested a realistic discussion about what our reconstruction mission can achieve with the money Congress has appropriated. Beyond that, I asked the witnesses to gauge what the Iraqi government itself can achieve and whether other international support will be forthcoming.

Measuring achievement in nation reconstruction, much less one with an ongoing insurgency, is a complex proposition. GAO pointed out that although broad goals have been set for Iraq reconstruction, “limited performance data and measures make it difficult to determine and report on the progress and impact of U.S. reconstruction.” Mr. Christoff offered an example of why we need better metrics:

As we all know, lack of security has also affected outcomes. In addition to the effects of attacks, Mr. Bowen noted that of the $18.5 billion appropriated in FY 2004 to stabilize and reconstruct Iraq, $5.8 billion has been used to train and equip security forces. This is an expense that reconstruction planners did not envision in the comparative calm that existed in the summer of 2003. On top of this diversion, Ambassador Jeffrey estimated that 20 percent or more of the spending associated with individual contracts has been devoted to personnel and fixed site security. Together, these factors have diminished the effect of each reconstruction dollar.

An unclassified chart on page six of Mr. Christoff’s testimony, compiled from DIA data, shows that attacks on infrastructure number approximately 500 per month. Noting the effects that this has had on the critical areas of power generation and oil output, Mr. Bowen stated:

Iraqis have taken steps to turn this around, with more than $3 billion budgeted for oil infrastructure improvements this year. Nevertheless, as we read in recent news reports, corruption is systemic. An Iraqi official who was to direct infrastructure protection forces embezzled the money and was last known to be in Syria. Our witnesses acknowledged that these reports were true. With 95 percent of Iraq’s budget dependent on oil revenues, Iraqis have a vital interest in ending corruption and reducing the number of terrorist attacks against oil infrastructure.

As we proceed into the budget cycle for 2007 and evaluate the funding levels requested for Iraq, a finite set of measurable goals is necessary to provide the Congress and the American people with an estimate of the level of reconstruction effort that must be sustained. Noting that the initial $20-plus billion U.S. reconstruction program would soon be coming to an end in Iraq, Ambassador Jeffrey said: “We do not anticipate the U.S. Government and the American taxpayer providing funds of that magnitude. As I said, we'll be looking to the Iraqis themselves, and the international community, the international financial institutions to take on that burden.” He also shared (as was detailed in the 2207 Report I sent to you previously) that international donors have made good on only $3.2 billion of their more than $13 billion of commitments.

We must make certain that any new funds are being distributed according to a clear set of priorities; we must work with the new Iraqi government to help it stem corruption; and we must work to ensure that local and regional leaders are capable of protecting water, electrical, and other infrastructure projects as we phase down our military involvement. I was impressed by our witnesses’ candor about the challenges ahead, and hope that you find their analysis to be useful.

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Letter #9

February 28, 2006

Dear Colleague:

I write to share with you a quarterly report prepared by the Department of Defense entitled: “Measuring Stability and Security in Iraq .” A similar report was originally mandated by Public Law 109-13. This one is submitted under the requirements of Section 9010 of the 2006 DoD Appropriations Act (PL 109-148).

You may find this report helpful as you discuss and evaluate ongoing efforts to stabilize Iraq. It also is relevant to Congress’ consideration of the President’s budget submission for 2007 and the supplemental appropriations bill for 2006. As you may know, the supplemental includes another $3.7 billion to continue moving the Iraqi security forces toward a successful stand-alone operational capacity.

The explosions last Wednesday at the shrine of the Imams Ali al-Hadi and Hasan al-Askari in Samarra – one of the most revered Shiite sites in Iraq – has highlighted again the importance of the preparedness of the Iraqi security forces. Accurately measuring their readiness, leadership, and support mechanisms is a key to understanding the prospects for stabilizing the country and thereby achieving our political and economic objectives.

The relief and reconstruction information in the attached report mirrors that included in the 2207 Report, which I sent to you on January 30th. Beginning on page 22, the security environment is addressed in depth with subsections on the enemy, militias, attack trends, sectarian conflict, and Iraqi perceptions of security. A section on the training and performance of security forces begins on page 34.

I found the five-page section entitled “Attack Trends” of great interest, as well as the description of “a growing split between the mainstream Sunni Arab population and the terrorist and foreign fighters.” The report also provides helpful commentary on the militia question and data on many subjects, including the number of Iraqi battalions in combat and recruitment projections. In addition, the report describes the challenges faced by advisors from the Departments of Defense, State, and Justice and the Multi-National Security Transition Command in building the institutions necessary to ensure that Iraqi forces can stand independently.

