Biden "optimistic within limits" on Iraq

By Andrew Quinn

WASHINGTON (Reuters) - Iraq's feuding leaders may be nudged toward political compromise by one hard fact: as the U.S. military occupation ends, Iraq still badly needs American help to rebuild, U.S. Vice President Joe Biden said on Sunday.

"They very much want a stable agreement with us, which has nothing to do with the military and everything to do with getting what they need," Biden said in an interview at the end of a three-day visit to Baghdad as President Barack Obama's new lead official on Iraq policy.

"They know that relationship is not going to get stronger, closer and more engaged if they are fighting internal battles," he said.

Biden's Iraq trip, his first since becoming vice president, took place at a crossroad in relations between Washington and Baghdad as U.S. leverage in the country moves from the battlefield to the negotiating table.

U.S. forces pulled out of Iraq's towns and cities on June 30 under a security pact that paves the way for a full U.S. withdrawal by 2012. But there is concern that Iraq has not made enough political progress to prevent more fighting.

In another development, Iraq's first auction of contracts to develop its vast oil reserves ended with only one lot sold for foreign exploitation -- a sign that Iraq's hopes of quick oil riches may be deferred for some time.

Biden, who on Iraqi matters calls himself "an optimist within limits", said he continued to have a largely positive outlook on the country's future.

"They are realistic," he said. "They are fully cognizant that if they don't resolve these political issues, they've got a problem."

IRAQ STILL "TOP SHELF" ISSUE FOR U.S.

Washington has reason to hope because the violence that exploded after the 2003 U.S.-led invasion has dropped sharply.

But there remain deep divisions between Iraq's majority Shi'ite Arabs, Sunni Arabs, ethnic Kurds and other minorities, which some fear could yet threaten Iraq's future stability.

Iraqi leaders themselves are anxious, and Biden said they repeatedly asked him if their country remains a top U.S. priority as the Obama administration shifts its military focus to Afghanistan and grapples with the global financial crisis.

"They said, 'You've taken us off the top shelf. We're now on the bottom shelf'," Biden said. "I said: 'Well, you're not.'"

Iraq is due to hold elections in January and Obama has pledged to end combat operations there by August 2010 -- which doesn't leave much time to foster peaceful dialogue on disputes ranging from internal boundary issues to oil revenues.

During his visit, Biden warned Prime Minister Nuri al-Maliki that resurgent ethnic or sectarian violence could undermine future U.S. engagement, U.S. officials said.