While security improvements in Iraq are continuing, the training and equipping of Iraqi forces could be hampered by the global economic crisis and drop in oil prices.

According to the Pentagon’s latest quarterly report on the Iraq war, the economic challenges could "curtail the rate at which Iraqi forces can become fully modernized, self sufficient, and [counter-insurgency] capable, particularly in the near term."

Plans to add around 40,000 Iraqi troops by 2010 might need to be delayed as a result.

The decline in oil prices means that the Iraqis now face a budget deficit of around $20 billion in 2009, the report said.

Iraqi forces continue to rely on American troops for logistics, fire support, close-air support, communications, planning and intelligence, "particularly in northern Iraq," the report reads.

A successful U.S. withdrawal from Iraq relies on building up Iraqi forces to fill security voids left by departing American troops. Under the security agreement between the two nations that went into effect at the beginning of this year, American combat troops are to be out of Iraqi cities by the end of June.

The Pentagon’s report highlighted several other concerns, including continued interference by Iran, particularly the "long-term threat" posed by Iranian-sponsored Shiite militias.

"Iran continues to host, train, fund, arm and guide militant groups that seek to bleed the U.S. in Iraq, and Tehran remains opposed to a long-term partnership between the [government of Iraq] and the United States," the report said.

Iran’s goal, the report claims, is a Shiite-led government that is "stable but relatively weak."

"Tehran remains determined to build influence in Iraq as part of a strategy to attain a preeminent role in the region, but Iraqi nationalism may act as a check on Iran’s ambitions."

The Pentagon report charts continued security improvements, noting that insurgent attacks during the period between December 2008 and February 2009 fell to an average of 12 per day. The previous three-month period saw an average of 22 attacks per day.

"But," the report said, "insurgents still have the capacity to conduct high-profile attacks."

The security gains are "increasingly positive," but "remain fragile in some places, most notably in Ninewa and Diyala provinces, as well as in some parts of Baghdad."

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