The report, drafted by a panel assembled by the James A. Baker III Institute for Public Policy at Rice University and the Council on Foreign Relations, was submitted this week to the White House energy task force headed by Vice President Dick Cheney.
In its comprehensive look at the United States' energy situation, the panel warned that increasing domestic energy supplies and reducing consumption would not be enough to insulate the United States from the ups and downs of world oil markets, particularly in the volatile Middle East.
"Tight markets have increased U.S. and global vulnerability to disruption and provided adversaries undue potential influence over the price of oil," the report said. "Iraq has become a key 'swing' producer, posing a difficult situation for the U.S. government."
Political turmoil in the Middle East, including the Arab-Israeli conflict and potential internal unrest in the Persian Gulf states, gives Iraqi dictator Saddam Hussein greater leverage in using his vast oil reserves as an economic and diplomatic weapon.
To offset Iraq's "destabilizing influence" in the Middle East, the panel recommended the United States and its allies consider refocusing the sanctions more toward curbing Baghdad's weapons development programs and less on stifling the Iraqi economy to the detriment of its everyday citizens.
"The United States should develop an integrated strategy with key allies in Europe and Asia and with key countries in the Middle East to restate the goals with respect to Iraqi policy and to restore a cohesive coalition of key allies," the report said. "Goals should be designed in a realistic fashion, and they should be clearly and consistently stated and defended to revive U.S. credibility on this issue."
Once a new sanctions policy is agreed upon, restrictions on the Iraqi oil industry could be relaxed to allow more barrels of crude on to the world market, although such a move would not be without risk.
"Like it or not, Iraqi reserves represent a major asset that can quickly add capacity to world oil markets and inject a more competitive tenor to oil trade," the report said. "However, such a policy will be quite costly as this trade-off will encourage Saddam Hussein to boast of his 'victory' against the United States, fuel his ambitions, and potentially strengthen his regime."
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