In this recent interview, Hillary Clinton (a figure with whom I rarely agree on much else) endorses an idea that I have argued for myself (see here, here, and here): a federalist system for Iraq under which each individual Iraqi citizen gets to have a share of the nation's oil wealth:

I recommended in '03 — and this went all the way up to [Vice President] Cheney, who shot it down — I recommended, while we were in charge, to create an oil trust, where you would basically say to every Iraqi, "You know what, you have a stake in this. And you can get some payment out of the oil revenue."

I thought it would be something that could demonstrate clearly that we were not on the side of the oil companies, we were not on the side of the ruling elites — we were on the side of the Iraqi people.

Nothing like that has been done. The Sunnis will not quit fighting until they are assured they're going to get some share of the oil revenue. Otherwise, the South goes to Shiites, the North goes to Kurds, and these people who have dominated not just Iraq, but the region historically, will be shamed and will be rendered second-class citizens.

As I argued in my previous writings on the subject (linked above), an oil fund that gives shares to all Iraqi citizens is a good way to ensure that decentralized federalism - a necessary part of any effective political settlement in Iraq - can be reconciled with the need to ensure that majority Sunni regions have access to the nation's oil wealth; there are few if any oil deposits in the "Sunni triangle" region where most Iraqi insurgents are based.

Clinton's comments, however, point to another advantage of this approach: the possibility that it would give ordinary Iraqis a greater stake in the new political system and therefore a new reason to oppose Baathist and radical Islamists who would seek to overthrow it (and thereby take away the new oil rights).

As to whether Sen. Clinton really did urge the Bush Administration to adopt this approach back in 2003, I have no way of knowing. However, a number of people did try to persuade the Administration to embrace it at the time, including my colleague and Nobel Prize-winning economist Vernon Smith. Unfortunately, their advice was not followed.

Now that Iraqi politicians in the new government have gotten control of the oil, it will be more difficult to get them to give it up than it would have been to create an oil trust back in 2003 when the US-led Coalition Provisional Authority still ruled Iraq. However, the United States might still be able to force the adoption of this crucial reform by using the leverage created by its massive aid payments to Iraq. If Iraqi politicians want to continue to benefit from large-scale US assistance, it is perfectly reasonable for us to require them to adopt a reform that enables their people to own a share of the nation's wealth and gives Iraqis of all ethnic and religious backgrounds an important incentive to oppose the insurgency.