A classified annex to this report is available at relevant Committees. I hope that you find this information useful.

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Letter #10

March 31, 2006

Dear Colleague:

Four months ago, I shared with you a copy of “The Iraq Index,” a report produced by the Brookings Institution. I wanted to provide you with the latest update of this statistical compilation as we continue to examine U.S. policy in Iraq.

The Iraq Index provides a broad spectrum of data on innumerable security, economic, and political factors affecting the situation on the ground in Iraq. I believe that all Members would benefit from a careful review of the details presented in this report.

The report is available on the Brookings website .

I also wanted to alert you that -- as of this writing -- Ambassador Zalmay Khalilzad is scheduled to visit Congress and appear before the Senate Foreign Relations Committee on Tuesday April 4, at 2:30 p.m. If events allow Ambassador Khalilzad to maintain this schedule, it will be an important opportunity for Members of Congress to review the situation in Iraq and assess how we can contribute to a successful outcome. I plan to circulate his testimony so that all members may read it.

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Letter #11

April 28, 2006

Dear Colleague:

In appointing a new Prime Minister, Iraq’s Council of Representatives, on behalf of the Iraqi people, have reached a watershed moment in the modern history of Iraq. The poll , conducted by the International Republican Institute (IRI) puts into perspective some of the pressing issues that Prime Minister Nuri Kamil al-Maliki and his soon-to-be appointed cabinet will have to address. The poll was constructed from more than 2,800 face-to-face interviews during the last week of March.

The first few slides indicate that more than half of Iraqis polled think their country is heading in the wrong direction and that a growing number of Iraqis expect conditions in their country to be “worse” or “much worse” six months, one year, and five years into the future. With these sobering numbers as a basis, subsequent questions in the poll provide insight as to what priorities Mr. Al-Maliki might consider, how Iraqis themselves view those problems, and how U.S. efforts might be most constructive.

The poll found that 76 percent of Iraqis regarded security conditions as poor, and 48 percent believed it should be the number one priority of the new government. The poll provided some encouragement that the reputation of Iraqi national security forces is improving. According to the poll, Iraqis see their national security forces as the best hope for security. When asked who they trusted to protect their “personal safety,” 78 percent said either the Iraqi police or the Iraq army. Only 4 percent said they trusted the armed militias with their security, while 6 percent said they trusted the insurgents. When given the more narrow choice of having their safety “ensured by a national Iraqi military force” or a “specific militia,” 87 percent chose the former, and 80 percent responded that armed militias “make Iraq more dangerous, and should thus be abolished.”

Economic challenges are also on the mind of Iraqis, with 76 percent saying that wages have gotten worse or much worse in the last three months. They expressed opposition to removing gas subsidies – a key to reducing corruption, smuggling, and black market activities. Most were against this action because of their own economic situation.

Politically, 45 percent of Iraqis favored the formation of a unity government, with only 25 percent indicating that the winning coalition “should occupy all top government posts.” They also overwhelmingly rejected violence to solve problems, as 96 percent stated that the Samarra mosque bombing was an unacceptable form of expression. As the Iraqis work toward national reconciliation, they listed federalism and sectarianism as potential obstacles.

The poll is available on this webpage and on the IRI website (www.iri.org). I found this polling data useful, and hope that you will as well.

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Letter #12

May 26, 2006

Dear Colleague:

Attached is an excellent resource that I wanted to share with you. It is the Reference Guide to the New Iraqi Government prepared by the Public Affairs Section of the U.S. Embassy in Baghdad.

The Guide includes a complete list of the Council of Ministers (who formally took office on May 20), profiles of senior elected officials, and an English translation of the speech Prime Minister Nuri al-Maliki gave at the inauguration of the Council of Ministers. Also included is the text of the Iraqi Constitution that was approved by referendum last October.

The list of cabinet ministers, approved by the 275-member Council of Representatives, indicates the breadth of the coalition that will govern Iraq for the next four years. This diversity improves the prospects that the political and sectarian divisions that have cut violently into Iraqi society can be overcome to institutionalize a functional government.

