* South Asia, North Africa, Middle East face challenges
* Risk of water conflicts seen rising after 10 years
* Cites need for more efficient water use in agriculture
By Andrew Quinn
WASHINGTON, March 22 Fresh water supplies are unlikely to keep up with global demand by 2040, increasing political instability, hobbling economic growth and endangering world food markets, according to a U.S. intelligence assessment released on Thursday.
The report by the office of the Director of National Intelligence said that areas including South Asia, the Middle East and North Africa will face major challenges in coping with water problems that could hinder the ability to produce food and generate energy.
The report said that a "water war" was unlikely in the next 10 years, but that the risk of conflict would grow with global water demand likely to outstrip current sustainable supplies by 40 percent by 2030.
"Beyond 10 years we did see the risk increasing," a senior U.S. intelligence official told reporters. "It depends upon what individual states do and what actions are taken right now to work water management issues between states."
The official declined to discuss the risks for specific countries, but in the past water disputes have contributed to tensions between rivals including nuclear-armed India and Pakistan, Israel and the Palestinians, and Syria and Iraq.
The report, drafted principally by the Defense Intelligence Agency and based on a classified national intelligence estimate, said that water in shared basins would increasingly be used by states to pressure their neighbors.
"The use of water as a weapon or to further terrorist objectives also will become more likely," it said, noting that vulnerable water infrastructure was a tempting target.
The U.S. State Department requested the report, which is part of an effort by the Obama administration to assess how long-term issues such as climate change may affect U.S. national security.
U.S. Secretary of State Hillary Clinton is due to hold an event on Thursday to announce a new public-private initiative to grapple with water issues.
The report said that during the next 10 years, the over-pumping of ground water supplies in some agricultural areas will pose a risk to food markets and cause social disruption if mitigating steps such as drip irrigation and improved agricultural technology are not implemented.
It also said that through 2040 water shortages and pollution would likely harm the economic performance of important U.S. trading partners by limiting the use and development of hydro power, an important source of electricity for developing countries.
The report rated the management of several key water basins, and said the risks were greatest for the Brahmaputra which flows through India and Bangladesh and the Amu Darya in central Asia.
It said the chief drivers of increased water demand over the next 10 years would be population growth and economic development, although the impacts of climate change will play a growing role, particularly after 2040.
While the intelligence community believes there is no technological "silver bullet" on the horizon to improve water management, the report said the most important step to address the problem would be more efficient use for agriculture, which accounts for 70 percent of global fresh water use.
It also said the United States, which has expertise in water management in both the public and private sectors, could help lead in developing policies for improved global water use and international cooperation.
"The United States has opportunities for leadership, but we also saw it being a risk that if the United States wasn't engaged in exercising that leadership, other states would step up to do that," the intelligence official said. (Editing by Vicki Allen)