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For 18 years, the talented saxophonist Alan Greenspan served as chairman of the U.S. Federal Reserve Board. In the past, statements by the 82-year-old politician/economist aroused economic upheavals. But in his book, "The Age of Turbulence: Adventures in a New World," published last September, he inserted one sentence that was meant to bring about a major tempest, this time in the political arena.

"I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil," Greenspan wrote. On the fifth anniversary of the start of the Iraq war, which was marked last Thursday, Greenspan's assessment may anger many in Washington and London, but it is not inaccurate.

The world's five largest oil companies are now awaiting the decision of the Iraqi oil minister, Hussein Al-Shahristani, who will determine which firm will receive the franchise for developing Iraq's huge oil fields and who will win the contracts to provide technical assistance for the oil industry. ConocoPhillips, Exxon, Chevron and Shell are standing in line, but Russian companies such as Lukoil are not waiting on the sidelines either, and the same is true of dozens of small companies that are competing for the tremendous oil and gas reserves that lie under Iraqi soil.

Iraq holds the key to future global oil prices, and more importantly, to the global supply of oil. According to U.S. Energy Information Administration estimates, in 2010, Saudi Arabia will produce a mere 11.4 million barrels of oil per day, and not 14.7 million barrels, which was the previous estimate. The International Energy Commission estimates that in 2030, the global demand for oil will be 116 million barrels per day, as compared to 85 million barrels at present. These dramatic figures are dictating the manner in which the U.S. and the entire world relate to Iraq.

But five years after Saddam Hussein's regime was toppled, the level of Iraq's oil production has merely returned to what it was in the year preceding the war, about 2.6 million barrels per day. Shahristani estimates and hopes that within four years, production will reach 6 million barrels per day. That may be an encouraging forecast, but even now it is clear that a substantial percentage of the oil produced is stolen from the country by smugglers, who export it independently to neighboring countries.

At a meeting with local journalists about two weeks ago, Jalil Khalaf Shawil, the police chief of Basra, the largest oil-producing city in southern Iraq, said that "the smuggling in Basra is done via ports over which the government has no control. There are families that own small ports, who are supported by politicians, who benefit from the revenues." He added that Basra is the gateway for smuggling from Afghanistan and Pakistan, via Iran and other countries. Drugs, cars, weapons, explosives - everything passes through Basra.

Sitting on a fortune

The combination of the encouraging reports about the increase in oil production in Iraq and the fantastic oil prices means the country is holding monetary reserves of about $25 billion. This money is sitting in the bank, unused. According to U.S. State Department and World Bank reports, in 2007 the Iraqi oil ministry used only 3 percent of its entire development budget of $3.5 billion. As a whole, the government used only 7 percent of the entire development budget - $10 billion.

Most Iraqis do not have running water, the hours when electricity is available in Baghdad are limited and the surrounding villages only get electricity for two to three hours a day. Most Iraqis are forced to use generators, which run on imported diesel fuel.

A serious shortage of computers, a lack of communications networks and an inexperienced clerical staff mean money transfers from the capital to the districts take weeks and occasionally even months. Money is transferred to the municipalities in secured trucks; every transaction requires the signatures and approval of innumerable officials, who are afraid of taking responsibility for fear of being accused of corruption; receipts and invoices are written by hand; the work hours are limited.

Iraq is sitting on a fortune, but cannot rehabilitate itself. The absurd thing is that the U.S. expenditure for the rehabilitation of Iraq to date totals about $47 billion, and Congress is now discussing next year's development budget. Members of Congress are wondering, justly, why Iraq does not pay for itself.

'Awakening' groups

In spite of the daily terror attacks, which claim dozens of victims, there are still signs that testify to an improvement in the security situation. Ethnic killings are on the decline, as are the attacks by Al-Qaida as well as political and criminal kidnappings. Stores selling motorcycles in Baghdad report that in recent weeks there has been a large increase in the sales of small motorcycles, which do not require Transportation Ministry registration.

These sales can be explained by the fact an improved security situation translates into overcrowding on Baghdad's roads. When the traffic jams lengthen, a motorcycle comes in handy. The price of a small motorbike is about $200, but some even purchase luxury motorcycles for $600. These also require less benzene, which is hard to find in this oil-rich country. Iraq imports its fuel, since its old-fashioned refineries are unable to meet demand.

The Iraqi security forces do not deserve credit for the improvement. It was in fact armed bands of citizens and local militias, called "awakening" groups, who decided to take the law into their own hands and fight the terrorists. Iraqi Prime Minister Nouri al-Maliki at first feared these groups would compete with the country's security forces. He tried to dismantle them and objected to making them part of the official security forces and paying them salaries.

But when the Americans began forming alliances with the locals and paying them salaries, after realizing that the regular Iraqi military and police were not up to the task, Maliki changed his mind. About 14,000 militia members have recently joined the ranks of the police. The problem is that their inclusion has introduced sectarian tension into the regular security force. Some militia members are Sunni, others are Shi'ite. Every one of them has a commander in the police, but he also obeys a tribal head or the leadership of the religious sect to which he belongs. Where will their loyalty lie when they have to work in cooperation?

Ethnic legislation

U.S. President George W. Bush can boast of the Iraqi democracy he established after toppling Saddam. It's true that there is an elected parliament, there is a president, there were elections, there is a constitution and a book of laws. The press may not be free, but it fills the stands on Baghdad's sidewalks and the Web sites. And yes, women also hold senior positions in Iraq.

But it's enough to look at the way laws are passed (or not passed) in the country in order to understand the nature of this new democracy. Last month, parliament was supposed to vote on three laws: the Budget Law, the Districts Law and the Pardon Law. The Budget Law caused profound controversy between the Kurds and others, who wanted to reduce the budget of the Kurdish district from 17 percent to 13 percent of the total budget, arguing that the Kurds do not constitute 17 percent of the all the country's citizens. The Districts Law, which is supposed to grant greater powers to local government, and primarily to grant the district governors more independence, is supported by most Shi'ites. They see it as a basis for building autonomous Shi'ite districts in the country's south, similar to the Kurdish autonomic district. The Pardon Law is supported by the Sunnis, of course, because it is supposed to bring about the release of tens of thousands of prisoners and detainees, most of whom are Sunnis, some of them supporters of Saddam.

The total lack of trust among the groups is reflected in the legislation process. The Kurds did not agree to support the Pardon Law and the Districts Law, fearing that the other ethnic groups would not support the Budget Law. The Sunnis were afraid to support the "other" laws, fearing betrayal when their law came up for a vote. Thus, for weeks Iraq's democracy did not succeed in passing the laws.

But there was a happy ending. Last month, in a sophisticated parliamentary exercise, it was decided to vote on all the laws as a single unit, and so they passed. Ostensibly, this constitutes a successful political deal, as is common in any democracy. But in fact, this is part of a powerful political struggle, in which each ethnic group tests its strength vis-a-vis another group, and the good of the country gets lost among them.

While Iraq is marking five years of occupation - or liberation - this year the Kurds commemorated 20 years since the chemical massacre perpetrated by Saddam in the city of Halabja. Five thousand of the city's residents were killed, and many others were left disabled. The Halabja Museum, with touching simplicity, presents that horror in pictures and paintings. Last week the traffic in Kurdistan was stopped for one minute, in order to commemorate the day. At festive rallies the Kurdish leaders promised to invest millions of dollars to support the families of the victims. They will also propose to the United Nations to declare March 16 a global day of protest against the use of chemical weapons. They even promise to sue the countries that helped Saddam build his chemical weapons industry. But these same countries are now doing good business with Iraq, from which the Kurds also benefit.