As we increasingly look to the Iraqi government to lead their own affairs, it is important that we come to know its new leaders and begin to identify Iraq with them. The Prime Minister’s inaugural address lays out an ambitious 33-point plan that would be difficult for an established government to achieve, but represents a monumental challenge for one emerging from decades of conflict and autocracy. Iraqis will need a great deal of help, not only from the United States, but increasingly from regional and international actors who have not been full partners in the coalition to date. I was pleased to learn, for example, that the World Bank has expanded its office in Baghdad with up to six international staff who will be working on programs funded by pledges made at the 2003 Madrid conference. To date, approximately $454 million from 17 donor states has been received by the World Bank trust fund.

The Guide can be found on my website. I hope you find the information it contains useful.

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Letter #13

June 30, 2006

Dear Colleague:

I write to share with you two reports exploring one of the most critical elements in Iraq’s transition – the status of its oil industry.

The first report is the most recent update of the Energy Information Agency’s profile on Iraq , which was released yesterday. It provides excellent data on oil and oil byproduct production and consumption, and it explores broader energy issues, including electricity production. The report also provides historical context that frames the potential of future Iraqi oil exports and energy production.

The second item is a translated report entitled, “Smuggling Crude Oil and Oil Products, Second Transparency Report,” from the Inspector General of the Iraqi Ministry of Oil. Officials from the Office of the Special Inspector General for Iraqi Reconstruction and senior managers in our Baghdad Embassy view the report as a credible depiction of corruption in the oil sector. Many regard the issuance of this report by Ali Al Alak, the Iraqi IG, to be a bold step. The concept of an Inspector General is new to Iraq, and the IG does not yet have a great deal of legal standing.

The IG report details numerous episodes of oil smuggling and graft. It also points out the factors leading to smuggling, including the differential between oil prices in Iraq and those in neighboring countries. The report goes on to recommend measures that should be taken by the Oil Ministry and the Iraqi Government to contain oil smuggling and corruption. These include enacting legislation that increases penalties for smuggling activities, improving monitoring and testing equipment, and establishing a department whose core mission is combating oil smuggling and other forms of corruption related to natural resources.

I hope you find this information useful.

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Letter #14

July 14, 2006

Dear Colleague:

Yesterday, the Senate Committee on Foreign Relations held its 32nd hearing on the situation in Iraq since the eve of the war in 2003. Our witness was the U.S. Ambassador to Iraq, the Honorable Zalmay Khalilzad, who took over the job in Baghdad approximately one year ago.

Attached is the statement Ambassador Khalilzad delivered before the Foreign Relations Committee , as well as a copy of the speech he made on Tuesday, July 11th at the Center for Strategic and International Studies.

The Ambassador emphasized the “positive developments, which give the Iraqi government and friends of Iraq real hope.” But he also described “several challenges to Iraq’s new government [that] persist or have become more severe and will require adjustments and new efforts to resolve.”

During his responses to questions from Senators, the Ambassador stated: “I urge that we be patient, because the issues that the Iraqis are dealing with are difficult, complicated issues that will take time to resolve….I believe that they are moving in the right direction, but there are also countervailing forces, both internal and regional, that would like this Iraq not to succeed.” He listed five efforts that he and his Embassy team are pursuing to stem sectarian violence and bring about stability in Iraq.

I hope you find the Ambassador’s statements helpful as the Congress continues to consider policy options related to Iraq.

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Letter #15

July 31, 2006

Dear Colleague:

I write to bring your attention to a Congressionally-mandated quarterly report on Iraq that the State Department released this week. The 2207 Report, named after the section of Public Law 108-106 that mandates it, details the programs funded by the Iraq Relief and Reconstruction Fund (IRRF). Congress appropriated $18.4 billion for this fund in FY 2004.

According to the report, more than 90 percent of these funds have been obligated and many of the IRRF projects will be completed in the coming quarter. The report provides comprehensive information on what these monies have yielded and what remains to be done.

In addition to statistics about reconstruction in the oil and electrical sectors, the report examines the Community Action Program, (p. I-42). It describes how appropriated dollars are seeking to help rehabilitate Iraq through local reconstruction projects that not only build infrastructure, but strengthen civil society by requiring citizen participation. The CAP program, operated since 2003 by several NGO’s under the auspices of USAID, is being expanded and adapted into the Provincial Reconstruction Team agenda to promote transparency and accountability and encourage local buy-in. USAID’s website has further data on this $75 million per year program.

I would also call your attention to the section on Market-Based Reforms (p. I-109). It includes information about the establishment of a Center for Development and Economic Dialog and about how micro-finance programs are being implemented to spur small business development.

The 2207 Report can be found on the Department of State website. I hope you find this information useful.

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