Iran has effectively created a Shi’ite “state within a state” in neighboring Iraq, defying both Iraqi Sunnis and neighboring Sunni nations, according to a Saudi security report.

Iranian military forces are providing Shi’ite militias with weapons and training, Iranian charities are pouring funds into schools and hospitals, and Tehran is actively supporting pro-Iranian Iraqi politicians, the report said.

“Where the Americans have failed, the Iranians have stepped in,” said the report by the Saudi National Security Assessment Project, a Riyadh-based consultancy commissioned by the Saudi government to provide security and intelligence assessments.

The report, submitted to the Saudi government in March, has not been publicly distributed.

Citing interviews with intelligence and military officials in Iraq and surrounding region, the report states that the Sunni insurgency numbers about 77,000, while the Shi’ite militia forces total about 35,000.

According to the report, Iran also is infiltrating Iraq through its al Quds forces — the special command division of the Iranian Revolutionary Guard Corps (IRGC) — which specialize in intelligence operations in unconventional warfare.

RAND Corp. senior defense analyst Ed O’Connell said the Iranian intelligence was trying to counter Saddam Hussein’s former formidable spy network, Iraqi Intelligence Service (IIS), or the Mukhabarat. Under Saddam’s regime, he said, roughly one of every six Iraqi adults was a paid or unpaid informant — a network that did not disappear with the arrival of the U.S.-led coalition.

“The real story in Iraq is this below-the-surface ‘unconventional war’ between the old IIS, which could become a more overt Saudi proxy — and the al Quds special directorate intelligence-counterintelligence,” Mr. O’Connell said.

The Saudi security report was directed by Nawaf Obaid — who recently was fired for writing an article in The Washington Post warning that Saudi Arabia would not stand idly by and allow Iraq’s Shi’ites to destroy its Sunni population.

Washington diplomats and analysts say Mr. Obaid’s dismissal was more window-dressing than a real punitive action.

The report states that the Iranian levers of influence in Iraq include a broad network of informants, military and logistical support of armed groups, and social welfare campaigns.

It adds that Tehran has “sought to influence Iraq’s political process by giving support to new various parties, in particular, to the SCIRI,” or Supreme Council for Islamic Revolution in Iraq, the leading Shi’ite party.

Analysts say some Saudi citizens are raising funds for Sunni insurgents.

“I have heard them say it is not hard to line up a couple hundred thousand dollars and send it to the insurgents across the border,” said Isobel Coleman, a senior fellow at the Council for Foreign Relations.

Despite claims by SCIRI leader that the party’s private militia, the Iran-backed Badr Organization, formerly known as the Badr Brigade, has surrendered its weapons, gun-toting Badr members are still visible on the streets of Baghdad.

The Saudi study says the Badr Organization is still about 25,000-strong, and the party has roughly 3 million supporters. Anti-American cleric Muqtada al-Sadr’s militia, the Mahdi Army, is thought to number just under 10,000, while his party has the support of about 1.5 million Shi’ites.

“Each of these groups is beholden in some way to Iran and has ties to its intelligence and security services,” the report says.

It adds: “Recent intelligence indicates that IRGC officers are currently operating in Iraq certain Shi’ite militias and actual army and police units.”

U.S. officials have acknowledged that Shi’ite militias have infiltrated the police, but stopped short of saying that there is direct Iranian involvement in the security forces.

Mrs. Coleman cautions that the report, while not necessarily inaccurate, is not impartial.

“It is alarmist about the Iranians, and Mr. Obaid comes with a bias. Not that it is wrong, but it is not unbiased,” she said.

The Saudi study was the result of five months of cooperation with Iraq and neighboring countries and dozens of interviews with current military and intelligence officials in the region, Mr. Obaid wrote in the preface to the 40-page report.

“Ordinary police and military officers now have a stronger allegiance to the Badr Organization or the Mahdi Army than to their own units,” the report says, adding that the Badr Organization is the “key vehicle Iran is using to achieve its military, security and intelligence aims.”

The study also provides details on the Sunni insurgency. It cites Iraqi tribal leaders as saying that the insurgency is run mainly by former commanders and high-level military officers of the Ba’athist regime. Only a smaller group is religiously inspired and includes foreign fighters.

Of the 77,000 active members of the insurgency, the “jihadis” number about 17,000, of which some 5,000 are from North Africa, Sudan, Yemen, Egypt and Saudi Arabia.

The remaining 60,000 are members of the former military or Saddam’s paramilitary Fedayeen forces. The officer corps of the insurgency has “command and control facilities in Syria as well as bases in strategic locations, where Sunnis constitute the majority of the urban population.”

Given the centuries-old tribal, familial and religious ties between Iraq’s Sunnis and Saudi Arabia, the assessment concludes that “Saudi Arabia has a special responsibility to ensure the continued welfare and security of Sunnis in Iraq.”

Its recommendations to the Saudi government included a comprehensive strategy that would include overt and covert components to deal with the worst-case scenario of full-blown civil war.

It also calls on the government to communicate the assessment to the United States; make it clear to Iran that if its covert activities did not stop the Saudi leadership would counter them; and extend an invitation to the highest Iraqi Shi’ite leader, Ayatollah Ali al-Sistani, to reassure the Shi’ite community.

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