U.S. to Take Bigger Bite of Iraq's Economic Pie

But to date all contracts let for "reconstruction" by the U.S. Agency for International Development (USAID) have gone to U.S. firms, which have then subcontracted some work to foreign companies.

Iraq's oil sector is essential both to world energy markets and to the nation's economy. Iraq sits on the planet's second largest oil reserves, after Saudi Arabia, and oil revenues account for more than 95 percent of the country's current budget. (The rest comes mainly from taxes and profits of certain state-owned enterprises).

Iraq is now producing a maximum 2.5 million barrels of oil a day (bpd), which drops to around two million bpd during attacks from the armed opposition.

But Baghdad says it expects to produce 3.5 million bpd when more U.S. companies move in and security improves.

"We found it very useful and interesting to hear the representatives of the government describe some of the preliminary thinking about structuring of the state-owned oil sector in Iraq," said Alan Larson, undersecretary of state for economic, business and agriculture, during the press club conference with Iraqi officials.

Washington is also expanding its influence in Iraq's oil sector via training programmes.

One major move the country is inching towards under U.S. guardianship, which was discussed this week, is a rollback of Iraq's huge subsidies system, which may have kept millions of Iraqis from starvation under U.S. and UK-backed sanctions imposed by the United Nations after the 1991 Gulf War.

The sanctions lasted for 12 years. A study by the U.N. Children's Fund (UNICEF) and Iraq's Ministry of Health found that 500,000 more Iraqi children died under sanctions, from 1991 to 1998, than would have otherwise perished, but they stressed that not all the deaths could be directly blamed on the provisions.

It is believed that many more Iraqis would have died if not for a strong subsidies system that gave food rations to Iraqi families.

Under its October agreement with the IMF, Baghdad's interim leaders agreed to cut the support, among many other conditions. Officials defended the move during their Washington visit.